Americans are living longer, and so the money they set aside for retirement has to stretch further. Also, more seniors are experiencing financial insecurity in the aftermath of the housing market crash. To deal with living costs, many seniors turn to reverse mortgages, which allow them to receive loan payments based on the equity in their homes. However, reverse mortgages are complicated, and most consumers do not really understand their potential risks and pitfalls. Seniors in Illinois may soon have less to worry about because the state legislature approved a bill that would add consumer protections to reverse mortgages.
State Senator Jaqueline Collins and Representative Arthur Turner sponsored SB1440 because, as more seniors are applying for reverse mortgages, the need for consumer protections has become undeniable. Seniors are more at risk of being victims of financial exploitation. In fact, it was an act of exploitation that demonstrated the need for protections in reverse mortgages in the first place: Mark Diamond, a Chicago contractor, scammed seniors into taking out reverse mortgages by promising he would invest the proceeds for them. Diamond kept the money for himself, leaving the seniors he scammed in financial ruin.
Diamond is not the only example of problems with reverse mortgages. The Consumer Financial Protection Bureau (CFPB) gathered 1,200 reverse mortgage complaints between 2011 and 2014. The complaints highlight the range of problems with reverse mortgages, with borrowers citing difficulties with loan servicers, inability to change the terms of the loans, and issues that have led to foreclosures, among others. The number and range of complaints in the CFPB data illustrate the need for more protections for reverse mortgage borrowers.
Now, the bill that can protect Illinois seniors has been sent to Governor Bruce Rauner. The legislation includes several provisions that would give seniors control over their finances, including:
- Consolidating similar, reverse mortgage-related laws into the Reverse Mortgage Act;
- Making the Illinois Attorney General responsible for creating a consumer education brochure, which will be given to borrowers by lenders and brokers;
- Creating a three-day cooling-off period during which the borrower is not required to close or proceed with the reverse mortgage;
- Prohibiting lenders from requiring borrowers to purchase other financial products, such as life insurance, in addition to the reverse mortgage;
- Allowing the distribution of the reverse mortgage loans to only the borrowers or their spouses and partners; and
- Providing for enforcement under the Consumer Fraud and Deceptive Business Practices Act and the Residential Mortgage License Act.
Woodstock applauds Illinois legislators and advocates, particularly Housing Action Illinois and Illinois Attorney General Lisa Madigan, for taking a stand for financial protections for seniors. Retirement savings and wealth building are already challenges that many Americans face. People can lose the benefits of years of building equity in their homes if there are no protections in place to help them avoid having that equity stripped by reverse mortgages that they do not understand and that are not in homeowners’ best interests. Woodstock supports this bill and other initiatives that reduce the financial exploitation of seniors and protect the wealth that individuals and their families have built.