The Hill is reporting that the financial services industry is dueling with AARP over language in the Senate housing bill that would affect the reverse mortgage and insurance business. The bill would prevent providers of reverse mortgages from selling borrowers another investment from the proceeds of the loan. Reverse mortgage and insurance providers argue that barring such cross selling amounts to undue interference in their relationships with consumers.
But the backers of the provision, which was introduced by Sen. Claire McCaskill (D-Mo.), say the measure is necessary to protect seniors from abusive marketing that could cause them to squander one of their few remaining assets. In some cases, the elderly were sold annuities that weren’t set to mature for more than a decade even though they needed the money immediately.
A provision of both the House and Senate housing legislation would forbid the tying of reverse mortgages to other financial products. It has the support of the financial services industry. However, the industry strongly opposes language, passed by the Senate in April, that would require life insurers and lenders to erect firewalls to prevent the sale of any financial product in connection with the reverse mortgage. Under the legislation, homeowners would have to go to a separate financial services firm if they wish to invest the proceeds of the loan.
That goes too far, argues Jack Dolan, a spokesman for the American Council of Life Insurers (ACLI). “We certainly are aghast at some of the reports that we’ve seen, but you can’t throw the baby out with the bathwater,” he explained. He added, “It’s an interference with a long-term relationship … You’re telling [consumers] at this late stage in life to find another trusted financial adviser.”
AARP and other backers of McCaskill’s legislation argue that the measure won’t prevent older homeowners from investing the proceeds of their reverse mortgage, as they can do so with another financial firm.
They contend, however, that reverse mortgages shouldn’t be used in conjunction with other financial products. “Because of the high fees associated with taking out a reverse mortgage, an investment would have to have an extremely high return in order for a senior to come out ahead in the end,” Maria Speiser, a spokeswoman for McCaskill, said.