Fraud scars image of reverse mortgages

Comparing every loan's shortcoming -- real or perceived -- to a "subprime" product needs to stop.

For example, U.S. Comptroller of the Currency John Dugan made an astonishing remark in a prepared statement recently in Orlando: "Consumer compliance risks with reverse mortgages are real, and indeed, I am struck by some of the similarities to the risks of subprime mortgages."

Federal Housing Administration Commissioner Brian Montgomery is the assistant secretary of housing for the U.S. Department of Housing and Urban Development. He is a thoughtful, candid Republican from Texas who oversaw the nation's most popular reverse mortgage program for the past several years. He has predicted a bright future ahead for reverse mortgages, despite the current credit crunch, and he even tried to convince his mother to take out a reverse.

Montgomery was stunned by Dugan's comments and immediately stated his opinion in writing to one of the nation's top banking officials:

"Your comments may have created unnecessary mistrust and confusion about a product that has a very successful track record of giving thousands of seniors the opportunity to use the equity in their homes to maintain an independent lifestyle. I worry that your comments could dissuade many who could truly benefit from a reverse mortgage from using the program and benefiting from the financial independence it provides."

FHA is now shouldering a greater portion of the residential loan load, and its insurance component has come under greater scrutiny because of it. The growing number of reverse mortgages has brought more incidents of fraud, which have unfairly grabbed the headlines from the thousands of satisfied seniors who took out a reverse mortgage.

More than 450,000 Home Equity Conversion Mortgages (HECMs) have been made since 1989, the year FHA launched its reverse mortgage pilot program. FHA insured approximately 112,000 HECMs in fiscal year 2008, up from 107,367 in 2007 and 43,131 in 2005.

Unfortunately, it's always been the case for reverse mortgages that one black eye stays around for the whole fight. Did the mortgage industry get rid of every adjustable-rate mortgage when early borrowers got whacked by the payment shock brought by the first adjustment? No, it implemented caps and ceilings, just like HUD and reverse mortgage lenders have worked to improve the Home Equity Conversion Mortgage. ...CONTINUED

All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.