Abuses found in Reverse Mortgage Marketing

Reverse mortgages, which let seniors cash out home equity, have the potential to spawn another subprime-style financial crisis, according to a report released Tuesday.

“We’re seeing some of the same types of abuses that happened in the subprime market – perverse incentives to sellers, deep-pocket players, taking a product designed to fill a particular need for a particular group and pushing it as a commodity loan,” said Rick Jurgens, a contributing author of the report from the National Consumer Law Center, a Boston nonprofit that represents low-income people.

The report cited aggressive marketing tactics, and said seniors are sometimes pressured to use reverse mortgages to buy inappropriate financial products, such as annuities. It did not cite any statistics to document abuses. The law center recommends tightening consumer protections.

Legislation pending in California would add some safeguards, said Prescott Cole, senior staff attorney at California Advocates for Nursing Home Reform, a San Francisco nonprofit. A bill that passed the Senate and Assembly and awaits the governor’s signature would establish a suitability checklist for reverse mortgages.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/10/06/BUQI1A1F79.DTL#ixzz0TFqB6oWB

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