AARP Regulations – Have they gone too far?

That may be just what future reverse mortgage borrowers may need to do to satisfy federal regulators before getting the loan. AARP recently called for more ‘special protections’ to help prevent serious harm (full story here). What is puzzling is the mixed messages that often come from AARP regarding reverse mortgages; first endorsing and then later criticizing.

When it comes to fraud is our industry rife with it? AARP’s senior attorney cited high fees that ‘scammers’ can use to suck away people’s home equity. Really? Are we on the same page? HUD restructured the loan origination calculation for borrowers lowering fees dramatically from 2% of the homes appraised value some time ago not to mention the introduction of the HECM Saver last October. When it comes to fraud do we have any real evidence that shows a disproportionate problem with reverse mortgages versus traditional loans?

Certainly high fees were a black eye for reverse mortgages but that issue has long been settled by both HUD and the market with mandated loan origination reductions, lower costs to consumers due to the secondary market and new low cost products like the Saver. Are high fees the risk to borrowers exposing them to losing their home or is it a lack of education or responsibility of the borrower to meet the obligations of insurance and property taxes? I would venture to say it is the later, and steps have been taken to reduce that risk to both borrower and lenders alike.

Beyond mandatory counseling, duplicate warnings, disclosures and all caps ‘buyer beware’ statements in an application what additional protections really can be practically put in place? No one would disagree that consumers deserve sound product education and protections but in the end will they need to chew through barbed wire to get a reverse mortgage? What segment of borrowers could potentially be hurt the worst from regulations that treat the HECM as a toxic loan of last resort and what message does this send to our new segment of higher net worth borrowers who may be looking at a HECM for the first time?

9 comments

Marshall Gallop November 22, 2011 at 9:05 am

Is this the same AARP that was a defender of the FNMA/FHLMC disaster spelled out in “Reckless Endangerment”, or the AARP selling very high priced homeowners insurance in Florida to seniors and other products so they can earn fees, or the AARP who’s own spokespeople choose the “spin” they wish to call “facts” when testifying before those in Congress they have provided election support to? AARP has set their sail down the most disgusting part of Washington. Have you noticed that NCOA doesn’t seem to do anything but try to help seniors with their website, etc.???

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Al Johnson November 22, 2011 at 9:08 am

Lendng of any kind is, and always has been, a risk business – if you are looking for 100% perfection of your return – stay away. No amount (volume) of legislation, or taxpayer money thrown at it, is going to change the reality, as has been proven in other arenas time and time again.

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Elio Ronchini November 22, 2011 at 9:17 am

I guess as a senior, who has faithfully taken steps to ensure that we had a house paid for, had looked forward to establishing a RM to pull some of it’s equity out so that we would not be a burden to our children and society. Although I have posted by belief that seniors should NOT be required to pay school taxes, since there is no way that we can now benefit from doing so, none of the forums has come up with a response as to why seniors are required to do so.
There are several posts that discuss the plight that seniors may not be able to receive a RM due to the need to have available assets to pay taxes and insurance, so possibly they should not be able to qualify for a RM.
Gee, I thought that the equity in my home belonged to us—- but it appears not to be the case.
Will someone please take up the banner to see what can be done from having seniors being forced to pay a tax that we CANNOT receive any benefit from?
Without these taxes, seniors have the funds for health, and home insurance, and money for medicine and food.

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The_Critic November 22, 2011 at 3:38 pm

The obligation for property taxes is a local not a national issue. You need to take it to the state legislators who have authority over such matters.

To be clear equity as you describe it is a fleeting thing and cannot be owned per se until the house is sold; otherwise, it goes up and down like the waves. Equity as to control of the property is a grant, not ownership per se. For example, consider eminent domain, right of ways, easements, real estate tax liens, sheriff’s sales, and other interesting limitations on private ownership rights held by various government bodies. Ownership of real estate has never been as it was portrayed in grade school. You rent your land from the state; the term is called property taxes.

Tough love but love, nonetheless, it is.

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Malcolm McLean November 26, 2011 at 9:55 am

*^*^*^AARP is no longer a flagship for seniors – it is a money making enterprise*^*^*^

@Elio Ronchini – I understand your frustrations – if you take a look at all the different taxes, local liabilities, supplemental taxes etc it can be very upsetting.

Increases in illegal immigration are the single biggest issues with schools today.

And you are paying for those illegal kids to be educated! Well done!

Read: http://www.nctimes.com/news/local/article_5cedf831-9d5d-5335-af7e-2af6730a577c.html

And for a breakdown in your property taxes read:

http://www.californiataxdata.com/a_free_resources/faq.asp

As for the HECM or Reverse Mortgage program – did not need a bailout (am I correct in saying that) although Ginnie Mae wants a bucket of money to safe guard any future defaults.

The Reverse Mortgage is still the best way a senior can access equity without selling the home.

The (general) facts of life:

Men die sooner than women

Women marry older

It is conceivable a surviving spouse can live 10 – 15 years after her husbands death

Women lose their husbands SSI on death

A reverse mortgage foreclosure proofs a home for the surviving spouse – as there are no payments then she cannot be late (must pay property taxes tho’!)

So if you are married and want to protect your spouse, allowing her to continue live in the family home after you are gone, then a Reverse Mortgage is a wonderful program.

AARP is a waste of time. It has been corrupted.

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Jeffrey Bochner November 22, 2011 at 9:43 am

Just like dues paid to AARP for membership, Reverse Mortgages aren’t free. There are fees involved; fees that have been signifcantly reduced. Let’s not treat our seniors like children; they deserve protection, respect, education and checks and balances but ultimately deserve to be treated like sentient adults who are capable of making decisions.

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Hanson November 22, 2011 at 11:11 am

AARP professes to be a protection entity for Seniors! AARP is constantly trying to sell seniors their endorsed services like Homeowners Insurance, auto insurance, life insurance, credit cards etc.
I have had the first hand experience where I took their Auto insurance and every year, the premium wnet up and I never had a claim (ame with my homeowners insurance) I shopped for insurance elsewhere and saved about $400.00 a year going to another insurance carrier, on my car insurance.
I don’t believe that AARP promotes these services for the good of the Senior, they promote to benefit AARP, and what they receive from the companies they promote!!

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James E. Veale, CPA, MBT November 22, 2011 at 4:28 pm

AARP is an example of the tax-exempt section of the Internal Revenue Code “gone wild.” AARP has an ideology and a political bias and can bring the gravity of its size to bear in order to get its way.

Its basic instinct is self preservation and expansion. It promotes those things which advance its goals and attacks those things which by such attacks further its goals. Right now a favored object of attack is reverse mortgages. We need to find a way to make such attacks counterproductive.

The organization lacks vitality and is both slow and loathe to change. It is what it is.

Members of Congress know how to manipulate AARP and in turn are manipulated by it. What we saw in the video was such manipulation. Unfortunately Mr. Humphrey both as a Democrat and an AARP board member was forced to participate. His parents, Vice President Hubert Horatio, Sr. and Muriel Humphrey are revered in the Democrat Party and by the President in particular. Like JFK and MLK, their image alone provides coverage for a lot of activities they might have otherwise disapprove.

Mr. Humphrey did not seem pushed by either Senator or the chief litigation counsel for AARP. While he joined in where he agreed, he also did not appear pushed into saying what he did not consider to be true. For his political and AARP bias, he seemed to be very level headed. I hope we see such attributes in the CFPB report on reverse mortgages. I do not expect to see no criticism or no harsh criticism.

I hope Mr. Humphrey will see the benefits the program can bring to the more affluent and by it, allow FHA to provide greater benefits to the less affluent. Some in our industry hate change; a few thrive on it. Not all change is bad BUT too much change no matter how much of it some of us can easily take can create such instability in the eyes of seniors, they shy away from the product.

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Malcolm McLean November 26, 2011 at 10:01 am

@@James E. Veale, CPA, MBT

VERY WELL SAID!

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