Subprime Revisited - Caregivers Library
SUBPRIMEREVISITEDHow Reverse Mortgage Lenders PutOlder Homeowners’ Equity at RiskOctober 2009NATIONALCONSUMER LAWCENTER National Consumer Law Center 7 Winthrop Square, 4th FloorBoston, MA 02110(617) 542-8010www.consumerlaw.org
Subprime Revisited:How Reverse MortgageLenders Put OlderHomeowners’ Equityat RiskWritten byTara TwomeyOf CounselNational Consumer Law CenterRick JurgensContributing AuthorACKNOWLEDGMENTSThe authors would like to thank Odette Williamson for overseeing the writingand editing and coordinating the release of this report; Carolyn Carter and WillardOgburn for their valuable guidance and input to early drafts; Julie Gallagher fordesigning and formatting the report and its graphics; Denise Lisio for editorialassistance; and Eric Fletcher for assistance with footnoting. This report wasenriched by the support, insight and expertise of attorneys Daniel Claggett,Prescott Cole, Frank Kautz, Dan Murphy, Mark Redmond, David Mandel, DanielMulligan, Megan Tighe and Bill Brennan as well as advocates Len Raymond,Bronwyn Belling, Ken Scholen and Roberta Levitan. Among the many seniors andfamily members who shared their experiences with the authors were MargaretKeast, Janet Altenbaugh, Brenda Holder, Miguel Posada, Marvin Kidwiler andEugene Burson. Others provided information and opinions about the reversemortgage market, including Neil Granger, George Lopez, Jeffrey Nash, W.L.Pulsipher and Jeffrey Taylor.
TABLE OF CONTENTSI. IntroductionII. Reverse Mortgage BasicsHECM Loans123III. Origins and Evolution of Reverse Mortgages4IV. “The Senior Market is a Goldmine”5V. A Multi-Billion Dollar OpportunityThe LendersThe BrokersWall Street and the Securitization SpigotVI. The Marketing MachinePushing Reverse MortgagesVII. More PayoutsYield Spread PremiumsThe Annuity Trap66891111121214VIII. Private Equity Conversion ProductsProprietary Reverse MortgagesEquity Sharing Deals141515IX.Disclosure and Counseling: The Bulwark Against Abuse?Total Annual Loan CostHECM Counseling Requirement161617X. Recommendations: Making the Reverse MortgageMarket Safe18CONCLUSION20Notes21
SUBPRIME REVISITEDHow Reverse Mortgage Lenders PutOlder Homeowners’ Equity at RiskOctober 2009I. IntroductionThe U.S. Office of the Comptroller of the Currency and other federal regulators that overseebanks were slow to recognize the threat posed bythe recent boom in subprime mortgage lending,and slow to act. So it was noteworthy when, inJune 2009, Comptroller John C. Dugan, went before a gathering of bankers and warned of a dangergrowing in a market designed to serve the nation’s seniors: “While reverse mortgages can provide real benefit, they also have some of the samecharacteristics as the riskiest types of subprimemortgages—and that should set off alarm bells.”1During 2008 more than 100,000 seniors usedreverse mortgages to tap more than 17 billion inhome equity.2 Within the mortgage industry, reverse mortgages continue to grow despite theeconomic downturn, with volume more thandoubling between 2005 and 2008.3 Despite asummer slowdown in originations, 2009 still appears to be on pace for a record year.Certainly, the continuing availability of reversemortgages is good news for seniors who need tocash out some of their housing wealth to supplement Social Security, to meet unexpected medical costs, or to make needed home repairs. Butgrowth in the reverse mortgage market has unleashed other, more malign forces.Many of the same players that fueled the subprime mortgage boom—ultimately with disastrous consequences—have turned their attentionto the reverse market. Lenders, including some ofthe nation’s largest banks, view that market as asource of profits that have dried up elsewhere.Mortgage brokers see it as a new source of richfees. Predators who once reaped profits from exotic loans have now focused on wresting morewealth from vulnerable seniors. And securitization, which allowed subprime loan originators todisassociate themselves from the downside risksof abusive lending, is becoming commonplace inthe reverse mortgage industry.Reverse mortgages are complicated. The opportunities for abuse abound. Seniors, many ofwhom lack experience with complex financialproducts, often depend upon lenders and brokers for expertise and guidance. Reverse mortgage lenders, like subprime lenders, emphasizethe benefits that they provide to borrowers andoften tout their commitment to responsiblelending principles. However, such claims are undermined by a growing public record of how subprime lenders—including some now active in thereverse mortgage market—profited from actingirresponsibly during the recent mortgage boom.In addition, reverse mortgage lenders have followed in the footsteps of their subprime counterparts by using financial incentives to rewardbrokers for arranging deals that boost lenders’profits and raise the costs paid by borrowers. Byadjusting reverse mortgage loan terms, such asinterest rates, servicing fees, rate adjustment intervals and distributions, brokers and lenders canmaximize their profits at the expense of seniorhomeowners.Seniors are also vulnerable to other abuses associated with reverse mortgages. Some seniorshave been persuaded to sink proceeds from reversemortgages into complicated annuity contracts orexpensive long-term care insurance products.These products generate large commissions for1
2SUBPRIME REVISITEDsellers, but frequently prove financially toxic forsenior homeowners.While counseling is required for all borrowersof federally insured reverse mortgages, only a handful of states require counseling for all types of reverse mortgages. And while quality counselingcan be helpful to seniors, counseling remains inconsistent and underfunded.There is now an urgent need for more safeguards at the federal and state level to protectconsumers from reverse mortgage abuse, to helpseniors preserve their home equity, and to ensurethat reasonably priced and fairly structured reverse mortgages are available for those who trulyneed them. To strengthen protections, states andthe federal government should:ᔣ Create suitability standards for reverse mortgages and other equity conversion products requiring lenders and brokers to only arrangedeals that do not harm the financial well-beingof seniors;ᔣ Strengthen borrower counseling, which todate remains inconsistent and underfunded;ᔣ Ban yield spread premiums, which incent brokers to make loans more profitable for lendersand investors at the expense of borrowers;ᔣ Regulate proprietary reverse mortgages andother equity conversion products, which arenot federally insured and not subject to existing federal reverse mortgage regulations; andᔣ Improve data collection on reverse mortgagesand other equity conversion products that arenot currently reportable under the HomeMortgage Disclosure Act.II. Reverse Mortgage BasicsReverse mortgages enable senior homeowners toconvert equity in their homes into cash withouthaving to move out. Under a traditional “forward” mortgage, the lender advances the principal at the origination of the loan, and theborrower pays off the balance of the loan withmonthly payments. Under a reverse mortgage,the lender advances funds to a borrower as alump sum, in monthly payments, through a lineof credit, or a combination of these options. Theborrower does not make monthly payments onthis loan. Instead, over time, the reverse mortgage balance rises as a result of additional advances, accruing interest, and fees. Seniorsgenerally use reverse mortgages to tap home equity while remaining in their homes, but someprograms allow borrowers to purchase homeswith a reverse mortgage.Reverse mortgage borrowers must be at least62 years of age and must generally own their ownhomes free and clear or with a minimal amountof outstanding liens. Because reverse mortgagesare essentially equity-based transactions, thereare no income or credit qualifications.The entire balance for a reverse mortgage loanis due at maturity. When the loan matures depends on whether the loan is a “tenure loan” or a“term loan.” For tenure loans maturity occurswhen the borrower dies, sells, or fails to continue tooccupy the home for at least a year. Term reversemortgages mature after a fixed term of years.There are two principal types of reverse mortgages: Home Equity Conversion Mortgages(HECMs) and proprietary reverse mortgages.HECM loans, which are discussed below, are federally insured and make up the vast majority ofthe reverse mortgage market. HUD promulgatesregulations with respect to HECM loans, some ofwhich are intended to curb abusive lending. Proprietary reverse mortgages, which are discussedin section VIII, are equity conversion productsthat are developed and backed solely by private financial institutions. Proprietary reverse mortgages lack even the basic federal consumerprotections that apply to HECM loans.HECM LoansThe Home Equity Conversion Mortgage (HECM)program was designed to meet the needs of senior homeowners by reducing economic hardship
SUBPRIME REVISITEDthat results from increasing costs of health,housing, and subsistence needs at a time of reduced income.4 The program is one of many singlefamily mortgage insurance programs administered by the Department of Housing and UrbanDevelopment.5 As with all HUD-insurance programs, borrowers pay premiums for the insurance and HUD guarantees that the lender will berepaid, up to specified limits, for extending creditto the homeowner.6 Under the HECM program,the senior homeowner is also protected by HUDin the event the lender is unable to fulfill its payment obligation.7 The HECM loan is only available through HUD-approved lenders.Under the HECM program borrowers have achoice of receiving mortgage payments throughfive basic payment plans: tenure, term, line-ofcredit, modified tenure, and modified term.8 Theamount that can be borrowed is based on themaximum claim amount, the age of the youngestborrower, and expected average mortgage interestrates. The maximum claim amount is the lesserof the appraised value of the home or the maximum amount that HUD will insure. The Housing and Economic Recovery Act of 2008 set themaximum claim amount for HECM loans at 417,000.9 The limit has been temporarily increased for 2009 to 625,500.10Because interest is generally the largest singlecost of any reverse mortgage, the expected interestrate is an important factor in calculating the fundsavailable to senior homeowners. While some fixedrate HECM loans have been available, most comewith adjustable rates, as allowed by statute.11HECMs were designed to be “non-recourse”loans, which means that the borrower (or his orher estate) is never supposed to owe more thanthe loan balance or the value of the property,whichever is less.12 HECM loans may be prepaid,in whole or in part, without penalty.13 Borrowersare generally required to keep the property ingood repair and pay property taxes and hazardinsurance premiums in a timely manner.14HECM loans have a number of costs and feesthat are borne by the borrower. Borrowers may be3charged for document preparation, appraisals,title and tax searches, flood zone searches, inspection fees, tax reporting services, attorney’s fees,and origination fees. Origination fees are limitedto the greater of 1) 2,500 or 2) two percent ofthe maximum claim amount up to 200,000,plus one percent of any portion of the maximumclaim amount that is greater than 200,000.15Notwithstanding this formula, origination feesare capped at 6,000.16 For example, the maximum origination fee for a 300,000 HECM loanwould be 5,000 ( 200,000ǂ.02 100,000ǂ.01). In addition, HECM borrowers must paymortgage insurance premiums (MIP) and amonthly servicing fee. The upfront MIP for anHECM loan is equal to 2% of the maximum claimamount. The upfront MIP on a 300,000 HECMloan is 6,000. The initial mortgage insurancepremium and other costs commonly are financedwith the proceeds of the loan itself.After the closing, a monthly MIP accrues dailyon the mortgage balance at a rate of 0.5% a yearand is paid by the lender to HUD. Borrowers alsoare typically charged a fixed monthly servicingfee, ranging from 25 to 35. MIP amounts andservicing fees are added monthly to the borrower’s mortgage balance.HECM loans have been the workhorse of thereverse mortgage industry since they were created. The enabling statute and subsequentamendments have attempted to stem abusivepractices by providing borrowers with some basicconsumer protections. For example, Congresshas mandated that HECM borrowers obtain “adequate counseling” by an independent thirdparty before entering into a reverse mortgagetransaction.17 Congress has capped the origination fee that lenders can charge to borrowers.More recently, Congress has banned the sellingof other financial and insurance products, suchas annuities, in conjunction with HECM loans.While these statutory requirements provide important protections to borrowers, they are unlikely to counteract the market forces that driveinappropriate or abusive lending.
4SUBPRIME REVISITEDIII. Origins and Evolution ofReverse MortgagesEquity conversion products such as reverse mortgages have been around since the early 1960s. Initially offered on a very limited basis by privatefinancial institutions, equity conversion loansvaried widely and were largely unregulated. Earlyproducts included shared appreciation mortgages, reverse annuity mortgages, deferred payment loans, and sale/leaseback arrangements.Through the early 1980s, financial institutions, eager to take advantage of home equitygrowth among seniors, attempted to expand thereverse mortgage market. In 1980, a group of California banks created a nonprofit reverse mortgage joint venture. 18 In 1983, the nation’s firstfor-profit reverse mortgage company, AmericanHomestead Mortgage Co., was launched.19 Despite the potential for reverse mortgages to openup a new source of income for millions of Americans, these early efforts faltered. By mid-1988,American Homestead had underwritten only1,200 loans.20 The California venture collapsedwithin a decade. 21While private lenders were interested in exploiting new business opportunities, senior advocatesand academics championed reverse mortgages as away to reduce the impact of poverty upon elderlyhomeowners. Advocates pushed policymakers tocreate a standard equity conversion product thatwould be widely accepted by the lending industryand that would provide basic consumer protectionsfor potentially vulnerable senior homeowners.Congress responded in 1988 by authorizing ademonstration program through which the FederalHousing Administration would provide reversemortgage insurance.22 Originally limited to 2,500mortgages, the total number of insured mortgages under the government’s Home Equity Conversion Mortgage (HECM) program now exceeds425,000.23 The annual volume of HECM loanshas climbed rapidly over the past ten years.24 Infiscal year 2001, 7,781 HECM loans were originated. By the end of fiscal year 2008, the annualvolume of HECM loans topped 112,000, representing an incredible 1,300% increase in loan volume in just six years. The monthly HECMvolume reached a record high in April 2009, with11,660 HECM loans originated.25The HECM program has dominated the reverse mortgage market since its inception, butthere have been alternatives. In 1996, Fannie Maedeveloped its own reverse mortgage—the HomeKeeper—to serve borrowers with higher propertyvalues, condominium owners, and seniors wish-A DEARTH OF DATACurrently, there is a dearth of publicly available information on proprietary reverse mortgages. WhileHUD provides monthly reports describing basic loanand borrower characteristics for HECM loans, nocomparable information is available for non-HECMloans. The Home Mortgage Disclosure Act (HMDA),27which provides extensive information on homemortgage applications, including approval rate, socioeconomic characteristics of applicants, and somemortgage pricing information, covers few, if any, reverse mortgage transactions.Under HMDA, reverse mortgages are subject tothe general rule that lenders must report applications or loans that meet the definition of a homepurchase loan, a home improvement loan, or arefinancing. However, the definition of refinancingis limited to “a new obligation that satisfies andreplaces an existing obligation by the same borrower.”28 As a result, lenders would not need toreport reverse mortgage transactions where borrowers’ homes are owned free and clear prior to thetransaction. Additionally, reporting is optional if thereverse mortgage includes a line of credit for homeimprovement or home purchase.29 These two exceptions eliminate required reporting of most reversemortgages. Even in cases where reverse mortgagesare required to be reported, HMDA currently provides no way to distinguish them from traditionalforward mortgages.
5SUBPRIME REVISITEDHECM volume as of 2008120,00017Numberof LoansOriginated100,000Total PrincipalCommitedby Lenders( million)60,00010Dollars (billions)Number of 00Fiscal Year (Oct. 1 to Sept. 30)Source: U.S. Department of Housing and Urban Development, "HECM cases endorsed for insurance by fiscal year," postedon-line at sing to use a reverse mortgage to purchase a newhome. The Home Keeper reverse mortgage wasdiscontinued as of December 31, 2008.Private financial institutions also have offereda variety of equity conversion products, such asshared appreciation mortgages and proprietaryreverse mortgages. A widely held view is that proprietary reverse mortgages make up approximately5–10% of all reverse mortgages originated.26 Withtoday’s sagging housing prices, frozen capitalmarkets, and new higher loan limits for theHECM program, the percentage of proprietary reverse mortgages is probably significantly smaller.However, economic recovery over the next fewyears is likely to reinvigorate proprietary reversemortgage products, which to date remain almostentirely unregulated.IV. “[T]he Senior Market isa Goldmine”30The senior population of the United States is expected to grow rapidly, from 35 million in 2000 to64 million by 2025.31 Seniors are also expected to
6SUBPRIME REVISITEDaccount for a growing share of the population—about 18 percent in 2025, up from 12 percent in2000.32At first glance, seniors may not seem to constitute a rich market. In 2007, the median annualincome of those aged 65 and older was 17,382,or just under 1,500 per month.33 But a closerlook reveals that seniors do, in fact, possess considerable wealth. As one study noted, “Residential real estate has grown to become the largestsingle asset class held by households with headsaged 65 or older.”34 Data from the most recentAmerican Housing Survey reveals that over 18million seniors (65 and over) own their homes.35Approximately 15 million of those homeownersare potential reverse mortgage borrowers, including more than 12.4 million with no mortgagedebt and 2.6 million with mortgage debt of lessthan 40 percent of the value of their house.36Reverse mortgage lenders have estimated thatseniors hold as much as 4 trillion in home equity.37 Data from the American Housing Surveysupports a more conservative figure, 2.8 trillion.38 Regardless of where in the range the truevalue lies, there is no question that seniors—evenmany of the poorest—have significant home equity available to be tapped by the reverse mortgage industry. In 2007, the American HousingSurvey found that more than 700,000 seniorsV. A Multi-Billion DollarOpportunity“The potential origination fees for Reverse Mortgagestoday are in excess of 42-Billion. How will you getyour share?”41While reverse mortgage lending remains a nichein the multi-trillion dollar banking industry, ithas begun to attract the interest of banks, insurance companies, mortgage brokers, and WallStreet investors looking for new profit centers inthe wake of the subprime mortgage meltdown.The growing presence of these players in thisonce overlooked submarket highlights the needfor safeguards to protect vulnerable seniors andto prevent a recurrence of abuses that were widespread during the subprime frenzy.Family Income Range 25,000– 30,000The Lenders 20,000– 24,999 15,000– 19,999 10,000– 14,999 5,000– 9,9992,0001,8001,6001,4001,2001,0008006004002000 1– 4,999Number of HouseholdsSenior Homeownerswith No Mortgage(thousands)with annual incomes below 5,000 owned theirhouses free and clear, while another 2.4 millionwith annual incomes below 15,000 had nomortgages.39 All told, more than 7 million seniors with annual incomes below 30,000 ownedtheir homes outright.40That treasure trove of home equity has not escaped the notice of lenders, brokers, and WallStreet investors.In today’s mortgage markets, lenders’ profits aredriven by loan volume, loan amounts, and interest rates. Reverse mortgage lenders are no exception. As in the forward mortgage business, mostreverse mortgage loans have been sold to FannieMae or into the secondary market rather thanheld by lenders for investment purposes.42 Thesale of the loans allows lenders to replenish theircapital so that they can make more loans. Eachloan generates transaction fees, based in largepart on the size of the loan. Loans with higher interest rates garner a higher sales price in the secondary market. Larger loan amounts generally
7SUBPRIME REVISITEDLeading Reverse Mortgage LendersFinancial FreedomWells Fargo Bank NABank of America NAJames B. Nutter and Co.World Alliance FinancialMetlife BankGeneration MortgageUrban Financial GroupGenworth Financial Home EquityWholesaleRetailOne Reverse Mortgage05,00010,00015,00020,00025,000Note: Figures are for 12-month period that ended May 31, 2009.Source: Reverse Mortgage Insightproduce larger fees, and greater loan volumetranslates into greater profits.The subprime debacle showed that loan originators too frequently sacrificed responsible lending in the name of greater volume, higher fees,higher interest rates, and more profits. Many industry analysts agree that the subprime bust resulted from “lenders chasing volume by relaxingunderwriting standards.”43 And, the so-called“vigorous competition” among subprime originators was, in fact, a race to the bottom—a race thatled to improvident lending on a massive scale.The same forces once at work in the subprimemarket are now growing in the reverse mortgagemarket. Competition in the reverse market isheating up, with more than 2,700 lenders offering HECMs.44 According to a recent GAO report,more than 1,500 lenders originated their firstHECM loans in 2008.45 The combination of increased competition, volume-generated profits,and the vast number of potential reverse mortgage borrowers is a recipe for inappropriate andabusive reverse mortgage lending.Leading reverse mortgage lenders often touttheir commitments to responsible lending. Butwith so much money to be made in the reversemortgage market, policymakers and future reverse mortgage borrowers need to weigh lenders’claims against their past lending practices.Some major lenders in the subprime markethave emerged as significant players in the reversemortgage niche. For example, in 2006 WellsFargo was a leading subprime lender, accordingto industry publications.46 Today they are aleader in the reverse mortgage market, originating nearly 20,000 HECM loans in 2008.47 WellsFargo espouses its responsible mortgage lendingprinciples such as only making loans thatdemonstrate benefit to the borrower and a commitment to provide consumers with informationnecessary to make fully informed decisions aboutthe loan terms.48Yet Wells Fargo failed to adhere to those responsible lending practices in the subprime market, according to a lawsuit filed by the City ofBaltimore. The lawsuit claims that Wells Fargohad a systemic practice of steering subprime borrowers into bad loans.49 An affidavit from a former loan officer and sales manager describes asystem in which commissions and referrals were
8SUBPRIME REVISITED“set up in a way that made it more profitable for aloan officer to refer a prime customer for a subprime loan than make the prime loan directly tothe customer.”50 Similarly, the Illinois AttorneyGeneral recently filed a complaint against WellsFargo alleging that the company “provided significant incentives for its employees to steer borrowers into subprime mortgages” and that itsfair lending policies “were only on paper.”51Other reverse mortgage lenders have also putthemselves forward as responsible lenders. JamesB. Nutter, the second largest wholesale originatorof reverse mortgages,52 claims a pristine record ofresponsible lending. In December 2007, GeorgeLopez, a Nutter executive, told the U.S. SenateSpecial Committee on Aging that in the previousyear his firm “received no complaints of any kindrelated to unscrupulous third parties taking advantage of our seniors.”53 Because of sound lending principles, Lopez claimed that “the evils ofmortgage fraud and deceptive advertising practices have not yet crept into the mainstream ofthe reverse mortgage industry.” Finally, Lopez assured the panel that “‘fly-by-night’ brokers are effectively prevented from entering the market”because they must be FHA-approved.54Just weeks before Lopez’ testimony, however,his company underwrote a reverse mortgage thatwas used to siphon multiple high fees from theequity of a vulnerable senior, according to a lawsuitfiled by the victim’s family. The lawsuit describeshow the loan was used by 87-year-old CreightonCollins, a retired truck driver with an eighthgrade education, to cash out 274,000 of homeequity, and how Collins paid the high costs typical of reverse mortgages, including a 7,225 feeto the broker who arranged the loan, a 7,225 insurance premium to the federal government, and 1,600 in charges to verify the title of the househe had owned for decades. As part of the deal,Collins was convinced to invest the loan proceeds, which he had borrowed at 5.74%, in an annuity contract that was guaranteed to pay 3%.Collins embarked on this costly series of transactions after receiving counseling that, accordingto his loan documents, lasted only 47 minutesand was done over the telephone. Five monthsafter taking out the loan, Collins was declared incompetent by local adult protective authorities.55Lopez said in June 2009 that he had not heardabout the Collins family lawsuit, and that hestood by his Senate testimony, although he hadlater heard of some instances where reverse mortgage loans were used to buy annuities. “That sortof stuff makes us really angry,” he said. “Onething we don’t want to see is loan officers working in cahoots with financial planners.”56Claims by lenders that they will protect the interest of consumers in the lending processshould be approached with caution. Without effective regulation, abuses are likely to occur inthe lending process.The BrokersHistorically, mortgage brokers served as intermediaries who brought mortgage borrowers andlenders together. Over time, brokers’ roles havebecome more complicated. Today their compensation and financial incentives are often hiddenbehind a smokescreen of confusing and obtusedisclosures.During the subprime mortgage boom, a smallarmy of mortgage brokers pushed inappropriatemortgage loans on borrowers without regard forwhether borrowers needed the loans or could afford the payments. The subprime bust has sentmany of these mortgage brokers flocking to thereverse mortgage business where many seniorsdepend upon them for guidance through a market that offers a welter of “educational” resourcesand presents complex product and financialchoices.Seniors often assume that brokers have a dutyto look out for the borrower’s best interest. Butthat is not true. Because mortgage loans are considered business transactions where each partyostensibly protects its own economic interest, inmany states brokers and lenders owe no fiduciaryduty to borrowers. Brokers and lenders typicallydisavow the existence of any relationship of trustand confidence between them and borrowers.
SUBPRIME REVISITEDHowever, their marketing material is designed tobuild trust and often uses impressive-soundingcredentials to imply special knowledge andexpertise.For example, American Reverse MortgageCorp. proclaims on its website that it has “thirtyone (31) Certified Senior Advisors (CSA) on ourstaff.”57 As of December 2007, Wells Fargoclaimed to have 750 “certified reverse mortgageconsultants” to assist borrowers with reversemortgage products.58 These designations reflectexpertise with respect to senior financial mattersand reverse mortgages.59 They inspire trust andconfidence from seniors who may later be surprised to find out that the certified advisor orconsultant, in fact, was not obligated to look outfor their best interest.While brokers’ marketing materials are gearedtoward building trust and inspiring confidence,the agenda for a recent gathering of reverse mortgage lenders warned that “it will not be long before fraudsters develop schemes to exploitseniors and lenders” in the reverse mortgage market.60 But there have always been thieves willingto take advantage of vulnerable seniors. For example, in November 2003, Detroit broker Anthony James showed up on the doorstep ofShirley Schultz after she called Financial Freedom Senior Funding Corp., seeking informationabout a reverse mortgage. In January 2004,A SENIOR’S “NEW BEST FRIEND”At a hearing before the Senate Special Committeeof Aging, Carol Anthony summed up the promisesmade to persuade her 80-year-old mother to takeout a reverse mortgage:“There would be no risk of losing her home. But there was.She would receive independent counseling. But she didn’t.All loan options available to her would be reviewed. Theyweren’t. She would never be rushed into signing anythingshe did not fully understand or was not ready t
tion's seniors: "While reverse mortgages can pro-vide real benefit, they also have some of the same characteristics as the riskiest types of subprime mortgages—and that should set off alarm bells."1 During 2008 more than 100,000 seniors used reverse mortgages to tap more than 17 billion in home equity.2 Within the mortgage industry, re-
LOUIS REVIEW JANUARY/FEBRUARY 2006 31 The Evolution of the Subprime Mortgage Market Souphala Chomsisengphet and Anthony Pennington-Cross Of course, this expanded access comes with a price: At its simplest, subprime lending can be described as high-cost lending. Borrower cost associated with subprime lending is driven primarily by two factors .
As delinquencies and foreclosures in subprime loans have increased, the values of securities backed by these loans have declined. The 2007 fourth quarter delinquency rate for subprime loans was 17.31%, the highest in the last eight years. As an aside, delinquencies in prime loans as we
collateralized debt obligations (CDOs). Section 4 briefly explains the link to CDOs and the inner workings of these vehicles, the issuance of CDOs, links to subprime, and the synthetic creation of subprime RMBS risk. Section 5 is about the panic itself, the falling house p
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Albert Woodfox were properly convicted for the 1972 murder of prison guard Brent Miller. Supporters of Wallace and Woodfox, who make up two-thirds of a group known to supporters as the "Angola Three," say that the convictions were at least partly because of the men's involvement with the Black Panther Party. "Under this new governor's office, this new day, we are making sure we right the .
