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54–129 PDF 2010

S. HRG. 111–262 

REVERSE MORTGAGES: LEAVING SENIORS AND 

TAXPAYERS ON THE HOOK? 

HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

UNIVERSITY CITY, MO 

JUNE 29, 2009 

Serial No. 111–10 

Printed for the use of the Special Committee on Aging 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html 

SPECIAL COMMITTEE ON AGING 

HERB KOHL, Wisconsin, Chairman 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

BILL NELSON, Florida 

ROBERT P. CASEY, Jr., Pennsylvania 

CLAIRE McCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

MARK UDALL, Colorado 

KIRSTEN GILLIBRAND, New York 

MICHAEL BENNET, Colorado 

ARLEN SPECTER, Pennsylvania 

MEL MARTINEZ, Florida 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

BOB CORKER, Tennessee 

ORRIN HATCH, Utah 

SAM BROWNBACK, Kansas 

LINDSEY GRAHAM, South Carolina 

DEBRA WHITMAN, Majority Staff Director 

MICHAEL BASSETT, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Claire McCaskill .................................................. 1 

PANEL I 

Statement of Ann Jaedicke, Deputy Comptroller for Compliance Policy, Office 

of the Comptroller of the Currency, Washington, DC ....................................... 6 

Statement of Mathew J. Scire, Director, GAO, Financial Markets and Community Investment, Government Accountability Office, Washington, DC ...... 21 

Statement of Anthony G. Medici, Special Agent in Charge, Criminal Investigation Division, Office of Inspector General, U.S. Department of Housing 

and Urban Development, Washington, DC ........................................................ 40 

PANEL II 

Statement of Buz Zeman, MSW/LCSW, Director, Housing Options Provided 

for the Elderly (HOPE), St. Louis, MO .............................................................. 57 

Statement of Peter H. Bell, President, National Reverse Mortgage Lenders 

Association, Washington, DC .............................................................................. 58 

Statement of Daniel Claggett, Managing Attorney, Legal Services of Eastern 

Missouri, St. Louis, MO ....................................................................................... 100 

APPENDIX 

Prepared Statement of Senator Mel Martinez ...................................................... 119 

Testimony submitted by John A. Courson, President and Chief Executive 

Officer, Mortgage Bankers Association (MBA) .................................................. 120 

Statement of the Financial Counseling Research Roundtable ............................. 122 

(III) 

(1) 

REVERSE MORTGAGES: LEAVING SENIORS 

AND TAXPAYERS ON THE HOOK? 

MONDAY, JUNE 29, 2009 

U.S. SENATE, SPECIAL COMMITTEE ON AGING, University City, MO 

The Committee met, pursuant to notice, at 9 a.m. in OCHS Senior Center, 975 Pennsylvania, University City, MO, Hon. Claire 

McCaskill, presiding. 

Present: Senator McCaskill [presiding]. 

OPENING STATEMENT OF SENATOR CLAIRE McCASKILL 

Senator MCCASKILL. Good morning, everyone. Welcome to a— 

this is a Special Field Hearing for the Senate Special Committee 

on Aging that we are having today here in St. Louis. 

I want to thank Chairman Herb Kohl and the Ranking Member 

of the Aging Committee for allowing us this opportunity to hold 

this hearing in St. Louis. I think it’s important that we get out of 

Washington and have hearings in the rest of the country because, 

after all, that’s what we’re supposed to be focused on, right? Not 

just the people who hang out in Washington, DC. 

So this is the second hearing we’ve had in St. Louis on this topic. 

It has become, I think, even more important that we continue to 

focus on reverse mortgages and the pitfalls and problems associated with them. 

I should begin by saying that these are appropriate tools in limited circumstances. There are some situations where a reverse 

mortgage can in fact be a helpful assistance to seniors in terms of 

the equity in their home and the financial circumstances that 

they’re facing. 

But they’re expensive, they’re complicated, and the other looming 

issue out there, in spite of what you see on television, this is not 

a government benefit. What this is is it’s a program that pulls your 

equity out of your home and gives it to you now and if things go 

south and at the end of the obligation when it’s time to repay the 

government—excuse me—when it’s time to repay the mortgage 

company, if the value of the home is not sufficient to pay the mortgage company, then taxpayers pay the rest. So the only place the 

government comes in is in fact it’s the government that’s taking the 

risk. 

So once again we have a program where the people who are executing these loans and closing these loans have no risk as to 

whether or not the loans are ultimately repaid and the last time 

we had a situation where the people who were closing loans that 

2 

took no risk, the last time that happened was obviously with the 

subprime bubble where we had lots and lots of folks that were closing loans and that were subprime and then they were reselling 

those loans to other institutions. 

Now in that example, it was not the government they were selling them to but it went so badly that the government ended up 

loaning all those institutions that had sliced and diced and sold 

those subprime mortgages that now taxpayers have invested heavily in those financial institutions to try to allow them to continue 

to exist because of the financial losses that were suffered as a result of these complicated derivative investment tools that were 

made up of these subprime mortgages. 

In this instance, the government is directly on the line if these 

loans do not turn out to be a good risk. So that’s why it’s also important. So it’s a double-edged problem. 

First, are the seniors getting the information they need to make 

good decisions as it relates to reverse mortgages? Have we done everything possible to give them protection and, most importantly, 

make sure there no fraud? 

Second, are we looking at a price tag for taxpayers that is higher 

than the benefit that these particular financial instruments offer, 

and should we re-evaluate whether or not the government should 

be the one taking the risk on these loans? Should it in fact be the 

financial institutions that are getting the fees for executing the 

loans? 

I’m going to give a brief opening statement and then I will—after 

I give the brief opening statement, I will recognize our panels, as 

soon as I can find the opening statement. Ah, here it is, and then 

we will go to our panels of witnesses to testify, and we have two 

panels of witnesses, and I think you will find the information that 

they have is very important and hopefully we can ask some great 

questions of them. 

I want to thank all of our witnesses that are here today. As I just 

explained, the reverse mortgage is a type of loan that allows elderly homeowners to convert the equity in their homes to cash. It is 

different than a home equity loan or a second mortgage because 

the borrowers do not have to repay the loans as long as they meet 

certain conditions. 

For many elderly homeowners, the equity in their homes represents their largest asset, created through a lifetime of hard work 

and savings. Unfortunately, this makes seniors a target for predatory lenders and fraud perpetrators who seek to take advantage of 

them. 

We convene today to discuss serious concerns about lax oversight 

in this program that is leaving our nation’s seniors vulnerable to 

predatory practices, leading to potential fraud and victimization. 

Further, not only are seniors the victims of a reverse mortgage 

fraud but taxpayers are also, because, as I just indicated, we in fact 

are on the line as insuring these mortgages. I’m deeply concerned 

about these issues. 

Ten thousand baby-boomers become eligible for reverse mortgages every day. Eighty-one percent of them own their own homes. 

These seniors are sitting on $4 trillion of equity in their homes. 

3 

That equity is of great interest to some mortgage entities. Some 

have the best interests of seniors involved but others do not. 

When it comes to our nation’s seniors, this is a particularly troubling position. As we all know, many seniors are more vulnerable 

than the average population. They may be lonely or afraid, not 

have family members nearby that they can consult. They may have 

diminished capacity. They are trusting and believing in the integrity and honesty of others who may not always have their best interests at heart. 

We have a responsibility to make sure this incredibly important 

part of our population are not preyed upon and we should not create mechanisms that allow this to happen. 

Among the predatory practices we are learning about are misleading advertising directed at our seniors using mailing lists 

whose titles tell us all we need to know who their targets are. I’m 

talking about lists of names that are headed by titles such as ‘‘Suffering Seniors’’ or ‘‘Elderly Opportunity-Seekers.’’ 

I’m pleased to have with us today Daniel Claggett from the National Consumers Law Center which will soon release a report that 

documents many reverse mortgage abuses and warns seniors of 

scams to avoid. I applaud the center for its important work on behalf of our seniors and look forward to the report. 

We are also now seeing predators of a different nature. These 

persons target the very program itself, trying to gain the system 

in the same fashion that has previously caused turmoil in our 

housing market. 

Let me explain. Like the subprime market, lenders and originators in the reverse mortgage market reap large commissions but 

face little risk when writing these mortgages. This is because nearly all reverse mortgages are insured by the Department of Housing 

and Urban Development, your government. 

Once the value of the loan reaches the value of the home, lenders 

assign the loan to HUD who then becomes responsible for the differences in the loan amount and the fair market value of the house. 

This leaves the program vulnerable to fraud schemes, like flipping, 

and the recruitment of sham buyers which HUD’s Inspector General has been fighting. 

I look forward to hearing from Mr. Medici. Did I pronounce it 

correctly? 

Mr. MEDICI. That’s fine. 

Senator MCCASKILL. From the HUD Inspector General’s Office 

about these issues and thank him for the superb work that HUD 

IG is doing in this field. 

Further, the patchwork of regulation that is supposed to protect 

seniors and taxpayers appears to have left both uncovered, resulting in a recent request by HUD for an additional $800 million in 

Federal funds to cover losses that I warned about in earlier hearings. 

What is also deeply concerning is that Congress continues to add 

to the patchwork rules governing the reverse mortgage program. 

Under the Housing Economic Recovery Act of 2007, reverse mortgage loan limits were raised from 362,000 to 625,000, making seniors even more lucrative targets for potential scammers. 

4 

Further, the Mortgage Reform and Anti-Predatory Lending Act 

recently passed in the House of Representatives could exacerbate 

the problem because it shockingly excludes reverse mortgages nearly 10 times from tighter duty of care standards for originators, 

truth-in-lending requirements, consumer fraud protections and prohibitions on predatory practices. 

I cannot understand why they would pass an Anti-Predatory 

Lending Act in the House of Representatives and exclude the reverse mortgage program. 

We have also been made aware of problems with the manner in 

which loan balances and servicing fees are calculated. In effect, 

servicers pile on fees that are complicated for seniors to understand 

and they may not have seen coming when they decided to obtain 

a reverse mortgage. 

There are also concerns that what are known as yield spread premiums are padding the pockets of lenders while reducing the equity available to seniors and driving up the tab for which HUD 

could ultimately be responsible. 

We will also hear from Mathew Scire from the Government Accountability Office or GAO about the GAO’s newly released report 

that documents egregious marketing materials aimed at seniors 

that claim to offer ‘‘a government benefit’’ in reverse mortgages, 

even though this is not a government program at all. 

Mr. Scire will also tell us about the failure of the responsible government agencies, such as the Federal Trade Commission, HUD, 

the Federal Reserve, and the Office of the Controller of the Currency, to seriously engage in the regulation of false or deceptive reverse mortgage marketing. The GAO also found that counselors 

face serious barriers in meeting their important consumer protection obligations. 

In conclusion, we are pleased that the collective agencies are 

here today, as well as others in government, are beginning to realize the enormous financial issues involved with reverse mortgages 

and the potentially deceptive practices that continue to proliferate 

in the market with some of our nation’s most vulnerable citizens, 

our seniors, as the victims. 

I commend them and thank them for their work as well as the 

work of private organizations and the citizens who join us today, 

and as we continue this discussion, we must not lose sight about 

what and really who we are talking about. These are our parents, 

our grandparents, our neighbors, our friends. It is the individual 

reports about how these seniors are targeted that gives me the 

most passion and the most drive to continue to investigate these 

issues and so it is people like Mary Heinzer of St. Louis, MO, a 79- 

year-old who was persuaded to take out a reverse mortgage in 

order to repair her leaky roof and they relied on the sales agent 

to arrange for the repair but was ultimately left without any remaining home equity and a roof that continues to leak. 

It is Mary I will be thinking about throughout today’s hearing as 

we all continue to work on the issue of reverse mortgages, and I 

look forward to the testimony of our witnesses today. 

Now, I’m going to make a stab at giving you an example of a reverse mortgage, a hypothetical example, as we begin, and I will call 

5 

on some of our witnesses today to correct me if I don’t get it exactly 

right. 

But let me just give you some ballpark figures on what a potential reverse mortgage might look like. A widow at the age of 70 who 

decides to take out the value of their home in a reverse mortgage, 

let’s say the home value is $200,000 and they owe nothing against 

the home but, rather, it is worth $200,000 free and clear and 

they’re 70 years old. 

The closing costs on the loan will be $9,800 to receive a $100,000 

from the equity in the home. They can either get that $100,000 in 

a lump payment or they can take a $700 a month payment from 

the proceeds of the loan. The variable rate on this loan is 3.5. The 

expected rate right now would probably be around 6.7. 

After they move out and there’s regulations surrounding this, 

you cannot continue to have a reverse mortgage if you do not occupy the home continuously and you are only allowed to leave the 

home for up to a year, and if you’re out of the home for more than 

a year, then the mortgage comes due, after they move out, two 

things can happen. The heirs or family members can pay off the 

loan or they can sell the home and they can keep the remaining 

equity, if there is any, and HUD makes up the difference. 

Now, how much would they owe on this $100,000 after 10 years? 

They would owe a minimum, if they were taking the annuity payments, a minimum of a 150,000 and they easily could owe more 

than 200,000. So you get an example of how expensive this can actually be to execute one of these reverse mortgages. 

So I will depend on my witnesses, if I didn’t get that exactly 

right, I will depend on my witnesses to—the Director of the Housing Operations—Options Provided for The Elderly, HOPE, one of 

our counselors is here, Buz Zeman, and he can help us on his 

panel. He is one of the witnesses on the second panel. 

Let me begin with the first panel and introduce our witnesses. 

First, Ann Jaedicke—— 

Ms. JAEDICKE. Jaedicke. 

Senator MCCASKILL. Jaedicke. Ann Jaedicke is the Deputy 

Comptroller for Compliance Policy in the Office of Controller of the 

Currency. 

She is responsible for the policy and examination procedures relating to consumer issues and anti-money-laundering. Ms. 

Jaedicke—say it again for me. 

Ms. JAEDICKE. Jaedicke. 

Senator MCCASKILL. Jaedicke, like a Jedi. 

Ms. JAEDICKE. Right. 

Senator MCCASKILL. Jaedicke. 

Ms. JAEDICKE. Something like. 

Senator MCCASKILL. There you go. Jedi Knight. Also sits on the 

OCC’s Enforcement Committee and its National Risk Committee. 

Thank you for being here, Ms. Jaedicke. 

Mathew Scire, am I saying that correct? 

Mr. SCIRE. Scire. 

Senator MCCASKILL. Oh, my gosh. You guys did this to me on 

purpose. All these names are hard. Scire. 

Mr. SCIRE. Yes. 

6 

Senator MCCASKILL. Is the Director in GAO’s Financial Markets 

and Community Investment Team. He is responsible for leading 

GAO’s audit work involving housing programs. His team is focusing on a wide range of issues, including HUD’s Reverse Mortgage 

Program, Treasury’s Loan Modification efforts and Public Housing 

Agency’s use of Recovery Act Funds. 

Anthony Medici is the Special Agent in Charge of the Criminal 

Investigation Division, Office of Inspector General, Department of 

Housing and Urban Development, in Washington, DC. 

He’s responsible for oversight, coordination, assessment, and 

analysis of the Office of Inspector General’s Office of Investigation 

Field Activities and initiatives throughout the country. He is substantially involved in policy, program and operations issues for the 

Office of Investigation. 

I am particularly grateful to Mr. Medici for being here today. He 

is retiring from the OIG, but I know he’s not really retiring. 

Mr. MEDICI. Right. I’m going to take up another position with 

TARP Funds. 

Senator MCCASKILL. Yes. So he is now with the Office of Inspector General at HUD and has done a lot of work in this area and 

has been invaluable to us in preparing for this hearing today. This 

is his last bit of official business for HUD and then he is moving 

over to work with the Inspector General on the TARP Funds. So 

I am very familiar with Mr. Barofsky. 

In fact, I wrote the legislation that put the SIG TARP in place 

and I am thrilled that someone with your skill and background is 

going to help Mr. Barofsky look at the TARP Funds because we 

need a lot of work there, also. 

Thank you all three for being here, and we look forward to your 

testimony. 

Ms. JAEDICKE. 

STATEMENT OF ANN JAEDICKE, DEPUTY COMPTROLLER FOR 

COMPLIANCE POLICY, OFFICE OF THE COMPTROLLER OF 

THE CURRENCY, WASHINGTON, DC 

Ms. JAEDICKE. Thank you. Good morning, Senator McCaskill. 

My name is Ann Jaedicke, and I’m the Deputy Comptroller for 

Compliance Policy at the Office of the Comptroller of the Currency 

or the OCC. 

I’ve worked for the OCC for 32 years and since 2003 I’ve been 

responsible for the examination policies and procedures for the 

country’s national banks relating to consumer issues. 

It’s a real pleasure to be here in St. Louis this morning to talk 

about reverse mortgages. As you know, reverse mortgages can provide a financial benefit to older consumers who have equity in their 

homes. As the baby-boom population ages, the economy stabilizes 

and home prices begin to recover, we are expecting this product to 

grow in popularity. 

Reverse mortgages are unique and complex financial products. 

Unlike a traditional mortgage, a reverse mortgage does not require 

the borrower to make payments on an ongoing basis. Instead, the 

home itself is a source of repayment and no repayment is required 

until the homeowner dies, moves out of the home, or fails to maintain the property or pay property taxes or insurance. 

7 

Used correctly, these products can provide funding for home improvement projects or medical needs or provide long-term financial 

security to older consumers. However, like many mortgage products, without proper underwriting and strong consumer protections 

in place, there’s also the potential for their misuse. 

The OCC is concerned that the reverse mortgage product, if not 

properly managed, can raise consumer protection concerns. For instance, reverse mortgages allow elderly consumers to access their 

home equity through immediate and large lump sum payments. 

Although some consumers may use the lump sum payment to 

pay off their existing mortgage, others may choose this option for 

medical expenses or home improvements. Accessing a large amount 

of cash may leave some consumers vulnerable to unscrupulous 

lenders, other bad actors, or fraud. 

In addition, if consumers who receive a lump sum payment do 

not adequately plan for future home maintenance costs or property 

taxes or insurance payments, they may eventually find themselves 

in foreclosure. 

Other consumer risks include misleading marketing claims or 

difficulty understanding the complexities and costs associated with 

reverse mortgages. 

There are two basic types of reverse mortgage products in the 

market: the home equity conversion mortgage, also called the 

HECM, that is insured by the Federal Housing Administration, 

and proprietary products offered by individual lenders. 

While national banks may originate HECMs, the OCC doesn’t 

have a role in the administration of the HECM Program. The OCC 

does, however, have a role in ensuring that national banks comply 

with the laws and regulations that are applicable to the HECMs. 

Federal standards and regulations are currently in place to address potential consumer compliance concerns for HECMs which 

currently account for about 90 percent of the entire reverse mortgage market. If a HECM borrower receives their proceeds in a 

lump sum, these regulations restrict the use of the funds to pay for 

certain third party services, such as loan arrangers or so-called estate planning services. 

Procedures are also in place to improve consumer understanding 

of the costs and structure of HECMs, and borrowers are required 

to receive independent financial counseling about alternatives to 

reverse mortgages and about the financial tax and estate tax consequences of the transaction before they take out a HECM. 

Because the proprietary products are not subject to these same 

Federal regulations, the OCC is working to expand the regulatory 

protections built into the HECM Program to the proprietary mortgage market. To accomplish this, the OCC has been leading an 

interagency workgroup to develop supervisory guidance for managing the risks in proprietary reverse mortgages. 

We expect this guidance to apply to proprietary reverse mortgage 

lenders and to address our concerns that consumers may not understand the costs, the risks, and the consequences of reverse mortgages; that counseling may not be provided or may not be adequate; and that conflicts of interests and abusive practices may 

arise in connection with these transactions. 

8 

The guidance should be issued for public comment later this 

summer. 

At the OCC, we’ll also rely on regulations currently in place to 

address consumer protection risks relating to misleading marketing 

or to conditioning the mortgage on the purchase of other non-bank 

products. If necessary, we’ll use our authority to require immediate 

correction of any potentially misleading marketing claims about 

this product and to prevent inappropriate and illegal cross-selling 

activities. 

Finally, at the OCC, we’re developing public service announcements on reverse mortgages, including print and radio spots that 

will run in both English and Spanish, to advise consumers about 

the potential risks of this product. These public service announcements should be issued in the coming weeks. 

I want to thank you, Senator McCaskill, for convening this hearing and for your leadership on these important issues, and I’d be 

happy to answer any questions. 

[The prepared statement of Ms. Jaedicke follows:] 

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Senator MCCASKILL. Thank you very much, Ms. Jaedicke. 

Mr. SCIRE. 

Mr. SCIRE. Scire. 

Senator MCCASKILL. Scire, Scire, Scire. OK. I’ll get that right. 

Thank you. 

Mr. SCIRE. Just thank hurray and then you’ll have it. 

Senator MCCASKILL. Hurray, hurray. 

STATEMENT OF MATHEW J. SCIRE, DIRECTOR, GAO, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC 

Mr. SCIRE. Senator McCaskill, thank you for the opportunity to 

be here today to present the results of our analysis of HUD’s Home 

Equity Conversion Mortgage Program. 

Last year HUD insured over a 110,000 HECMs across the country. Through these mortgages, seniors may access the equity in 

their homes without having to make monthly mortgage payments. 

For many, this provides the chance to remain in their homes while 

using the lifetime of equity that they have accumulated. Because 

of this, it is critical that seniors have accurate and complete information on the costs and benefits of these complex mortgage products. 

You have brought to light questionable practices of some lenders 

highlighting the importance of effective consumer protections. This 

includes effective consumer counseling which is a requirement for 

obtaining a HECM from HUD. 

At your request and that of this committee, we have been assessing the costs and benefits of HUD’s HECM Program and the effectiveness of certain consumer protections. Today, we are issuing the 

report you requested. In it, we record a number of risks that require further attention, particularly in the areas of HECM marketing and counseling. 

We also make a number of recommendations aimed at improving 

controls over counseling and for financial institutions to raise lender and consumer attention to potentially misleading marketing 

claims. 

I will highlight a few of the more significant findings. First, we 

reviewed marketing material that we obtained by reviewing the 

Internet and public information provided by the most active HECM 

lenders. We found that some material made claims that were potentially misleading because they were inaccurate, incomplete or 

employed questionable sales tactics. 

For example, we found marketing material promising lifetime income but HECMs do not provide income and only permit borrowers 

to receive payments for their home’s equity while they stay in their 

home and meet all of the loan requirements. 

We have referred these potentially misleading marketing material to the Federal Trade Commission and various Federal financial 

regulatory agencies responsible for overseeing certain lenders. 

Second, we found that some of the states that GAO contacted reported cases of inappropriate cross-selling involving violations of 

state laws governing sale of insurance and annuities. However, 

Federal agencies have had a limited role in addressing concerns 

22 

about the sale of potentially unsuitable insurance and other financial products in conjunction with HECMs. 

HUD is now in the process of implementing provisions that you 

placed in ARRA to protect consumers from inappropriate cross-selling. 

Third, we found that HUD’s internal controls do not provide for 

reasonable assurance that counseling providers comply with program requirements. To test these controls, we acted as secret shoppers and called counseling providers to determine whether they 

provided complete and accurate information as required by HUD. 

In our 15 counseling sessions, we found that none of the counselors covered all of the topics that HUD required and some overstated the length of the sessions in HUD records. Although we 

found that counselors generally conveyed accurate and useful information, some of the content that was often not covered included alternatives to HECMs, the option of requiring the lender to establish escrow for property taxes and other fees, whether the homeowner had signed a contract or agreement with an estate planning 

service, and the advantages and disadvantages of each payment 

plan. 

Finally, we found that counselors often did not determine that 

the secret shopper had sufficient means to pay for counseling by 

asking for debt and income information, for example. Overall, our 

findings raised questions about the effectiveness of HUD’s process 

for ensuring seniors have full information as they consider whether 

and how to borrow against the equity in their homes. 

We recommend that HUD take a number of actions. We recommend that HUD implement methods to verify the content and 

length of HECM counseling sessions and issue detailed guidance 

for HECM counseling providers about how to record counseling 

time. 

We also recommend that the FTC and others caution HECM industry participants about potentially misleading claims. 

In summary, Senator McCaskill, HECMs are an increasingly 

popular way for seniors to access equity in their homes. As more 

homeowners become eligible for this complex mortgage product, its 

potential for further growth is clear, as is the potential for misleading seniors. 

We believe that HUD should move to address the recommendations we make in today’s report. We’re committed to providing the 

Congress with effective oversight of the HECM Program. We look 

forward to supporting this committee’s continuing efforts. 

This concludes my opening remarks. Thank you for the opportunity to speak today and I’d be glad to take any questions that 

you may have. 

[The prepared statement of Mr. Scire follows:] 

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Senator MCCASKILL. Thank you, Mr. Scire. 

Mr. MEDICI. 

STATEMENT OF ANTHONY G. MEDICI, SPECIAL AGENT IN 

CHARGE, CRIMINAL INVESTIGATION DIVISION, OFFICE OF 

INSPECTOR GENERAL, U.S. DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT, WASHINGTON, DC 

Mr. MEDICI. Senator McCaskill, thank you for inviting me to testify today on HUD’s Federal Housing Administration’s Home Equity Conversion Mortgage Program. 

As you know, in the last few years this FHA product has proven 

extremely popular. In Fiscal Year 2001, FHA endorsed only about 

7,750 reverse mortgages. In Fiscal Year 2008 alone, over a 112,000 

reverse mortgages were endorsed and demand this year does not 

appear to have abated. FHA’s insured over a $105 billion in reverse 

mortgage HECM loans to date. 

