JEFFERSON CITY — U.S. Sen. Claire McCaskill, D-Mo., cited a report Tuesday suggesting reverse mortgages can be risky for seniors as evidence that greater federal regulations are needed for the growing industry.
Reverse mortgages allow people age 62 and older to convert their home equity into cash. The loans typically come due when the borrower dies, sells the home or has not lived in it for a year.
A report Tuesday by the National Consumer Law Center said the loans can be appropriate for seniors. But, it said some lenders are deceptively marketing them as "government benefits" or promoting them as a way for seniors to enjoy wealthy lifestyles that essentially burn through assets that may be needed later.
McCaskill, who participated in a media conference call promoting the report, said aggressive reverse mortgage lenders pose a risk to both seniors whose main assets are their homes and to the general taxpaying public.
"If this goes wrong, not only are these seniors going to lose their life savings, but the federal government and the taxpayer is on the hook," because the loans are federally insured, she said.
McCaskill hosted a hearing on the reverse mortgage industry in June in St. Louis. She said Tuesday that she plans to introduce legislation soon that would create more consumer protections.
Reverse mortgages have become more common in recent years. Lenders made 114,692 reverse mortgages during the federal fiscal year that ended Sept. 30 — up significantly from 43,131 in the 2005 fiscal year, according to the National Reverse Mortgage Lenders Association.
Association president Peter Bell acknowledged Tuesday that some companies have run "egregious" advertising campaigns that violate professional conduct codes, particularly those in which mailed materials imply the loans are a government benefit.
But, he said reverse mortgages usually allow seniors to remain in their homes in the face of rising property taxes, medical bills and other financial struggles.
"If somebody's facing foreclosure, particularly now when they can't sell their home, and a reverse mortgage pays off the (original) mortgage and gives them time, I don't understand the risk in that," Bell said. "You save them from basically being homeless."