A recent study conducted by the AARP shows that between 1991 and 2007, the number of seniors over 65 years of age filed for bankruptcy protection at a rate that went up 150 percent when younger American’s filings were on the decline. Notice, those years did not include the Great Recession period when many more seniors filed for bankruptcy protection. Here is my take on why more seniors may be going into bankruptcy: Continue reading
By Mike Hinshaw
Talk about predatory lending…
Given recent revelations, U.S. consumers might start thinking bank charters are really hunting licenses.
Fed proposes relaxation of Truth in Lending restrictions
A Dec. 19 editorial in The New York Times asks some biting questions about the Fed–and the lending sectors it affects: “The Federal Reserve has been rightly criticized for not protecting borrowers — and the economy — in the years before the financial crisis. Under the law, it had the power and the obligation to curb bad lending. It was warned, by Fed insiders and by consumer advocates, of lender recklessness. It still failed to act.
“Now, the Fed has proposed a rule that could undermine an important borrower protection passed by Congress in 2008. Hasn’t anything been learned?”
HECM = reverse mortgage
The rule in question involves reverse mortgages, in general, and ancillary “financial products,” in particular. Reverse mortgages, formally known as Home Equity Conversion Mortgages (HECM), allow homeowners 62 and older to draw on equity in their homes without having to make monthly mortgage payments and without having demonstrate a qualifying income. The borrower can elect among several options for receiving payments. Typically, the loan is repaid from the proceeds of selling the property when the homeowner dies or sells the property.
According to this HUD FAQ page, “The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements and more.”
2008 law banned ‘cross-selling’
A problem arises, however, when lenders take advantage of the situation to push other financial packages to borrowers. Again, from the Times’ editorial: “The 2008 law prohibited ‘cross selling,’ in which lenders required reverse-mortgage borrowers to use some of the loan proceeds to buy other financial products, such as annuities or long-term care insurance policies, that in many instances made no sense for the borrowers.”
As discussed in a Nov. 30 post at a site devoted to reverse-mortgage topics, The AARP came out against the Fed’s proposal to relax the rules; part of AARP’s reasoning includes giving Elizabeth Warren and the new consumer protection bureau a chance to get a foothold:
AARP is requesting the Federal Reserve withdraw a proposal and defer changes to the Truth In Lending Act (TILA) until next year due to revisions relating to reverse mortgages and the right of rescission.
“Not only would those two provisions greatly undermine existing consumer protections, they break with Congressional intent and exceed the authority given to the Board,” said David Certner, AARP Legislative Policy Director in a comment letter.
Earlier this year, the Fed proposed enhanced consumer protection and disclosure requirements for reverse mortgages that prohibit lenders from requiring the purchase of another financial or insurance product as a condition of obtaining the loan.
“Unfortunately, this prohibition includes a safe harbor provision that deems transactions to be in compliance if the purchase of such financial products occurs at least 10 calendar days after the reverse mortgage transaction has been completed. Allowing for such an exception essentially nullifies this important prohibition,” said Certner.
Unintended consequences hit potential clients for loan-modification attorneys
Another mortgage-related travesty has surfaced in California.
In an attempt that’s been perceived as a measure to help homeowners, the state legislature passed a law saying that attorneys who help homeowners obtain loan modifications can’t get paid until the case is closed. The apparent intent was to shield homeowners from scams in which they are promised help, then pay, then watch as nothing happens and the hired-help firm rides off into the sunset.
Not to put too fine a point on it, but this story amplifies the signal about the need for Elizabeth Warren and the new consumer protection bureau. Basically, we can’t stay ahead of the financial predators if we rely solely on legislation. Now consumers face another obstacle: hiring a lawyer.
Again, from The New York Times, posted Dec. 20: “In California, where foreclosures are more abundant than in any other state, homeowners trying to win a loan modification have always had a tough time.”
California lawyers: ‘No choice’
Skipping forward, the same article continues:
Lawyers throughout California say they have no choice but to reject clients like Ms. Bell because of a new state law that sharply restricts how they can be paid. Under the measure, passed overwhelmingly by the State Legislature and backed by the state bar association, lawyers who work on loan modifications cannot receive any money until the work is complete. The bar association says that under the law, clients cannot put retainers in trust accounts.
The law, which has few parallels in other states, was devised to eliminate swindles in which modification firms made promises about what their lawyers could do, charged hefty fees and then disappeared. But foreclosure specialists say there has been an unintended consequence: the honest lawyers can no longer afford to assist Ms. Bell and all the others who feel helpless before lenders that they see as elusive, unyielding and skilled at losing paperwork.
Essentially, lawyers in California are turning down this kind of work, despite the revelations of the foreclosure scandal.
To be continued.
Whatever you do, before making major, life-changing financial decisions, consider consulting a trained, experience attorney. If you think your home is a candidate for a short sale, be sure to ask your attorney about it–it could greatly affect your standing and strategy for starting over.
For bankruptcy basics, please see: