Brokers, who are given financial incentives to sell the loans, may be making misleading claims to potential customers, according to a report titled “Subprime Revisited,” that was released by the Boston-based NCLC.
“This market is designed to serve seniors, so when we find abuses cropping up and migrating from the subprime market to the senior market, that sounds an especially loud warning bell,” said Rick Jurgens, an advocate at the NCLC, who contributed to the report.
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Reverse mortgages may be the next subprime crisis, according to the National Consumer Law Center.
Some of the same U.S. lenders that helped drive the real estate boom with loans to homebuyers who couldn’t afford the payments are now targeting seniors, the center said. People age 62 and over who are looking for extra cash use the equity in their homes and receive lump-sum payments, periodic checks, a line of credit, or a combination of the three. Lenders are repaid from the sale of the home when the borrowers die or move.
More than 100,000 seniors used reverse mortgages to tap more than $17 billion in home equity, according to the Housing and Urban Development Department.
Reverse mortgages can be appropriate for some seniors, yet transparency and consumer protections are needed, said Sen. Herb Kohl, a Wisconsin Democrat, and chairman of the Senate Special Committee on Aging, in an e-mailed statement.
Kohl and Sen. Claire McCaskill, Missouri Democrat, released a government report in June that said some lenders falsely market reverse mortgages as “lifetime income” and sell mortgages coupled with other financial products such as annuities even though Congress banned so-called cross-selling in 2008. –Bloomberg