Furthermore, Ginnie Mae, which securitizes FHA loans, issued 

$228 million in HECM mortgage-backed securities in May alone 

this year. 

Senator MCCASKILL. Would you repeat that? If you could speak 

up just a little bit, we’re having a little difficulty hearing you. 

Mr. MEDICI. Sure. Ginnie Mae, which is the—securities FHA 

loans, issued $228 million of HECM mortgage-backed securities in 

May of this year alone. It’s the highest month on record and $699 

million in mortgage-backed HECM securities this year-to-date. 

The HUD Office of Inspector General has had some concerns 

about the HECM Program, including potential risk to the FHA Insurance Fund as housing prices have devalued. These concerns are 

reflected in the department’s budget for Fiscal Year 2010 with a request for almost $800 million to cover potential losses. 

Some key factors have increased the potential vulnerability of 

the HECM Program to fraud. First, the recent popularity of the 

program has brought in many more people and turned it from a 

specialty item into a mainstream loan product. Second, the recently 

increased loan limits to $625,500 may also be making it more lucrative to those who would exploit the program. 

Let me tell you about some of the schemes we have discovered. 

Unauthorized individuals, including family members, friends or 

even neighbors, may keep payments after the authorized recipient 

dies or permanently leaves the residence. When the person leaves 

the residence, that should terminate the loan. 

In one recent OIG audit, it was found that FHA did not ensure 

that lenders reported borrowers’ deaths in accordance with Federal 

requirements. 

Another activity that we currently have under investigation involves financial professionals convincing borrowers to invest HECM 

proceeds in a financial product, such as an annuity, in an improper 

way. These financial professionals receive increased fees and in 

case of some annuities the victims are unable to get access to their 

savings for many years or even past their projected life expectancy. 

These HECM borrowers are thus effectively deprived of the equity 

from their house. 

Another OIG investigation led to an indictment recently where 

an elderly woman complained that her former health insurance 

41 

representative stole approximately 200,000 from her HECM by convincing her that she needed to pay him a fee to process her loan 

application and to repay him the reverse mortgage loan amount. 

Borrowers in possession of large equity amounts can often be the 

targets of consumer fraud. Also, perhaps most significantly, we 

have observed various solicitation efforts directed at recruiting 

straw buyers aged 62 or over. Straw buyers are lured by the promise to live rent-free. In some cases, the straw buyers are not fully 

aware of the scheme. Often, they are public housing residents or 

even homeless individuals. 

Here’s how the scheme typically works. Organizers obtain abandoned, foreclosed, or dilapidated properties for little money and inflate the appraisals by sometimes making merely cosmetic improvements and sometimes not. This creates the basis for a larger 

HECM loan. The house is then quit claimed to one of the straw 

buyers who is actively recruited for the scheme. The quit claim 

deed is accomplished by the mechanism by which the scheme organizer can draw up the HECM funds. 

In some cases, the quit claim deed comes with a promissory note 

executed by the straw buyer. In other schemes, it’s a lien. The organizer may even create a fake mortgage company which lends 

money to the borrower, although no loan is given but a mortgage 

is filed. 

The subject refinances the borrower into a HECM. At closing, the 

title company pays all outstanding debt, including the fraud organizer’s promissory note, lien or fake mortgage, and the organizer 

walks away with the pay-off. 

Once the straw buyer occupies the home, an application is made 

for the HECM. When the HECM is endorsed, the straw buyer typically requests a lump sum pay-out which goes to the same organizer. In essence, really, the property has been flipped. 

The straw buyer is typically left in possession of the property and 

is often unaware that they must pay property taxes and fees. In 

many cases, they do not have the resources to maintain the property, leading to abandoned properties and eventual defaults. 

There are some things we can do to defer fraud in this program. 

The HECM counselor could be a valuable first line of defense 

against fraud. We have asked FHA officials to require that HECM 

counselors report suspected fraud to FHA and the OIG. We have 

also recommended that FHA instruct counselors to withhold certificates of counseling in suspected cases. The certificate of counseling 

allows a potential buyer to go to a lender and obtain the loan. They 

need to have that document. 

We also believe that in most instances face to face counseling 

should be required to curb the allowance for telephone counseling 

which was designed perhaps with the best of intentions. Unfortunately, it can facilitate fraud schemes. 

Finally, FHA may need to require at least basic credit and financial histories for prospective buyers to screen out those clearly incapable of carrying forward the terms. We also think RESPA 

should be fully applied to the HECM Loan Program. 

The repercussions of the abuse I described above are long-reaching. It can lead to the degradation of an older person’s well-being 

and it also reaches to the health of the overall FHA program. I 

42 

know from the HUD Secretary’s recent testimony that he is committed to trying to deal with any emerging problems in this program and the Office of Inspector General also will remain vigilant 

in our efforts to protect the taxpayers’ funds from predatory practices and to safeguard participants of the department’s programs. 

We look forward to working with you to develop legislative safeguards to ensure an effective response at this present time. 

Thank you. 

[The prepared statement of Mr. Medici follows:] 

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54129.034
48 

Senator MCCASKILL. Thank you, Mr. Medici. 

Let me start with you, Ms. Jaedicke, about the recent Truth-inLending Act and Real Estate Settlement Procedure Act that was 

passed in the House, the Mortgage Reform and Lending Act that 

recently passed the House. 

It’s now been referred to the Senate Banking Committee and exempts reverse mortgages from its requirements. 

Do you have any insight as to why reverse mortgages were not 

included in the House version of this bill? 

Ms. JAEDICKE. No, Senator McCaskill, I don’t. 

Senator MCCASKILL. OK. Tell me what—how would you describe 

the current regulatory environment over the HECMs, over the part 

of these loans that are in fact insured by the American taxpayer? 

Ms. JAEDICKE. There are a lot of consumer protections in place 

for the HECM Program today and at the OCC, our emphasis is on 

making sure that the national banks that we regulate comply with 

those consumer protection guidelines that apply to the HECM 

mortgages. 

We are also, though, extremely interested in the proprietary reverse mortgage market which at the moment is virtually dormant. 

This is the market that would operate outside of the HECM–FHA– 

HUD Program. We want to make sure that if banks pursue the 

proprietary reverse mortgage market, that they balance both the financial risks and the consumer protection risks because the banks 

will be on the hook for that financial risk, just as the government’s 

on the hook for the HECM mortgage. 

Senator MCCASKILL. Why are the proprietary reverse mortgages 

dormant right now? 

Ms. JAEDICKE. I think there’s a general lack of interest in the 

proprietary product because of the real estate market today, and 

the fact that housing prices are depressed. There’s less equity in 

people’s homes than there might have been two or three years ago. 

Senator MCCASKILL. So I want to make sure I understand this. 

When the banks are on the line and have the risk, right now 

they’re not doing these kinds of loans? 

Ms. JAEDICKE. No, banks are not doing proprietary reverse mortgages. Banks are doing the HECM reverse mortgages. 

Senator MCCASKILL. Where they have no risk? 

Ms. JAEDICKE. No, the HECM mortgage is insured by FHA, but 

the banks are responsible for making sure that the consumers understand the risks, that the consumers get proper disclosure, and 

that the advertising’s not misleading. 

Senator MCCASKILL. I guess the point I’m making is right now 

in this real estate market, because of the fluctuation of home valuation, these are too risky for most banks to engage in right now 

because of the fluctuating home values in the housing market, but 

yet we are, if I understand the testimony so far, we are at a record 

pace for reverse mortgages that the government takes the risk on, 

is that correct? 

Mr. SCIRE. That’s correct, Senator. 

Senator MCCASKILL. So what the bank doesn’t want to do because it feels risky, they’re more than happy to do when the taxpayers are on the line is what I—am I characterizing that correctly, Mr. Medici? 

49 

Mr. MEDICI. I think you are, Senator. 

Senator MCCASKILL. OK. I want to also ask you, how are you 

prepared to respond to if the housing market recovers? Are you 

prepared to respond to—because, really, your regulatory reach is 

really more over the proprietary market than it is the HECM, is 

that correct, at the Office of the Comptroller? 

Ms. JAEDICKE. We don’t administer the HECM Program, but we 

are concerned that our banks who pursue HECM mortgages follow 

the consumer protection guidelines that are in place. 

For proprietary mortgages, though, those same kinds of guidelines don’t exist as they do today for the HECMs. Now, there are 

other laws that are in place that would help us achieve some of the 

same protections. For example, we can enforce Section 5 of the FTC 

Act against misleading advertising and we would be prepared to do 

that. 

There are rules, like Reg. Z and RESPA, that would apply to reverse mortgages in some context. We have anti-tying rules that we 

can enforce that would prevent a bank from predicating the proprietary mortgage on purchasing some other product that the bank 

was offering. 

So we have a variety of different tools that we can use, including 

the supervisory guidance that I talked about that we’re working on 

on an interagency basis, to protect both the consumers and the 

banks from financial risk when the proprietary market returns. 

Senator MCCASKILL. Explain for the purposes of the record what 

authority you have or don’t have over mortgage bankers. 

Ms. JAEDICKE. If they’re non-bank mortgage lenders, we don’t 

have authority over them. 

Senator MCCASKILL. So you—if a company begins to—if there’s 

an existing company or a new company thats business is just mortgage lending and is not a bank that is insured by the FDIC and 

it has other types of banking that it is engaged in, you have absolutely no authority? 

Ms. JAEDICKE. They would be regulated by the states. 

Senator MCCASKILL. So there is no Federal oversight over the 

mortgage banking industry when it relates—relating to reverse 

mortgages? 

Ms. JAEDICKE. Well, there is if the reverse mortgages are being 

made by state or national banks. 

Senator MCCASKILL. But not by mortgage bankers? 

Ms. JAEDICKE. By independent mortgage companies that are not 

part of a state or national bank, right, they would be supervised 

by the states themselves. 

Senator MCCASKILL. Do any of you have—I’ll also ask the second 

panel this—have any sense of what kind of oversight is going on 

on these mortgage bankers that do not have any Federal requirements at all in terms of oversight that have the ability to enter into 

these instruments? 

Mr. SCIRE. Well, you have state banking regulators, too, and we 

did talk with some of them and they have some concerns about 

cross-selling, for example. So there’s—— 

Senator MCCASKILL. Let’s make sure everybody understands 

what cross-selling is. Cross-selling—and I’m going to give an example and then you all need to correct me if I’ve gotten it wrong. 

50 

Cross-selling, when you get a reverse mortgage, you have the option of either taking the money in a lump sum or taking out payments. You can take, you know, a certain amount every month. 

Now,—— 

AUDIENCE MEMBER. There’s a line of credit, too. 

Senator MCCASKILL. All three. A line of credit you can draw 

down on, you take a monthly amount every month, or you can take 

a lump sum. 

Now, cross-selling, what we’re referring to is if someone takes 

the lump sum and then turns around and buys an annuity product, 

which will pay them a monthly amount, which they could have 

done in the first place without entering into another expensive financial tool to give them an annuity payment when they had that 

option of taking a monthly payment in the original loan, is that— 

am I correct with that, Mr. Medici? 

Mr. MEDICI. That’s correct. It could be an annuity. It could be 

some type of long-term care. It could be, you know, a mortgage— 

a stock investment or anything where, you know, a promise is 

made. They may get a certain yield or a certain income, but you’re 

right, I think the purpose of that reverse mortgage is to provide 

just that kind of secure continuity of payment supposedly at less 

risk. 

So it sort of in many ways cuts across the initial purpose of the 

loan, but when people are in possession of that amount of equity, 

some individuals are going to try to cross-sell financial products because that money is available. 

Senator MCCASKILL. So there may be seniors that don’t understand they have the option of a monthly payment in the first place. 

They didn’t have to pay for a new product to get the monthly payment because they may have been convinced that the lump sum 

payment is the right thing for them to take on the mortgage. Am 

I correctly describing that problem? 

Mr. SCIRE. That’s exactly right, and the state insurance regulators have uncovered some of this. We report examples from eight 

different state insurance regulators, one in Maine which describes 

an example, a horrendous example just as you’re describing, where 

an 81-year-old widow took out a HECM and the proceeds were 

used to buy an annuity which actually paid a lower rate than she 

was paying on the HECM. 

Senator MCCASKILL. So she could have gotten more money just 

by taking the monthly payment option under the HECM but instead paid for an expensive annuity and she was in fact 81 years 

old? 

Mr. SCIRE. That’s correct. 

Senator MCCASKILL. I don’t know how that salesman sleeps at 

night. 

OK. Mr. Scire, does the GAO have concerns about the reported 

problems with the yield spread premium and the service fee setaside, and can you explain those two problems associated with 

these loans? 

Mr. SCIRE. Well, I can tell you that we’re doing work right now 

as a result of the ARRA mandate where we’re taking a look at the 

impact of some of the fee changes in ARRA, including the impact 

or the reaction that lenders have to that, and so we are taking a 

51 

look right now at whether or not they’re compensating for changes 

in origination fees by charging higher margin rates. 

Senator MCCASKILL. So the way I understand it, there used to 

be some predictability in terms of the lock-in of the rate and now 

this rate is now floating, is that correct? 

Mr. MEDICI. That’s correct, Senator. 

Senator MCCASKILL. We’re not going to take testimony from the 

crowd. We’ll get—we have—at the end of two panels, if there are 

questions that you think that need to be asked, we’ll be happy to 

address them. 

There’s a fixed rate but then there’s an add-on now that floats, 

correct? 

Mr. MEDICI. Right. The lenders are allowed to float the rate and 

although we haven’t done the homework we need to on this area, 

we have heard at the HECM Counselors Conference, this area can 

serve borrowers and counselors alike. 

What they’re talking about is the rate that the lender or broker 

gets the money at and the rate they charge to consumers and this 

could be a one-one and a half percent rebate off the mortgage 

amount. So that could be a substantial add-on to the lender or the 

broker’s revenue on that loan. So that is an area of increasing concern that we are addressing. 

Senator MCCASKILL. What, if any, concerns does GAO have with 

the private reverse mortgage loan market? 

Mr. SCIRE. We didn’t look at the private reverse mortgage loan 

market. It’s a fairly small part of the market right now. The focus, 

as you know, is on the HECM Program and there, our concerns are 

principally with the controls that HUD has in place to ensure that 

counseling, which it considers a major consumer protection feature 

of the program, actually is performing what it expects to do. So our 

concerns are more with the HECM Program. 

Senator MCCASKILL. We estimated there was a 110,000 of these 

loans last year. Do we know how many there are this year so far? 

Do we have the numbers so far? 

Mr. SCIRE. The last number I saw was around 70,000. I think 

that was in—I want to say March, but I’m not certain of that. I 

can get that number for you. 

Senator MCCASKILL. Is it a fair assumption to say that we’re on 

track to double the number of reverse mortgages that are under 

the HECM Program this year as opposed to last year? 

Mr. MEDICI. As of May 14, FHA had endorsed approximately 

68,000 HECM loans. So we think we’re on pace with last year’s. 

Over the last several years, the pace has been well over a 110,000 

loans. I think we’re on pace to meet that again. 

Senator MCCASKILL. OK. You mentioned that the FHA, Mr. Medici, does not ensure that the lenders report the borrower’s death according to the rules. The Social Security Administration maintains 

a Death Master File which I know is used by many government 

agencies as it relates to social security payments, Medicare, Medicaid, and it can even be purchased by the private sector since privacy rights terminate at death. 

It would seem like that this would be a simple way for HUD to 

detect unreported deaths as quickly as possible. 

52 

Do you know if HUD is planning on doing routine matches as it 

relates to reporting of deaths since that should trigger a repayment 

on the mortgage? 

Mr. MEDICI. Well, according to our Audit Division, HUD had, I 

think, about half the cases not picked up on that. I think they used 

a contractor to service the loans after they’ve been endorsed and 

according to a recent audit, it doesn’t look like that’s 100 percent 

effective at this point. 

Senator MCCASKILL. So that’s something that we need to follow 

up on. 

You mentioned the straw buyer fraud scheme. Part of that 

scheme depended on, as they usually do in mortgage fraud, an inflated and fraudulent appraisal. 

Mr. MEDICI. That’s correct. 

Senator MCCASKILL. That troubles me because these appraisers 

are supposed to be HUD-certified. 

Mr. MEDICI. That’s true. 

Senator MCCASKILL. So what is being done to ensure that HUDcertified appraisers are not in fact part of a con? 

Mr. MEDICI. Well, that’s a great question. From the investigation 

point of view, we look into specific allegations and where an appraiser is involved or complicit in a scheme, we do try to prosecute 

them, try to have them removed. 

Right now, these are ongoing investigations. So I can’t go into too 

much detail, but, you know, we have to deal with the specific evidence in the particular cases, and, you know, despite the fact that 

appraisers may be FHA-approved, I mean, we’ve had periods where 

flipping has been epidemic back to 1999 to 2002 and continues to 

be a problem in the program. 

There are a lot of appraisers, many of them are excellent appraisers and do an honest product, but there are always going to 

be some, I suppose, who see a chance to make additional money or 

to basically be compliant with what the lenders are asking them 

to do. 

Senator MCCASKILL. Is there an aggressive program in HUD 

when you determine that there has been a fraudulent appraisal 

that you all go back and pull all the appraisals done by that individual and look/examine all of those transactions? Are you pulling 

that thread? 

Mr. MEDICI. Well, usually an investigation, if we see that the evidence is going in that direction, we will look at—we’ll try to uncover as much of the pattern of activity as we possibly can. 

Senator MCCASKILL. How are these straw buyers being recruited, 

and what are they being told? Have some of these cases been prosecuted? 

Mr. MEDICI. We’re working toward that goal right now. They are 

actually substantial. So we’re still peeling back the onion, so to 

speak, in these cases, but we understand they’re being recruited on 

the Internet, through, you know, free seminars, through flyers, 

signs on the street, typically with the promise, you know, live rentfree forever or get a free home from the government through a government program, only have to be 62 or older really to meet the 

qualifications. You’re recruited in to be a nominee or front for the 

scheme organizer. 

53 

Senator MCCASKILL. Does typically the person who’s recruited, 

do they get a cut of the fraudulent proceeds? 

Mr. MEDICI. Well, it depends. Right now we’re trying to sort out 

what level of complicities there are, but in some cases they just 

have to get the property. If they’re left in that, that would be the 

pay-off. So in that sense there is a proceed from that. 

In other cases, we’re looking at the possibility of where they may 

have been nominees for more than one property in which case then 

we would have a higher level of responsibility. 

Senator MCCASKILL. So what actually happen is that there’s a 

tail on this fraud, right, because if you recruit someone and put 

them in a home with a false appraisal and you pull the money out 

of the house based on the false appraisal and the person gets the 

money and walks away, the perpetrator of the fraud, leaving the 

straw buyer in the house, that when the—that really no one figures 

out that the house is not worth what the appraisal said until that 

person either dies or moves out and then the only person left holding the bag is the taxpayer? 

Mr. MEDICI. That’s correct, and that’s one of the peculiarities of 

reverse mortgages. It could be some time—— 

Senator MCCASKILL. Right. 

Mr. MEDICI [continuing]. Before we become aware of what happened in that particular instance. The house can end up being 

abandoned, be flipped to another individual. We may not know 

that. It may take awhile and maybe by some occurrence that brings 

that information to light. We’re also taking some proactive measures in terms of data-matching to help us proactively target, but 

that is correct. I mean that is one of the challenges in looking into 

these cases, you know, who’s in that property, what happened to 

that property and who the people are that are involved. 

I mean, typically, the HECM laws are designed for the classic 

case of someone who lived in the home for 20–30 years, built up 

the equity through hard work and through maintenance of the 

property and that’s the classic case and that’s what I think FHA 

is trying to accomplish in the HECM Program. 

Now we’re having people just brought in off the street who meet 

the minimum qualification, 62 years old, no credit history, no financial background history. They can get into a property through 

one of these subterfuges or mechanisms and pull down a HECM 

loan. So there’s some vulnerabilities. 

Senator MCCASKILL. Unlike a mortgage where a payment is due 

every month,—— 

Mr. MEDICI. That’s right. 

Senator MCCASKILL [continuing]. Sometimes the fraud unravels 

because the mortgage payments aren’t made. In this instance, 

there is no mortgage payment due, so you don’t find out about the 

problem until maybe years after it has occurred. 

Mr. MEDICI. That’s exactly right. You put your finger right on 

really the big problem. 

Senator MCCASKILL. I just want to make sure, the reason I asked 

you to repeat the mortgage-backed securities, I want to make sure 

that everybody understands what mortgage-backed securities are. 

It’s in fact mortgage-backed securities that created your next job 

opportunity because if it were not for mortgage-backed securities 

54 

being sliced and diced, subprime loans being sliced and diced into 

traunches of complex derivatives that were being sold and churned 

in mammoth proportions in our financial sector, that is why literally our financial sector shut down and why we’re facing huge 

economic problems right now in this country. 

I want to—you know, is this the first time that they have packaged securities like this for sale this year? 

Mr. MEDICI. Yes, I think this is a recent development on Ginnie 

Mae’s part. You’re quite right. I mean, in many ways the subprime 

mortgage meltdown was fueled by mortgage-backed securities, the 

sale of mortgage-backed securities. 

It turned out that a lot of mortgage-backed securities were basically points of mortgages that are pulled together. In Ginnie Mae’s 

case, it’s a million dollars more for each pull. These pulls are pulled 

together by Ginnie Mae issuers. Often the loan or the lenders 

themselves may be Ginnie Mae issuers or be associated with a 

Ginnie Mae issuer. 

They pull these loans, the mortgage-backed security loan. They 

sell them to investors in the investment market. So Ginnie Mae, 

I think, has reached about $700 million in mortgage-backed securities through reverse mortgages and I think one of the questions is 

basically the quality of the loan pulls that are being securitized. 

Senator MCCASKILL. OK. I thank all three of you for your testimony this morning. It’s been very helpful and we’re going to continue. We will come out with some specific recommendations based 

on the testimony today. Some may be agency-driven, some may be 

from more work at GAO, some may be some help with trying to get 

the FTC more actively involved, and obviously the HUD IG is going 

to continue to be very involved in this trying to track the potential 

problems with these very specialized financial tools that can be a 

help and a life-saver to some people but also can be a nightmare 

of huge proportions. 

So thank you all three for being here. We appreciate it very 

much. [Applause.] 

Thank you for your cooperation. We have another three witnesses. 

Let me make an announcement. For those of you who are in the 

audience that want to give testimony, anyone who wants to give 

testimony, who wants us to have information, we want all information from all sources, and I want to give you—we’re not going to 

have an opportunity for public testimony today, but we want to 

give everyone an opportunity. 

If you have information you want us to have and consider, we 

would ask you to submit any written testimony on this subject 

matter to us and we will continue to look at this problem. I am certainly aware that there lots of good guys in this business and Peter 

Bell is on the panel because he’s here representing a lot of the good 

guys that are using these tools appropriately and marketing these 

tools appropriately. 

So this hearing isn’t about saying that every reverse mortgage is 

bad. It’s about saying that there are dangers and cautionary as to 

some of the consumer pitfalls that are out there. 

If you would like—excuse me? 

55 

AUDIENCE MEMBER. Why is it not open to questions from the audience? 

Senator MCCASKILL. Because—— 

AUDIENCE MEMBER. You insult our intelligence, Senator. 

Senator MCCASKILL. Sir, let me explain. I’m here as a member 

of the Senate Committee on Aging and if you’ve ever watched a 

Senate hearing on television, there are very strict rules and procedures around Senate hearings. 

They are not ever an opportunity for public testimony at a Senate hearing. I have lots of town halls. In fact, I just had one a couple of weeks ago. We’ll have many more where I welcome everyone’s questions from the audiences, but I’m not here as the Missouri Senator today. I’m here as a member of the Senate Committee having a hearing under the rules of the Senate and under 

the rules of the Senate, when there is a committee hearing, testimony is taken from the witnesses, questions are asked only by Senators of the witnesses, and then there is a record kept of that hearing that public can in fact look to, comment on, and contact their 

Senator. 

All of you, I represent. If you have something you need to say 

to me about this subject or any other subject, I am here for that. 

I cannot do it in the context of a Senate hearing where the rules 

prohibit the testimony from people who are not members of the 

witness panel. 

So that is why. We can make copies of those rules available for 

anyone and I know it feels awkward because generally when I’m 

in Missouri and I have a room like this, everybody gets to talk. I 

don’t think we ever do this where everyone doesn’t get to talk when 

I come back from Washington and have meetings like this. 

But this is not a town hall. This is not a forum for Senator Claire 

McCaskill. This is in fact a hearing of the Senate Aging Committee 

and I am required under the rules of the Senate to follow those 

rules. . 

But if you have anything you want to get to us, Michelle, will 

you raise your hand? We are happy—this is Michelle who works 

here in St. Louis. Mattie who is here, who works here in St. Louis 

for my office. Who else is here from St. Louis? OK. They went back 

to the office. 

Then I have Melissa Garza who’s here from my office in Washington. I have Sam Dresla who’s here from my office in Washington. 

So you have a number of people here. If any of you want to get 

specific information to us, please talk to them. They’ll get you the 

right phone number, the right e-mail address, so that we can get 

all the information from everyone. I just didn’t want anyone to 

think we were cutting people off because I wanted to. It’s the rules 

I’m required to follow. 

So I apologize to you, sir. I certainly don’t want to insult your 

intelligence. I would never want to do that with folks I work for, 

and I understand that there are some strong opinions about this 

because there are people who use these tools and use them wisely 

and they work and so I don’t want to leave the impression that this 

is about a bunch of bad guys. This is about a few bad guys that 

56 

we need to make sure that we’re paying attention to so they do not 

victimize people needlessly. 

Let me introduce the second panel. First on the panel is Daniel 

Claggett, is a Staff Attorney with Legal Services of Eastern Missouri, which provides legal aid to low-income clients. His practice 

focuses primarily on foreclosure defense and assisting borrowers 

who have victims of predatory lending. Mr. Claggett is here today 

representing the National Consumer Law Center, a not-for-profit 

organization specializing in low-income consumer issues. 

Buz Zeman is the Director of Housing Options Provided for the 

Elderly (HOPE) in Missouri. He has conducted over 3,000 reverse 

mortgage counseling sessions since 1993. He supervises other reverse mortgage counselors. He teaches reverse mortgage training 

sessions for Neighborhood Works America, participated in AARP’s 

Reverse Mortgage Education Project, and is a consultant trainer to 

the National Council on Aging. 

Finally, Peter Bell, who is President of the National Reverse 

Mortgage Lenders Association, a trade association for lenders involved in the origination and servicing of reverse mortgages. Mr. 

Bell has served on numerous housing industry committees and 

HUD task forces and has testified before Congress on aging, housing and tax issues. 

Peter can tell you we don’t let people testify from the audience 

in the Senate in Washington because he’s been at many of those 

hearings and has testified and knows that that is the situation. 

Mary Heinzer was invited to be part of this panel. That is the 

elderly woman I referred to in my opening statement, who was victimized. She is not well and has submitted written testimony for 

the record that we will make part of the record because she was 

not physically able to make it here today to talk about her situation, and as I briefly talked about in the opening, maybe you all 

can speak to that, I know that, Daniel, I think, is familiar with her 

case, this is a situation where money was set aside of the proceeds 

to fix the roof, so it would pass HUD inspection for a HECM reverse mortgage, and unfortunately the repairs that were done were 

substandard, didn’t work. 

Instead of replacing the roof, they merely spread tar in a couple 

of places, so the leak was not fixed. So as a result, the leak continued, the money had been spent, and she still has a leaky roof 

which was the main reason she got the money in the first place, 

was to do that, and that was just a matter of the lender in that 

instance not supervising the repair work and certifying that the repair work had been done correctly prior to paying the people who 

had done the repair work, and they had taken on the responsibility 

that repair work as part of the mortgage agreement and then they 

failed to supervise it appropriately and withhold the payments 

until it had been done right and then she kind of got left holding 

the bag. 

So that was her situation and her written testimony will be 

made part of the record. 

Senator MCCASKILL. Let’s begin with Buz Zeman. Thank you. 

57 

STATEMENT OF BUZ ZEMAN, MSW/LCSW, DIRECTOR, HOUSING 

OPTIONS PROVIDED FOR THE ELDERLY (HOPE), ST. LOUIS, MO 

Mr. ZEMAN. Good morning, Senator McCaskill. I’m talking about 

a couple of issues that have been raised already: reverse mortgage 

counseling and the recent dramatic changes in the HECM marketplace. 

The role of the reverse mortgage counselor is often misunderstood. Here’s how I explain it to my clients. My role is to help you 

understand all the ins and outs of a reverse mortgage. I am your 

independent coach. My role is not to tell you what to do but rather 

to inform you fully so that you can make your own well-informed 

decision about whether or not to get a reverse mortgage. 

In addition, I will be discussing with you alternatives to getting 

a reverse mortgage, including public benefit programs and other 

services that you may be eligible for but currently not receiving. 

It is extremely difficult to do a great job at this counseling. Counseling is one of the key ways to protect seniors but only some of 

the counseling being done is excellent. Most counseling could stand 

improvement and, tragically, as we heard from the previous speaker, some counseling is downright terrible. 

An easy indicator of terrible counseling is counseling that is way 

too brief. I have heard from a few clients that the counseling that 

they have had previous to mine took 15 minutes or less. Without 

inquiring further, I know that that is terrible counseling. Of course, 

the time spent is not a sufficient indicator of the quality of counseling, which brings me to Recommendation Number 1, expand 

the—well, I had down here implement the Secret Shopper Project, 

but having heard about the GAO study, expand the Secret Shopper 

Project. 

The basic idea in my model would be for skilled trainers to pose 

as seniors in order to evaluate the counseling service. Listening to 

counseling is really the only way to determine fully what counselors are actually doing. 

My second recommendation is to provide great support and training to reverse mortgage counselors. Make use of available new 

technology to do so. We need to expand counselor training by using 

frequent webinars and providing a high-quality, well-staffed 

website. The AARP Counselors website is an excellent prototype. 

My third recommendation is to fund the counseling adequately. 

Our current funding methods have problems and are probably not 

sufficient for the future, especially if the quality of counseling is to 

improve. 

I recommend forming a think tank to examine carefully how reverse mortgage counseling would best be funded. This is a complicated but critical and solvable problem. I volunteer to be a member of the think tank. 

Before I end, I want to address the dramatic impact of recent 

marketplace changes. 

In April 2009, Fannie Mae changed the way it purchased reverse 

mortgages. One of the consequences was that most lenders stopped 

allowing rate locks at loan application. At the same time rates increased dramatically and have generally been rising ever since. 

Rates now vary considerably from one lender to another, making 

it a very difficult marketplace for the consumer. Without a rate 

58 

lock, borrowers do not know what the loan will cost when they 

close, nor do they know the amount that they can borrow until 

close to closing. 

Here’s what’s going on behind the scenes. The lender who sells 

a reverse mortgage to a borrower at a margin above par gets paid 

a premium or bonus when they sell the loan to Fannie Mae. Last 

year, with the help of this committee, legislation was passed to 

limit origination fees. Most of us thought this meant that the lender’s profit was limited. Now we learn otherwise. 

It is now possible for lenders to make thousands of dollars more 

than the origination fee cap. The availability of this bonus may not 

be predatory per se, but in this environment the opportunity for 

predatory practices has certainly increased. 

As you can imagine, counseling clients about these developments 

is quite a challenge. My fear is that most counselors do not even 

address these issues at all. I note that there has been no guidance 

to counselors from HUD on this issue. This would be an ideal subject for one of those training webinars I mentioned earlier. 

I have focused here on just a few problems. My written testimony 

relates to many more, but they are all solvable. Abuses are a small 

percentage, wise but even a small percentage affects many thousands of seniors. So we need to be ever-vigilant at addressing problems and making improvements. 

Thank you for this opportunity. 

Senator MCCASKILL. Thank you very much. 

Mr. Bell. 

STATEMENT OF PETER H. BELL, PRESIDENT, NATIONAL 

REVERSE MORTGAGE LENDERS ASSOCIATION, WASHINGTON, DC 

Mr. BELL. Senator McCaskill, thank you for the opportunity to 

appear at this hearing. 

I would like to request that my written testimony be included for 

the record and I’ll try to summarize it in the time allocated. Because this hearing is focusing on counseling and most people, other 

than those who have been through counseling and the counselors 

themselves, don’t really know what goes on in a counseling session, 

I would like to request that this copy of our magazine, Reverse 

Mortgage, be included in the record. We had the opportunity recently to have both a counselor and a client agree to allow us to 

sit in on a session, record it and transcribe it. We have a complete 

counseling session verbatim in here that illustrates the whole flow 

of the conversation, illustrating the set of topics that are covered 

in a properly conducted session. 

Senator MCCASKILL. The publication will be made part of the 

record. 

Mr. BELL. Thank you. 

While demographics might point to growth opportunities in our 

business, our members recognize that this will only occur if consumers believe that reverse mortgage products are safe and fair 

and that those who deliver them are trustworthy. As a result we 

have a number of core values that we possess as an organization 

and we require all our members to abide by our Code of Conduct 

and Professional Responsibility. 

59 

What I’d like to do here, is focus on the counseling since that was 

what I was asked to cover and then, if there is time, perhaps I 

could address some other points that were made earlier. 

Counseling is a vital consumer safeguard. It really is what separates reverse mortgages from all other products. In fact, I don’t 

think you could come up with any business in America in which 

every potential customer is referred to an independent third party 

specialist, a counselor at a HUD-approved agency, to review the 

transaction under consideration and its implications for the borrower before a decision is made. 

In fact, if this had been the case throughout the mortgage sector, 

we’d probably be in a very different economy today. 

For consideration, to be entirely effective there must be knowledgeable counselors. Achieving this requires effective training to 

keep their knowledge up to date, technological systems for managing the workflow, and funding to pay for personnel and overhead. 

Providing all that has been a challenge. 

Nevertheless, the network of HUD-approved non-profit organizations has stepped up to the plate to try and fulfill the demand, despite the limited resources. 

One of the biggest obstacles to supporting counseling is funding. 

This year the cost of HECM counseling is estimated to be $16 million to $18 million. The appropriation that Congress has provided 

is $8 million. Some of the shortfall is being covered by payments 

from consumers. 

Despite the appropriated funds and borrow payments, there is 

still a significant shortfall. This has led some agencies to discontinue offering HECM counseling, resulting in longer lead times 

for consumers seeking it or agencies having to cram more appointments into less time to make the counseling work from an economic standpoint. 

Training for counselors needs to be enhanced. Not every counselor takes formal courses. Some are trained within their own organizations. Some learn simply by reading the protocols and other 

pertinent literature on their own in the interest of helping their 

agencies fulfill the growing demand for reverse mortgage counseling in their communities. 

HUD has plans underway to improve counseling and will soon be 

implementing three very important changes. One is a new counseling protocol. The protocol is the guideline, the script, that counselors use in conducting a session. The second chapter is a roster 

of approved HECM counselors, all of whom will have had to have 

passed an exam to be included on that roster. The third is enhanced oversight and monitoring of counselors, including the use of 

mystery shoppers. 

Until now, it has been the counseling agency, not the individual 

counselor, that has been approved by HUD. The roster is a major 

step forward in that individual counselors will now be tested for 

their knowledge and competency and approved by HUD as well as 

the agency. 

Another new aspect is a requirement in the new counseling protocol for a review of the client’s recurring financial obligations, including taxes and insurance, as well as their income. This is deVerDate Nov 24 2008 13:47 Feb 02, 2010 Jkt 000000 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 H:\DOCS\54129.TXT SAG PsN: JOYCE
60 

signed to help them decide if they can afford to stay in the home, 

even with the reverse mortgage. 

HUD is to be commended for the sharp eye it keeps on issues in 

the program and the thoughtfulness its staff has put into developing solutions. An example of this is the department dealing with 

the concern about borrowers’ ability to pay taxes and insurance. 

On the surface, it seems like an easy solution—collect an escrow—but it’s not that simple. That’s forward mortgage thinking 

being applied to a reverse mortgage, which is a very different situation. 

In many cases, homeowners are overburdened with payments for 

mortgage and other debt. Much of their income is siphoned off to 

make those loan payments. If the mortgage and debts are eliminated with a reverse mortgage, funds that have been used for loan 

payments become available for other purposes, including paying 

taxes, insurance and maintaining the property. 

Instead of simply imposing an escrow, HUD is looking at utilizing the financial assessment tool to determine if the lender and 

counselor should work with the borrower to establish an escrow, 

amend the drawdown schedule, limit payment options, disallow a 

lump sum payment or take any other steps appropriate to help borrowers avoid tax and insurance defaults. 

Recognizing the different circumstances of borrowers and allowing the appropriate solution for each individual case is a key aspect 

of the approach that HUD is taking. 

Controller Dugan, Inspector General Donahue, and others have 

all pointed out that seniors are vulnerable, that scams and fraud 

are frequently perpetrated against older folks, and that reverse 

mortgages can potentially be a source of problems. 

However, they have not identified any incidents of widespread 

malfeasance specifically in reverse mortgage cases. In fact, there 

have been few reported. We have been polling state Attorneys General Offices, bank regulators, and the FTC, and found the incidence 

of complaints about reverse mortgage lenders to be minimal or nonexistent. 

We received a similar response to an inquiry to the Conference 

of State Banking Supervisors. Several weeks ago I was in Kansas 

City to address a conference of the Consumer Complaint Office’s of 

all the Federal bank regulatory agencies, including the Federal Reserve, OCC, OTS, and FDIC. When asked during a panel discussion, the representatives of each agency reported that they had no 

complaints about reverse mortgages. 

At the same time we must recognize that once a senior has gotten a reverse mortgage, no matter how protected she or he might 

have been during the loan origination process, there is now access 

to what could be a substantial amount of money potentially attracting others looking to swindle the homeowners. These are societal 

problems. They’re not reverse mortgage lending problems. 

There is a highly consumer-centric industry here looking to help 

seniors monetize the equity in their homes so they can live more 

comfortable, secure, and fulfilling lives. We are committed to only 

making loans after a homeowner makes an informed decision that 

the reverse mortgage is a tool appropriate for their needs. 

61 

We’ be happy to work with you, Senator McCaskill, to address 

any shortcomings or potential consumer pitfalls that can be identified, similarly to what we’ve been doing in partnership with HUD 

and FHA for many years. 

Thank you for the opportunity to testify today. 

[The prepared statement of Mr. Bell follows:] 

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Senator MCCASKILL. Thank you, Mr. Bell. 

Mr. Claggett. 

STATEMENT OF DANIEL CLAGGETT, MANAGING ATTORNEY, 

LEGAL SERVICES OF EASTERN MISSOURI, ST. LOUIS, MO 

Mr. CLAGGETT. Chairwoman McCaskill—— 

Senator MCCASKILL. Oh, excuse me. Before you begin, Mr. 

Claggett, I was asked to make an announcement. 

There’s a couple of folks who parked their cars in the drive and 

we need you to move them. A Mazda with License Plate AAA 6U2D 

and a Buick with Plate 922 SLR, if you all would move your cars, 

I think there’s a larger vehicle that needs to get through and they 

can’t get through. A Mazda and a Buick parked in the drive, if you 

would please move them. 

Thank you. Go ahead, Mr. Claggett. 

Mr. CLAGGETT. Thank you. Chairman McCaskill, Chairman Kohl, 

Ranking Member Martinez, and Members of the Special Committee, thank you for inviting me to testify today on the important 

topic of reverse mortgages. 

I’m a staff attorney with Legal Services of Eastern Missouri 

which provides legal aid to low-income clients, including many lowincome seniors, and I testify here today on behalf of Legal Services 

of Eastern Missouri, the National Consumer Law Center and the 

low-income clients that these organizations serve. 

Ms. Chairwoman, Mr. Chairman, and Members of the Committee, as you are aware, this country is in the midst of the worst 

foreclosure crisis since the Great Depression. This crisis has been 

driven in significant part by improvident subprime lending that 

has resulted in a credit crunch of historic proportions. 

But despite the grim economic outlook, the mortgage industry 

has found a bright spot: the reverse mortgage market. More than 

100,000 seniors used reverse mortgages in 2008 to tap more than 

17 billion in home equity. Loan volume has more than doubled 

since 2005 and since 2001 the number of reverse mortgages originated has increased an incredible 1,500 percent. 

The continued availability of reverse mortgages in these tough 

economic times is good news for seniors who need to cash out some 

of their home equity to supplement social security to meet unexpected medical costs or to make needed home repairs. 

But the relative strength of the reverse mortgage market is 

unleashing other less scrupulous forces. The same players that 

fueled the subprime mortgage boom ultimately with disastrous consequences are turning to the reverse mortgage market. Lenders, 

brokers, and even Wall Street know that there are currently 15 

million potential reverse mortgage borrowers sitting on trillions of 

dollars of equity, a gold mine waiting to be excavated, and the 

graying of the baby-boomer generation will make that gold mine 

deeper and richer. 

As a result, there is now an urgent need for more resources at 

the Federal and state level to protect consumers from reverse mortgage abuse and to help seniors preserve their home equity and to 

ensure that reasonably priced and fairly structured reverse mortgages are available for those who truly need them. 

101 

The National Consumer Law Center will be releasing a report in 

the coming weeks that will detail needed protections and improvements in the reverse mortgage market. These recommendations 

will include strengthening borrower counseling which today remains inconsistent and under-funded, banning yield spread premiums which incentivize brokers to make loans more profitable for 

lenders and investors at the expense of the borrowers, regulating 

proprietary reverse mortgages which are developed and sold by private financial institutions. 

While the use of these products has slowed to a trickle, economic 

recovery over the next few years is likely to reinvigorate proprietary reverse mortgage products. To date, they remain almost entirely unregulated at the Federal level and subject to widely varying state regulations. 

Improving data collection on reverse mortgages and other equity 

conversion products that are not currently reportable under the 

Home Mortgage Disclosure Act, and, last and most importantly, a 

suitability standard for reverse mortgages must be created. 

Seniors frequently depend on lenders, brokers, and other third 

party intermediaries for guidance through a market that offers 

multiple distribution channels, a welter of ‘‘educational’’ resources 

and many complex products and financial choices. 

Brokers and lenders often use impressive-sounding credentials to 

imply special knowledge and expertise. But because mortgage lenders are considered business transactions where each party ostensibly protects its own economic interests, in most states brokers 

and lenders owe no fiduciary duty to borrowers and when problems 

arise, brokers and lenders disavow any relationship of trust and 

confidence with borrowers. 

The same market forces that rewarded volume business with 

huge profits in the subprime market are growing in the reverse 

market. Some of the nation’s largest banks are expanding their 

reach in the reverse mortgage market. 

Mortgage brokers, who once reaped profits from subprime and 

exotic loans, are now turning to reverse mortgages, and 

securitization, which allowed subprime loan originators to disassociate themselves from the downside risks of abusive lending, is becoming more commonplace in the reverse mortgage industry. 

The subprime mortgage crisis was driven by profiteering among 

all players in the industry and without regard to its impact on the 

lives of millions of Americans saddled with inappropriate mortgages. It is important to act now to save our seniors from the same 

scourge. We cannot wait until millions of elderly homeowners have 

been victimized to address the problems we know already exist. 

Thank you for the opportunity to testify here today. We look forward to working with the Special Committee to address these 

issues. 

[The prepared statement of Mr. Claggett follows:] 

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Senator MCCASKILL. Thank you, Mr. Claggett. 

Let me start with a question, Mr. Bell, that I kind of raised with 

the last panel. 

If the market right now—would you agree with the previous testimony that there are really no proprietary reverse mortgages 

being marketed right now? 

Mr. BELL. Yes, and I believe there probably won’t be any for 

many years to come. 

Senator MCCASKILL. OK. But yet, we are increasing the number 

of HECM mortgages, reverse mortgages that are actually being 

closed? 

Mr. BELL. We are growing. This year we’re up about four percent 

from last year. 

Senator MCCASKILL. OK. 

Mr. BELL. We are growing some. 

Senator MCCASKILL. There used to be proprietary reverse mortgages, correct? 

Mr. BELL. There were a handful. The market was always 90 percent HECM and there was a fledgling propriety market that served 

a population that HECM didn’t serve because they had homes of 

much higher value, typically values of a million dollars and up. 

Senator MCCASKILL. OK. Well, but if this is a good lending tool, 

if this is a good value for the Federal Government, why isn’t there 

a proprietary market? 

Mr. BELL. There are a lot of reasons there is not a proprietary 

market. First of all, it’s a small market. Even with the growth 

we’ve had, we’re doing a 100,000 loans a year nationwide. 

Now, in the forward mortgage business, if you look at the major 

companies, any one company alone might make millions of loans a 

year, not a 100,000. So it’s really a product that does not have the 

kind of market demand for it at this point to draw other players 

into it. It’s very complex to do. It’s time-consuming. You need to invest in different systems. You need to invest in different personnel 

and train them differently. 

So there are a handful of major companies that have done it, but 

they’ve done it because they are consumer-oriented companies and 

found that they had demand from some of their clientele to help 

them with their finances at the later stages in their life and they 

were unable to fit them into another forward mortgage product or 

a home equity loan because they did not have steady enough income or likely prospect of their income continuing to make a loan 

that requires payment, so they chose to get involved in the FHA 

reverse mortgage product. 

Senator MCCASKILL. But there’s very little regulation over proprietary reverse mortgages compared to others. 

Mr. BELL. Well, I would say to the contrary, that I don’t agree 

that there’s very little regulation, because we’re subject to the rules 

that other mortgages are. We’re subject to FTC rules, to RESPA 

rules. Bank examiners look at what loans lenders are making from 

a safety and soundness, standpoint. 

There are not specific laws for proprietary reverse mortgages, except in several states, and more and more states are looking at implementing them now. We’re actively working with a number of difVerDate Nov 24 2008 13:47 Feb 02, 2010 Jkt 000000 PO 00000 Frm 00110 Fmt 6633 Sfmt 6633 H:\DOCS\54129.TXT SAG PsN: JOYCE
107 

ferent states on various pieces of state legislation. Also, within the 

industry, there’s an awful lot of self-regulation and self-policing. 

By the way, we have a Code of Ethics and Professional Responsibility that requires all members of our organization to follow a 

number of procedures in effect, making the same rules as HECM 

applicable to all other reverse mortgage products. 

When there was activity in proprietary products out there, every 

proprietary product had counseling. It wasn’t required by law, but 

it was required by NRMLA, and as a result, any company that 

wanted to be a member of our organization, had to require counseling on their products. 

Senator MCCASKILL. What percentage of the reverse mortgages 

that have been closed in the last 18 months have been done by 

members of your organization? 

Mr. BELL. My guess would be that probably upwards of 70 percent of the HECMs, because the last 18 months there have only 

been HECMs, have been made by our members. If they haven’t 

been made by our members, at some point they transferred to a 

member because of the way the industry is structured. 

There are essentially two players in a reverse mortgage transaction, actually three. There is a company that originates the loan. 

They’re the one that finds the deals with the customer. 

Senator MCCASKILL. The marketers. 

Mr. BELL. Well, they’re all FHA-approved correspondents. The 

marketers could be separate from the correspondents. Correspondents may buy leads from a lead generation company which is a 

whole other topic that we can get into. 

Then there is the seller servicer who operates the loan during 

the life of the loan. Once a loan is closed, the seller servicer is the 

company that operates the loan. Then, of course, on top is the investor which at this point is usually Fannie Mae. Fannie Mae purchases 100 percent of the HECM loans at this point, with the exception of the small number that have been going into Ginnie Mae 

securities, which is emerging as an alternative to Fannie Mae. This 

is a very important alternative, I might add, because Fannie Mae 

has been pushing its yield requirements upward and that’s had an 

adverse impact on consumers. 

So the introduction of the Ginnie Mae, which it was said in the 

prior panel, just started this year but it’s actually been in effect for 

a couple years now, provides major relief and an opportunity to 

work with other investors than Fannie Mae. 

Senator MCCASKILL. OK. I guess the point I’m trying to make 

about proprietary versus—you know, you just went through the— 

you got the front group—I shouldn’t call it the front group. The 

originating organization, you have the servicing organization, and 

then you have the investor. 

Mr. BELL. Right. 

Senator MCCASKILL. The investor is us, right? 

Mr. BELL. No. 

Senator MCCASKILL. It’s the taxpayers? 

Mr. BELL. No, not true at all. 

Senator MCCASKILL. Well, it—— 

Mr. BELL. Well, I guess now that we own Fannie Mae, yes, but 

prior to the taxpayers taking over Fannie Mae,—— 

108 

Senator MCCASKILL. Well, we own it now. The success of Fannie 

Mae is completely dependent upon the American taxpayers, right? 

Mr. BELL. Well, the success of Fannie Mae is based on its prudence in acquiring loans. 

Senator MCCASKILL. I should say the risk associated with Fannie 

Mae is the taxpayers’ risk. 

Mr. BELL. That is correct. 

Senator MCCASKILL. We learned that. We’ve learned that. Fannie 

Mae began to go belly up and we had to step up and provide the 

money. So we’ve learned unequivocally that the taxpayer is the one 

that has to step in if Fannie Mae flounders. 

So what I’m trying to figure out is if this is a good product—you 

know, I get people calling me all the time and say to me, you know, 

Claire, why doesn’t the Federal Government get its big nose out of 

the private market? You know, we just get government out of business, business would thrive in this country. 

But clearly this is a product that people are making money off 

of, but the only risk really if these mortgages don’t work is with 

the government right now. 

Does the originator have any risk? Is there any risk at all associated with the originator? 

Mr. BELL. There is risk right down the line. There’s the risk that 

if the loan is not made properly, HUD might not issue an insurance 

certificate on it. If the investor purchased a loan that it thought 

was to be an FHA-insured loan and it turns out that it is in fact 

not an FHA-insured loan, the seller servicer would be required to 

purchase that loan back from Fannie Mae. So it is at risk for funding it there and then would have some recourse back to the correspondent that it acquired the loan from, as well. So there is risk 

along the way. 

Senator MCCASKILL. There’s risk if they don’t do it right? 

Mr. BELL. There’s risk if they do not do it right. 

Senator MCCASKILL. OK. But I’m talking about risk in terms of 

investment risk, in terms of the loan not being able to in fact be 

repaid. Is there any risk at all with the originator—— 

Mr. BELL. Well,—— 

Senator MCCASKILL [continuing]. In terms of the loan not being 

repaid? 

Mr. BELL. Well, let’s talk about the loan itself as opposed to the 

origination. There is a chance that when the loan becomes due and 

payable, that the balance due on it could be greater than the value 

of the house at that time. In a normal market, we’re not in a normal market now but let’s assume a normal market for a moment, 

that might occur if there were a confluence of three factors. 

The borrower living longer and staying in the home longer than 

had been anticipated, outliving the actuarial tables, or (2) the property value declining below the expectation at the time of underwriting, or (3) interest rates shooting up beyond the expected interest rate which is based upon a long term interest rate. While you 

might have any one of those factors occur in any particular loan, 

the chances of having all of those factors in a loan are rare and, 

once again, this is a pooled insurance program. 

It’s not the taxpayer that’s at risk. It’s the FHA Insurance Fund. 

The Insurance Fund—— 

109 

Senator MCCASKILL. Well, why aren’t proprietary—then why 

aren’t there proprietary loans being made now—— 

Mr. BELL. Because—— 

Senator MCCASKILL [continuing]. If there’s no risk? 

Mr. BELL. Because there’s not enough volume out there for somebody to make the investments—to pursue this. 

Senator MCCASKILL. Well, these companies have the investment. 

They’re doing HECMs now. Why don’t they do proprietary? 

Mr. BELL. They are not the same systems that required for 

HECMS as for proprietary loans because HUD provides software 

for HCMS. The other reason is that the proprietary market, when 

it was there, once again I mentioned before it was for much highervalue homes. 

The difference is on FHA, because there is mortgage insurance, 

if the loan is upside down at the end, the investor, the lender, has 

the opportunity to file a claim with FHA for the difference. It 

means that they advance more money than they would on a proprietary product that didn’t have that insurance. 

Senator MCCASKILL. Yeah. Because the government is on the 

hook, they can make more money upfront. 

Mr. BELL. No, no. 

Senator MCCASKILL. Yes. 

Mr. BELL. No. 

Senator MCCASKILL. Because they can make—they can loan 

more money because they’re not taking the risk, Mr. Bell. That’s 

exactly the point. That’s the whole reason this front end has become incredibly scrutinized right now, because the back end—and 

by the way, as we pointed out in the last panel, there’s a long tail 

here. 

We have lots of reverse mortgages that have been made that we 

will not know in this current market whether or not they are upside down maybe for another 5 or 10 year, when we could have interest rates up and property values down. 

Mr. BELL. We do know that we’ve had reverse mortgages that 

we’ve made since 1989 that have paid off completely and have been 

extremely profitable to the U.S. Government putting billions of dollars into the FHA Fund. This year, for the new budget, the Secretary has decided to ask for credit subsidy based on some new 

changes to the assumptions of home price depreciation for the 2010 

book of business as well as interest rate assumptions. But, if you 

look at prior years, the program was considered to be extremely 

cash positive, so much so that the Department itself, under the 

prior Administration which was a pretty fiscally conservative Administration,—— 

Senator MCCASKILL. We might quarrel about that. 

Mr. BELL. Right. I guess—as I heard myself saying that. 

Senator MCCASKILL. I don’t think so. 

Mr. BELL. But in this particular program, it was. They were even 

talking about reducing the mortgage insurance premium because 

one of the criticisms of the program is that consumers pay a large 

upfront charge to get involved in these loans and the most significant portion of that upfront charge is the mortgage insurance premium that’s paid to the Federal Government. It is not the fees that 

are paid to the lender which are capped. 

110 

Senator MCCASKILL. Which, by the way, this is an equal opportunity sin. You are exactly right. I discovered when we started 

looking into this product that part of the problem was Congress’s 

voracious appetite for more money to spend. They love this product, 

the appropriators do, because we’re able with CBO scoring to actually create money for us to spend today based on these loans being 

executed. 

So it is—and that’s why I think it is another reason that we need 

to take a careful look at this product because I ran into appropriators when I was trying to limit this, they were wanting to take 

the roof off because they love having this money to spend and 

they’re spending it every year. We’re spending it every year that 

are coming from these loans. This is not sitting off in some insurance fund. They’re spending it. They’re spending it. 

So I think that—but I think the overall point I was trying to 

make was that the risk here for these loans being upside down is 

not being borne by the private market, even though the private 

market is out there marketing them. 

Let me ask you this. Do any of your members do commercials 

that say this is a government benefit? 

Mr. BELL. A government benefit, no. 

Senator MCCASKILL. None of your members have any commercials—— 

Mr. BELL. If they do that—if they did that and—it is to be reported to us, we would take swift action through our Ethics Committee. We have done that on a number of occasions. Now, some 

of them may say that it is an FHA-insured reverse mortgage, 

which is factually correct, but to say it’s a government benefit is 

completely unacceptable, misleading. It’s a violation of our Code of 

Ethics and Professional Responsibility. It’s part of our Ethics Advisory Memoranda, and we do take action against anybody that does 

have ads of those sorts. 

Senator MCCASKILL. I promise I’ve got questions for both Mr. 

Claggett and Mr. Zeman, but I have one more question, Mr. Bell. 

Are you aware why in the recently passed legislation the House 

exempted reverse mortgages on all the Truth-in-Lending requirements? 

Mr. BELL. Yes, there has been a tendency over time to adopt legislation to deal with mortgages across the board and includes reverse mortgages. Then we find very often it doesn’t work because 

reverse mortgages are so different. 

For instance, a lot of the concern about predatory lending is with 

negative amortization mortgages. So if you were to say that reverse 

mortgages come under a prohibition on negative amortization mortgages, that would be the immediate end of reverse mortgages. A reverse mortgage is a negative amortization mortgage by definition. 

That’s the whole concept behind it. 

So because of that, lawmakers have decided that rather than just 

taking forward mortgage concepts and applying them across the 

board to reverse mortgages, reverse mortgages really need to be 

handled differently. They’re a very different product. 

The only thing they have in common with mortgages, with forward mortgages is the word ‘‘mortgage’’. They are very, very different type of instruments. 

111 

Senator MCCASKILL. Well, both of them embrace an obligation to 

pay. 

Mr. BELL. They do, but they have a lot of different aspects. Once 

again, just taking a forward mortgage policy—I use the taxes and 

insurance escrow as an example, just taking a forward mortgage 

concept and applying it to a reverse mortgage means that consumers that might benefit from the reverse mortgage would be precluded from getting it, so that really doesn’t serve anybody’s purpose. 

Instead the decision has been to deal with reverse mortgages in 

a separate regime than is handled for forward mortgages. 

Senator MCCASKILL. Well, the AARP brought this to our attention, that they had been left out of the legislation, reverse mortgages, and I’m sure that you will be happy to work with us in the 

Senate to make sure that we put appropriate measures in this consumer-oriented bill in terms of protecting consumers that do appropriately apply to reverse mortgages. 

I think the problem is, is that if we’re dealing with the subject 

matter of consumer information and making sure a consumer is informed, you may be well and right that an escrow for insurance 

and taxes is not something that must be included in reverse mortgage, but it would not surprise you to know that there might be 

people that may not realize that the reverse mortgage did not include the payment on insurance and taxes and those go unpaid and 

then you’ve got a situation where that homeowner is in fact—has 

not been fully informed. 

Mr. BELL. Right. We do try to make sure that all borrowers understand their obligations to pay taxes and insurance. There is a 

form that is often part of the closing package that reminds them 

of that. It is something that comes out with reminder notices and 

servicing notices that go out monthly. 

In fact, we’re working with HUD to make that a required practice, rather than a voluntary practice. Counselors also are another 

backstop in making sure that people understand their taxes and insurance are an obligation. 

Senator MCCASKILL. Well, the motivation for the insurance—I 

know when I entered into mortgages, the bank requires that they 

can document the insurance is paid, but the problem with reverse 

mortgages is if there’s no insurance on the home and the home 

burns down, who is responsible for paying back the loan? 

Mr. BELL. That would probably be a claim to FHA at that point. 

Senator MCCASKILL. It would be the taxpayer’s. 

Mr. BELL. The loan would become due and payable. 

Senator MCCASKILL. The taxpayers have an interest in that piece 

of property being insured. They’re on the hook. 

Mr. BELL. Once again, it’s not the taxpayers’ money, it’s the Insurance Fund, which has been paid for by those people who have 

utilized the program through the mortgage insurance premiums 

that they pay into the Fund. 

Senator MCCASKILL. But the point is, is that that money is not 

being provided, I mean, and by the way, it’s just like social security 

or any other government-insured program. If the money is not 

there, the taxpayers pay. If those insurance premiums are not sufficient to cover the losses, the taxpayers pay and so what I’m sayVerDate Nov 24 2008 13:47 Feb 02, 2010 Jkt 000000 PO 00000 Frm 00115 Fmt 6633 Sfmt 6633 H:\DOCS\54129.TXT SAG PsN: JOYCE
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ing is there is a great motivation on the part of the government to 

make sure that the tax—not just the taxes are paid but clearly the 

insurance is paid. That would be important. 

Mr. BELL. There’s no question there’s a great motivation on 

everybody’s part to make sure the taxes and insurance are paid. I 

have no argument with you on that. 

Senator MCCASKILL. OK. Let’s talk about this rate spread and 

the rate lock. 

Would you go into that a little bit more, Mr. Zeman, and explain 

what has happened recently that has changed the rate payment 

and the cost of these loans to the consumer? 

Mr. ZEMAN. Peter may be of some help here, too. 

Frankly, I never had to know about this. I learned about it in 

January and February, about rate locks, the elimination of rate 

locks and the introduction of yield spread premiums. 

As I said in my testimony, I thought the cap on origination fee 

meant that was the most a lender could earn, but I have come to 

understand that that’s entirely different and it’s very complicated. 

Fannie sets a price, par price for the loans it will purchase from 

the lenders. It used to be that they’d lock in that rate. We’d know 

what that rate was in plenty of time for the loan to close. Now we 

don’t know that rate. 

As a counseling problem,—I realize I’m jumping around here. As 

a counseling problem, I can’t know what Fannie Mae’s par rate is. 

I don’t know why that’s not public information, but I can’t know 

that. If I can’t know that, how can I adequately advise my borrowers? If the rates change, how does the borrower know the reason for that rate change? Is it because of the marketplace pressures? Very likely it could be, but it’s a chance for an unscrupulous 

lender to make more money. 

An interesting quirk to this that I’ve learned is that a borrower 

taking out a lot of money at closing potentially benefits the lender 

who has sold the loan at a higher rate than par in a great way. 

An abuse I heard of from a lender was that one of their sales 

people encouraged the borrower to take out a lot of money at closing, money that the borrower didn’t need, did not need access to 

at that point. Well, that’s a very unwise decision for the borrower. 

They’d be better off perhaps leaving the money in the line of credit 

in their HECM loan. To take it out would seem to have only benefit 

then in that case to the lender who now gets a payment of a yield 

spread premium. 

But again, Peter, I know you’ve got more knowledge about this 

yield spread premium issue than I do. 

Senator MCCASKILL. I’m really interested as to why it changed. 

Mr. BELL. Well, what changed are, first of all, a number of 

things. Getting back to our conversation a few minutes ago about 

Fannie Mae, the taxpayers being on the hook for Fannie Mae, 

Fannie Mae is under legislative mandate to reduce its holdings. 

They can grow through 12/31 of this year and beginning next year, 

they have to shrink by 10 percent every December. When Fannie 

Mae buys a reverse mortgage, they’re buying a loan that grows in 

asset value as the balance grows. 

Therefore, Fannie has decided that it really needs to not be as 

actively involved in the reverse mortgage business as it has been 

113 

and the only way to do that is to draw other investors into the 

market. Other investors felt they’ve been crowded out because 

Fannie Mae had such a lower cost of funds that other investors 

were unable to compete with them to enter the market. 

So Fannie decided that it was going to push its yield requirements upwards in order to reach a level where other investors may 

be interested in coming in and purchasing HECM assets. 

But the other part of that is not just a matter of picking a number and pushing it there, they moved to live pricing. Capital is a 

commodity. It’s no different than gold, wheat, and soybeans. It has 

a market price. That market price is constantly moving. The cost 

of capital is constantly moving. 

So Fannie moved, as part of this effort to draw other investors 

into the marketplace, to a live pricing system whereby their yield 

requirements are constantly changing in responses to market 

movement. 

When a lender commits to an interest rate on a loan, it does not 

know exactly what the price will be on the day that the loan closes 

because you don’t know exactly the amount of time—a HECM typically takes 6 to 8, sometimes 10 weeks—to go from application to 

closing. So, therefore, you can have a lot of movement in the pricing. 

So the lender may end up earning a correspondent fee that gives 

it some benefit if the yield requirement is lower on the day they 

finally close and deliver the loan. They might also pay a discount 

and lose money on that loan if it happens to be higher on that day. 

It’s a dynamic market. Believe me, nobody’s happy about it. It’s 

made it more challenging for just about everybody involved in the 

business and it’s made it much more challenging for us to serve 

seniors, but it is—— 

Senator MCCASKILL. But it is—— 

Mr. BELL [continuing]. Just a fact of reality of the capital markets. 

Senator MCCASKILL. But it is true that it creates an incentive for 

someone who is not scrupulous to push a borrower to pull more 

money out because they will make more money if they do, correct? 

Mr. BELL. That could be. That would be a violation of our Code 

of Ethics and Professional Responsibility. Once again, a responsible 

lender would not do that and we would take sanctions on any reports of lenders doing that. 

Usually when the borrower’s taking out the full amount of 

money, there’s one of two things going on in probably upwards of 

90 percent of the cases where this happens. 

One is they’re paying off an existing mortgage amount and they 

need that full amount of money to eliminate that other mortgage. 

The other thing is it might be a fixed rate HECM which is a relatively new development in the marketplace and the lenders require a full withdrawal on a fixed rate HECM for the following reason. 

If I know how much money you’re taking, if I know you’re taking 

a $150,000 from your HECM and that’s it, that’s the amount available, I could price that, I know my cost of money. But if you have 

a $150,000 available and you say I want to take $50,000 today and 

I don’t know when I’m going to take the rest, I’ll leave the rest in 

114 

a line of credit, I might come back in three years, I might come 

back in six years, I might come back in nine years and draw it 

down, I can’t do that on a fixed rate because I don’t know what my 

cost of money will be at that point in time. 

So I could lock and fix today for the full amount you’re going to 

take, but I can’t do that if it’s going to be a line of credit. 

The department just asked us to work with them to come up 

with a hybrid HECM that will give a fixed rate for the amount 

that’s drawn upfront but a variable rate for the future draws which 

would accommodate that issue. 

Senator MCCASKILL. Is there any sense of the people in the 

rooms you’re sitting with in Washington that—I mean, I’m—I’m 

not a dumb person. I’m pretty smart. I’ve got a law degree. I’ve 

spent a lot of time in law practice and in the legislature, and I 

have spent a year and a half trying to completely understand this 

and this is complicated and the yield spread issue is complicated 

and what Buz is telling you is that he’s a good counselor and he 

is telling you that he cannot counsel seniors with any certainty 

about how much these loans are even going to cost him prior to the 

time they sign away their life savings. 

Mr. BELL. Well, no, they know prior to closing. There’s a full disclosure with full numbers—— 

Senator MCCASKILL. Do they get counseling again? 

Mr. BELL [continuing]. Prior to counseling. They can go back to 

the counselor—— 

Senator MCCASKILL. No. 

Mr. BELL [continuing]. If they choose to. 

Senator MCCASKILL. But they’re not required to. 

Mr. BELL. They are not required to. 

Senator MCCASKILL. So what—— 

Mr. BELL. You can add a second step to the counseling process 

if that would be desirable. 

Senator MCCASKILL. How about if we just make lock-in rates? 

Mr. BELL. Well, the problem with locking-in rates, as, you know, 

that’s been done—— 

Senator MCCASKILL. We used to do it. 

Mr. BELL [continuing]. Historically—yes, and then we had periods where no money was available because the locks were below 

where the cost of capital was. 

Senator MCCASKILL. Well, I—— 

Mr. BELL. That’s why most governments do not set interest rates 

anymore. In fact, that’s why HUD does not set the interest rates 

or the margin rates on HECMs. 

Senator MCCASKILL. They’re using Libor? 

Mr. BELL. I’m sorry? 

Senator MCCASKILL. Are they using Libor? Is that what they’re 

using? 

Mr. BELL. HECMs are allowed to be done with either a CMT, a 

Treasury, based on the 1-year Treasury, or based on the Libor. 

However, Fannie our sole investor announced earlier this year that 

they will no longer buy CMT based loans. Therefore, they have 

forced the whole industry to use Libor, but Libor actually yields 

lower interest rates and as a result a higher benefit to borrowers 

than did the CMT. 

115 

Senator MCCASKILL. Well, I think that obviously the follow-up to 

this hearing, once of it is with Fannie to talk about what is going 

on as relates to these loans because I worry that in the process of 

adjusting to this market, that we’re shifting the risk to taxpayers 

completely and totally, and second, we’re making it so much more 

complex for seniors to truly understand where they stand and what 

they’re getting into and what the consequences are to them and 

their families. 

After all, that’s how we began down this road. It started as an 

idea to make it a simple, understandable transaction that would be 

affordable for seniors to access some of their equity to deal with the 

problems they’re facing, and if we get to the point that one of the 

best counselors in the country on this, first of all, doesn’t even understand what’s going on, doesn’t understand how to explain it to 

the people as to what’s going on with the rates, and the rate is a 

pretty important component of this whole thing, I think we’ve got 

an issue. 

I think somebody in Washington needs to go, wait a minute, I 

think we are so caught in the weeds of this market and the cost 

of money and what’s going on in this economy that we’re losing 

sight that seniors aren’t getting the information they need and deserve before they enter into these instruments. 

Mr. Claggett, would you comment on that in terms of the people 

you’re talking to? Have you dealt with clients that have had problems with these mortgages? 

Mr. CLAGGETT. Your Honor, we have—currently, we have two 

cases that involve some of the issues we’re talking about today. 

One is a client who didn’t understand that she would have to escrow her taxes and insurance and that’s went for several years and 

ultimately the lender paid it and now is insisting that she pay it 

back, so there’s a threat of foreclosure there. 

We have another client that didn’t understand that she wasn’t 

going to get the full appraised value of her house when she took 

out a reverse mortgage and was understandable upset when she 

learned it was about half of that money, and on a variation of the 

case that you mentioned with Mary Heinzer who’s being represented by Lewis Rice and Fingersh under our Legal Services Pro 

Bono Program, on a variation of that situation, this particular client that we’re handling, she took out a reverse mortgage that paid 

off a forgivable loan that was for home repairs and sort of to add 

insult to injury that work was done in connection with that forgivable loan was done in a shoddy workmanlike manner. 

So as in Ms. Heinzer’s case where the money was released and 

all leverage over the contractor to fix the problem is now gone, 

that’s similar to what was happening in this client’s situation, as 

well. 

Senator MCCASKILL. Mr. Zeman, let me try to finish up here. 

Right now with the rate not being locked and knowing that you’re 

counseling, what’s the average amount of time that passes between 

the time you counsel someone and the time they close one of these 

loans? 

Mr. ZEMAN. We usually don’t know that for sure. The approach 

to counseling that I take is to do an intake, set up a counseling session probably about a week later. It gives me a chance to get a 

116 

packet to them ahead of time so that they can review the materials. Then we do the main counseling session. I follow up a few 

days later to follow up on any specific questions. 

But most typically, that’s the end of the counseling process. The 

client is on their own, if you will, from then on and may or may 

not decide to proceed with the loan. I’m available to be called. In 

some cases, I will make it a point to call. The cases I follow up and 

make such points are usually cases that involve somebody eligible 

for public benefits. I want to make sure that they pursued those. 

So I typically will not know how long it takes or when the loan 

closes. 

Senator MCCASKILL. How did you discover that you could no 

longer tell someone what the comparative price of this obligation 

was going to be as compared to, for example, a home equity loan? 

I mean, I would assume that’s part of the counseling, that there’s 

a variety of ways you can try to get at your equity in your home. 

One is a traditional home equity loan, and I would assume that 

these people would want to know how much is a home equity loan 

going to cost versus how much is a reverse mortgage going to cost. 

Mr. ZEMAN. Absolutely. Now, I can tell them a lot. I work up 

comparisons, but they really are guesses. I don’t know, can’t know 

exactly what they’re going to encounter when they go to the marketplace to choose a lender. 

In some cases, they’ve talked to a lender first and so they may 

have an idea of what that lender offers. In this current marketplace, though, the variety of costs, the variety of margins out there 

from lender to lender could vary considerably and you may find a 

few that still offer lock-ins or you may not. 

So again, the challenge for me to explain it to a client is I don’t 

know exactly what the marketplace is going to be like. I don’t know 

what you’re going to get charged as far as a rate. I can give you 

these estimates and projections, but, boy, is it a challenge. 

I would have a difficult time—I’m pretty knowledgeable, and I 

would have a difficult time knowing whether or not I was going to 

get the best deal from a given lender in this marketplace. 

Senator MCCASKILL. I do think we’ve still got work to do on the 

counseling and the testimony today and, Mr. Bell, I appreciate the 

efforts that your organization is making in regards to counseling. 

I certainly know that counseling is incredibly important in this 

area. 

I think it’s important to remember that we’re not there. I mean, 

when the GAO does a secret shopper program and I believe his testimony was 14 out of 15 or 15 out of 15? 15 out of 15 counseling 

sessions that GAO sat in were not sufficient in terms of information that was provided, whether or not they were actually counseling for the amount of time they were charging for, all of those 

issues. 

If you’re 15 for 15 in a secret shopper program, then I’m not sure 

the seniors are getting the kind of help they need before they enter 

into one of these loan agreements, and I think Congress has a responsibility to make sure that we continue to maybe institutionalize the GAO Secret Shopper Program so that the counselors 

know that in any given moment the person sitting across from 

them could be someone that is going to be passing judgment on 

117 

whether or not they’re doing an adequate job of informing seniors 

of all the risks and the rewards that come with the reverse mortgage. 

Mr. ZEMAN. There’s actually a well-thought-out Secret Shopper 

Program that AARP has been working on since 2006. It’s on the 

shelf now, but I was involved in it. It’s ready to go. It’s not just 

targeted at finding inadequate counselors—although that would be 

a major important step to find all the egregious errors, but the effort is designed to work with HUD and improve counseling. 

A second shooper would have the occasion to praise a counselor 

for the great work, he covered everything, or you might have 

missed these few things and here’s how to do it better, or you need 

to go back to a training session, and we’ve got one to offer to you 

to help you get all this information down a little bit better. 

So it doesn’t necessarily have to be totally punitive, but, boy, 

once this study gets out, I guarantee you that most counseling 

agencies are going to be looking a lot more closely at HUD regulations and what is required. 

Senator MCCASKILL. I’ll be anxious to follow up with HUD IG on 

a follow-up to the GAO’s efforts at assessing counseling. It’s a little 

bit like the appraisals. If we aren’t getting good appraisals, we 

have fraud. If we aren’t getting good counseling, we’re going to 

have people that get caught up in situations that they’re not prepared to handle. 

I want to thank all of the witnesses today. I appreciate you being 

here. I think that my closing comments would be that to any senior 

that is looking at a reverse mortgage go carefully, go thoroughly, 

make sure you understand all the fine print, and remember the 

most important thing that you can ever know whenever you’re embarking upon any kind of financial transaction, if it sounds too 

good to be true, it usually is. 

Thank you very much.[Applause.] 

[Whereupon, at 11:07 a.m., the hearing was adjourned.] 

(119) 

A P P E N D I X 

PREPARED STATEMENT OF SENATOR MEL MARTINEZ

Good morning. Thank you, Senator McCaskill, for holding this important hearing 

today. Reverse mortgages are unique financial instruments that have risen in popularity in recent years. Although these products have been around since the 1970’s, 

they are little understood by the general public. I hope that we can use today’s hearing to shine some light on reverse mortgages and the positive effect they can have 

on our aging population. 

According to the American Housing Survey, nearly twenty-five million American 

homeowners have no mortgage debt, and more than twelve and a half million of 

them are sixty-five or older. For many elderly homeowners, the equity in their 

homes represents their largest assets. Reverse mortgages offer unique financial 

flexibility for America’s fast-growing aging population. While traditionally, reverse 

mortgages have been used to provide for the most basic living expenses, such as 

food, medicine or home repairs; today’s retirement-age population is seeking more 

creative financial planning tools to help guide them through their golden years. 

A reverse mortgage is a smart, accessible option for older adults in need of long 

term care. Long term care is expensive. An average nursing home stay costs more 

than 70,000 dollars a year in my home state of Florida and in many states across 

the country. The average cost for a home health aide ranges from $19 to more than 

$30 dollars an hour. When one is in need of these services, it is comforting to know 

that a reverse mortgage can be utilized to help pay for these valuable services. 

By using financial planning tools like reverse mortgages, life insurance, and long 

term care insurance many seniors are able to afford the quality care they need without relying on Medicaid for long term care. By ensuring these options are available, 

the federal and state governments are helping seniors age with the dignity and 

independence all older Americans deserve. 

As with many financial tools, I understand that there have been instances of 

predatory practices involving reverse mortgage products. Congress must have absolutely no tolerance for the unscrupulous actions of individuals or companies. 

The recent housing crisis has shed light upon the fact that many consumers entered into complex financial arrangements that they did not fully understand. It is 

important to recognize that consumers are only able to make sound decisions when 

armed with good information. Instead of limiting financial options, we should ensure 

the transparency, availability, and accuracy of financial information. 

Reverse mortgage programs are an important tool used by many Floridians. In 

fact, in the last fiscal year alone, Florida witnessed a one-hundred and sixteen percent increase in the number of home equity conversion mortgages. As these products 

continue to increase in popularity, Congress has a responsibility to ensure that our 

elderly are properly protected while still given every opportunity to make the personal financial decisions that are right for them. 

Thank you. 

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