Consumer advocates claim new Fed rule encourages reverse mortgage predators
A collection of consumer advocate groups sent a letter to the Federal Reserve claiming that a recent proposed rule on reverse mortgages would actually encourage predatory lending toward the elderly. The Fed filed the rule with the Federal Register on Sept. 24. The rule was designed to actually give consumers more disclosures on reverse mortgage paperwork, using simple language to highlight the basic features and risks. But the organizations, which include the Center for Responsible Lending, and the National Consumer Law Center, among others, say that the rule goes beyond the Fed's authority and undermines the still-forming Consumer Financial Protection Bureau. Seniors aged 62 or older can qualify for a reverse mortgage, which is used to release the equity in the home and that would not be repaid until the borrower dies, the home is sold or the owner leaves. In the letter, consumer advocates said the rule opens the door for new types of reverse mortgages that could lead to borrowers owing more on the loan than the home is worth. Advocates also say advertisers are cleared to make false statements about the products as long as they present additional information. But according to the rule, the Fed said it "would ensure that advertisements for reverse mortgages contain balanced information and are not misleading." The rule also prohibits originating a reverse mortgage to someone before he or she has received independent counseling. Still, consumer advocates pointed out more problems with the rule. They urged the Fed to strengthen its definition of accurate disclosures for homeowners seeking a right of rescission. Homeowners are granted up to three years to refinance or restructure a loan if the lender did not provide accurate disclosures of the terms and agreements. "Some of the proposals are extremely damaging to consumers and to preservation of homeownership, and are beyond the board’s authority," according a statement put out by the group. Write to Jon Prior.