The National Consumer Law Center, (NCLC) an organization that I had never heard of before came out with a horrendous, ridiculous "report" about Reverse Mortgages entitled "Subprime Revisited."
The title alone lets you know what they think. I read the entire report and I had to struggle to keep my lunch down. I have never read a more biased, one-sided and in several cases, erroneous, report on the subject in my life.
The twenty page report makes a few feeble attempts to show that there actually are some benefits to Reverse Mortgages, but it's overall tone, absurd omsisons and predisposed rhetoric and case study examples are completely unnaceptable. Here are a few of my favorites:
1) The report does not even bring up the simple fact that shows that well over 90 percent of Reverse Mortgage borrowers are happy. That statistic alone, in light of the horrible satisfaction rates of other financial products, speaks volumes that were deliberately omitted.
2) The report writes on page 2 that borrowers "must own their home free and clear or with a minimal amount of outstanding liens." Even the most basic research would prove this to be incorrect. I just closed a Reverse that paid off a $400,000 mortgage, is that minimal?
3) Page 2 "Propietary Reverse Mortgages lack even the basic Federal Consumer protections that apply to HECM loans" This is ridiculous because A)There is only one propietary product available today from one lender, and B) counseling is required for that loan as it has been for all propietary products taht used to be available. What other protections do they mean?
4) Page 3 "HUD guarantees that the lender will be repaid, up to specified limits" Wrong again; HUD will make the lender whole no matter what.
5) Page 3 "Congress has capped the origination fee (and) banned the selling of other financial and insurance products, While these statutory requirements provide important protections to borrowers, they are unlikely to counteract the market forces that drive inappropriate or abusive lending" That's a big prediction, care to back it up with any evidence?
6)Page 7 "The same forces once at work in the subprime market are now growing in the reverse mortgage market. Competition in the reverse mortgage market is heating up, with more than 2,700 lenders offering HECMs. According to a recent GAO report, more than 1,500 lenders originated their first HECM loans in 2008. The combination of increased competition, volume-generated profits, and the vast number of potential reverse mortgage borrowers is a recipe for inappropriate and abusive reverse mortgage lending"
HOLY CRAP! do any of those "ingredients" contribute to the suggested result? Competition, more clients, volume generated profit?!?!? Those apply to any growing industry. What a shameful example of bias and predujice.
7) Page 8 In the middle of just one of several exmples of unhappy Reverse Mortgage borrowers (without one example of the 96% of the borrowers that are happy), they write that Creighton Collins had to pay "$1,600 in charges to verify the title of the house he had owned for decades" That's lovely, but it shows more ignorance by the authors because title is required on any mortgage loan, forward or Reverse, no matter how long you have owend it. I would think any attorney would know that.
8) Page 8 -"Claims by Lenders that they will protect the interest of consumers in the lending process should be approached with caution. Without effective regulation, abuses are likely to occur in the lending process." Nice...very objective.
9) Page 9 "The agenda for a recent gathering of reverse mortgage lenders warned that "it will not be long before fraudsters develop schemes to expoit seniors and lenders" Take a closer look.. This was a Reverse Mortgage lenders conference (that I attended). What other industry polices itself like this? Do you think you would hear this in another industy's own convention?
10) My favorite: I almost couldn't bear to type this one out Page 10-11 "Seniors, especially those with low incomes, are hard-pressed to find knowledgeable and trustworthy advisors. (??) On the other hand, they can expect to recieve lots of encouragement to take out reverse mortage loans. Unfortunately, much of that encouragement comes from a cast of characters eerily familiar from the subprime mortgage boom and bust: aggressive brokers eager to take in large fees and giant financial institutions hungry for profits that come form maximizing loan volume. In an effort to generate a steady stream of borrowers, seniors are likely to be pushed into reverse mortgages that they do not need.
WHAT?!? Why can't seniors find someone that they can trust? instituitions looking for profit is a bad thing? Where do they get off saying that borrowers (especially low income borrowers) are taking reverse mortgages that they don't need? I want to vomit.
11) Page 11 " a list of 25 ways to use loan proceeds recently posted on a reverse mortgage promotion web site includes "take a dream vacation" "Go on a cruise" or "travel around the world" Also on the list at number 19 is Lifestyle Enhancement"
Are these bad things? What were the first 18? Let me guess: Pay off your mortgage? Get the medication you need? Eat three meals a day? Have heat in the winter? Ridiculous. If people want to use RM proceeds to travel, why not. My clients have been using them for their day to day necesities. Where is the mention of that?
12) Page 11 Same idea "Urging these seniors to cash out home equity to go on a "shopping spree" or purchase a "dream car" exposes them to the danger of having nowhere to turn to raise money for future financial emergencies.
ABSURD! First, I have never seen anyone shop for anything other than what they needed with their RM proceeds and the car that one of my borrowers bought was far from a dream car, but it let her get to the doctor without worrying about breaking down on the Highway, like her old one did. Also, just how does the NCLC expect these seniors to tap into their home equity when the emergency arises?
13) Page 13 "Aggressive marketing by subprime lenders... Those marketing efforts have moved to the reverse mortgage market where many seniors may be drawn onto reverse mortgages that they do not need" What about the many that do need them that wouldn't have even known about them without "aggressive" marketing? What about the 96% satisfaction rates?
14) Page 15 While writing about "propietary reverse mortgages " While most of these products do not vary signifigantly from HECMs, borrowers have none of the basic consumer protection"
DO SOME RESEARCH, PLEASE! A) there is only one of these products out there B) the Loan To Value or LTV on it is MUCH lower than a HECM, it is very different, and the LTV's on these products was always much lower than for HECM's. Also, Counseling is required on all of these loans.
15) page 16 An exapmle is given of an borrower who took a "home income" product that A) has not been available for over ten years and B) has been illegal for almost that long. NOT ONE STORY OF A HAPPY REVERSE MORTGAGE BORROWER WAS INCLUDED
16) page 18 "While the counseling attempts to empower seniors to avoid abuses, it is no match for the powerful market forces at playin the reverse mortgage industry"
What were those forces again? Oh I remember, increased competition, profit and more clients, that's it. How are ANY of these bad?
I am literally nauseated when I read and type these excerpts out. I just cannot believe what a terrible job they did.
Here is the link if you want some toilet paper: