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Category: Reverse mortgages

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Hubert Humphrey III to head new consumer office for seniors

Hubert Humphrey III, new director of the Office of Older Americans at the Consumer Financial Protection BureauThe Obama administration has tapped former Minnesota Atty. Gen. Hubert H. "Skip" Humphrey III to head a new office in the Consumer Financial Protection Bureau focused on issues affecting older Americans.

Humphrey, 69, the son of former Vice President and U.S. Sen. Hubert H. Humphrey Jr., is the second person with a well-known name to be appointed to a top position at the new agency. The head of the Office of Servicemember Affairs is Holly Petraeus, the wife of former Army Gen. David Petraeus, who now serves as director of the Central Intelligence Agency.

Like Holly Petraeus, who had been active on financial issues facing members of the military for years, Humphrey III has a long history in his own right of working on consumer protection. He was Minnesota attorney general for 16 years and served 10 years in the state Senate. Since 2008, he has been an AARP board member.

"Skip is a great leader. He's a great consumer protector," said Raj Date, the Obama administration adviser heading the consumer bureau until the Senate confirms a director. "He knows that consumer education is a critical complement to tough enforcement measures."

When Congress created the consumer bureau -- the centerpiece of the financial reform law enacted last year -- it mandated that the agency look at financial issues affecting specific populations, including older Americans.

Since the financial crisis, senior citizens have become targets of scams, in part because of the estimated $3 trillion in equity of the homes they own. Consumers Union reported last year that older Americans were particularly vulnerable to being misled on reverse mortgages and called for more government oversight.

Humphrey said that he will focus on increased education to help senior citizens deal with the "confusing and complicated financial services marketplace."

"For most seniors, our retirement savings -- if we have any -- and our homes are all we have," he told reporters on a conference call Wednesday. "If we want to keep a good standard of living and enjoy our retirement years, we need to hang on to these assets."

Seniors lose an estimated $3 billion a year to financial scams, Humphrey said.

In a blog post on the Consumer Financial Protection Bureau website, Humphrey alluded to his father's commitment to public service in talking about how he would run the new office.

"I grew up in a household where it wasn’t enough to just have a point of view," he wrote. "My parents taught me that if I had a problem, I needed to do something about it. Here at the Office of Older Americans, we’ll be embracing this do-something attitude from day one."

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Reverse mortgages pose a growing threat for senior citizens, Consumers Union says

-- Jim Puzzanghera

Photo: Hubert Humphrey III. Credit: AARP

Reverse mortgages pose a growing threat for senior citizens, Consumers Union says

With demand for reverse mortgages increasing as a way for homeowners to pull money out of their homes in a struggling economy, senior citizens are particularly at risk of being misled and should be protected by greater government oversight of the practice, according to a report released Tuesday by Consumers Union and two California advocacy groups.

“Reverse mortgages are a very risky deal for borrowers who don’t understand the complicated terms of the loan and how quickly fees and interest charges can add up,” said Norma Garcia, senior staff attorney for Consumers Union. “Reverse mortgages should only be a last resort for seniors who want to stay in their homes and have no other alternatives to supplement their income.”

The report from Consumers Union, the nonprofit publisher of Consumer Reports magazine, along with California Advocates for Nursing Home Reform and the Council on Aging Silicon Valley, warned that  seniors taking out reverse mortgages risk losing their homes. The groups called for strong oversight from the new federal Consumer Financial Protection Bureau, which is being launched by Obama administration appointee Elizabeth Warren after passage of Wall Street reform legislation this year.

Reverse mortgages allow seniors to tap their home equity for cash or a line of credit, with the loan not coming due until the borrower dies. But the loan can still come with hefty charges, including loan origination fees, closing costs, and compounding interests on the loan principal, Consumers Union said.

The report lists several concerns, including misleading marketing claims by lenders; attempts to sell borrowers other products at the same time, such as long-term care insurance or annuities; and an increasing number of borrowers defaulting on reverse mortgages, triggering foreclosures.

Consumers Union is offering tips about reverse mortgages, such as applying for some government benefits available to seniors; getting advice from a local Housing and Urban Development counselor; or seeking a so-called private reverse mortgage -- a loan from a family member using the senior's home equity as collateral.

-- Jim Puzzanghera

 

 

Reverse mortgages may be susceptible to abuse too, regulators say

Hidden fees and other problems that consumers experienced with subprime home loans are potentially a big problem for reverse mortgages as well, the nation's top regulator for national banks said at an Orlando, Fla., conference today.
      
In prepared remarks for an American Bankers Assn. meeting, U.S. Treasury Department official John C. Dugan said regulators need to get out ahead of the issue so that the loans are made "in a way that is prudent for both lenders and borrowers."
      
Dugan's agency, the Office of the Comptroller of the Currency, is working with other federal bank regulators to develop "guidance," or general rules, that banks and thrifts are supposed to follow when making reverse mortgages, which everyone acknowledges have some attractive features.
      
They allow elderly people to remain in their homes while tapping their equity to receive a lump sum of money or create a stream of income. No repayment is required until the homeowner dies, permanently moves out of the home, or fails to maintain the property or pay property taxes. If the home is sold to repay the loan, any remaining equity above the amount due belongs to the borrower or the borrower’s heirs.
     
One risk, Dugan said, is that unscrupulous lenders may "simultaneously and aggressively" market investments, insurance or annuities that may not be in the borrowers' best interests, "or, worse, attempt to condition loan approval on the purchase of such products."  
 
Another risk, he said, is that reverse mortgage borrowers may overlook big fees attached to the loan.

"And consumers who spend their loan proceeds quickly or unwisely may end up short of the funds they need for home maintenance or property taxes, with disastrous consequences: The failure to make those payments can result in foreclosure," Dugan said.

A news release and a link to Dugan's speech are available at the website of the Office of the Comptroller: www.occ.treas.gov/ftp/release/2009-61.htm.

Any of these problems sound familiar out there?

--E. Scott Reckard

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