If you are a government employee asked to testify at a Senate committee hearing one would think you would do your homework, right? If the committee in question was investigating the topic of reverse mortgages targeted at the elderly, and likely to be concerned about whether predatory lenders were taking advantage of seniors, you would come with all the relevant numbers at your fingertips, right?
But when Sen. Claire McCaskill, D-Mo., asked Margaret Burns, an official at the Department of Housing and Urban Development's Federal Housing Authority how often FHA had withdrawn its authorization for agencies approved to give counseling to prospective reverse mortgage consumers for violating government guidelines, Burns said " I don't have the stats in front of me, but I can assure you that we absolutely have done that."
When McCaskill asked her how many administrative actions FHA had taken against brokers for who sold annuities and reverse mortgages at the same time -- an extremely bad financial deal for seniors -- Burns said "I don't actually know the numbers."
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The defense of reverse mortgages is similar to Alan Greenspan's defense of adjustable rate mortgages -- they are a "valuable tool" for managing one's finances. And "just because some have abused it doesn't mean that it is not something worth doing," said Martinez, representing Florida, where the potential for cashing in big on reverse mortgages is undoubtedly huge. But reverse mortgages aren't always a good deal -- they can be substantially more expensive than home equity loans. And as the subprime lending scandal proved, if you do something badly that does get abused, well, maybe it isn't worth doing after all.
And you don't have to look too far to find that the budding world of reverse mortgages is ripe for abuse. Amusingly, even as I was reading the transcript of yesterday's hearing, I received an e-mail with the subject header "Reverse Mortgage Quote Sheet" -- ostensibly advertising a job where you could earn "$2,000 to $8,000 per month part time, filling out a Reverse Mortgage Quote Sheet." (Just imagine all the out-of-work subprime mortgage brokers jumping at that opportunity.)
When Sen. Mel Martinez, R-Fl., asked whether the department had any projections on how many reverse mortgages the FHA was likely to insure if the cap that currently limits the total allowable number was raised, she said, "We do have projections, although I don't have them here with me."
It was not an impressive performance.
A reverse mortgage is a specialized product that allows anyone 62 years or older who lives in their own home access to tax-free cash based on their home equity. 90 percent of all reverse mortgages are Home Equity Conversion Mortgages insured by the FHA. The product was launched in 1989, but has rapidly grown in popularity in recent years. In 2004, the FHA insured 37,000 HECM loans. In 2007, 107,000.
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