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Davidow, Davidow, Siegel & Stern, LLP
Long Island's Elder Law, Special Needs & Estate Planning Firm

Thursday, July 23, 2009

Marketing of Reverse Mortgages Lacks Adequate Consumer Protections

As the economy has slowed and housing values have dropped, reverse mortgages have become even more attractive to seniors looking for ways to use the equity in their homes without moving. But a new study by the Government Accountability Office (GAO) raises concerns about the adequacy of consumer protections for reverse mortgage borrowers, who are sometimes subjected to misleading marketing and inappropriate cross-selling of other financial products that may be unsuitable for them.

A reverse mortgage allows homeowners 62 or older to convert the equity in their home to a flexible cash advance that does not have to be repaid until the homeowner moves, sells, or dies. Almost all reverse mortgages are made under the Home Equity Conversion Mortgage (HECM) program, which is administered by the Department of Housing and Urban Development (HUD). In the first quarter of 2009, HUD backed about $7.8 billion worth of reverse mortgages, the largest amount in any quarter since the agency launched the program in 1988, the Washington Post reports.

While reverse mortgages look like no-lose propositions at first glance, they are complex products that have significant downsides for some. For example, these loans carry large insurance and origination costs, they may affect eligibility for government benefits like Medicaid, and they are not ideal for parents whose major objective is to safeguard an inheritance for their children.

GAO reviewed marketing materials used by reverse mortgage lenders and found some claims that were "potentially misleading because they were inaccurate, incomplete, or employed questionable sales tactics."

GAO also found evidence that potentially unsuitable financial products like annuities are being sold in conjunction with reverse mortgages. The Housing and Economic Recovery Act of 2008 is intended to restrict this inappropriate cross-selling, but HUD is still in the early stages of developing regulations.

To help seniors make informed decisions about whether to obtain a reverse mortgage, Congress requires prospective borrowers to obtain adequate counseling by an independent third party. As part of its investigation, the GAO employees went undercover to receive such counseling. While the GAO found that the counselors generally conveyed accurate and useful information, none of the counselors covered all of the topics required by HUD and in nearly half the sessions the counselors did not discuss required information about alternatives to reverse mortgages.

The GAO concludes that these issues pose "emerging consumer protection risks" for reverse mortgage borrowers and the agency makes a number of recommendations to improve consumer protections.

Source: www.elderlawanswers.com; 7/3/09

Thursday, July 9, 2009


President Barack Obama has given his support to a proposal for new national long-term care insurance program that would offer basic help for the elderly and disabled. The President's support could be key to making long-term care coverage a part of the final health reform legislation.
1. Proposed by Sen. Edward M. Kennedy (D-MA) as part of his health care reform bill, the plan would set up a new, voluntary social insurance program to help people insure against the high costs of long-term care. Americans would pay a premium of roughly $65 per month, although the Congressional Budget Office has said the premium could end up being as much as $110 a month -- still far less than the typical cost of private long-term care insurance. After participants had contributed for at least five years, they would be eligible for a benefit of not less than $50 a day to cover long-term care costs.
While the benefit is modest compared to the average cost of nursing home care, it could be used instead to pay for a range of services that would help people remain in their homes. All working Americans would automatically be enrolled in Kennedy's plan, known as the Community Living Assistance Services and Supports (CLASS) Act, but they could choose to opt out. Students and the poor would pay only $5 a month.
In a letter to Kennedy, Health and Human Services Secretary Kathleen Sebelius said that President Obama considers the long-term care program an "innovative" idea that should be "part of health reform."
"Enactment of this important legislation would expand resources available to individuals and families to purchase long-term services and supports to enable them to remain in their own homes in the community," wrote Sebelius.
For many middle-income Americans, the Kennedy plan could be just enough to allow them to stay at home or to afford assisted living care. Medicaid "waiver" programs that offer home health services often have long waiting lists in the states that offer them. Many elderly or disabled individuals end up in nursing homes at government expense when all they actually need is help around the house or home nurse visits.

Source: www.elderlawanswers.com, 7/9/09