[Congressional Record Volume 143, Number 51 (Friday, April 25, 1997)]
[Senate]
[Pages S3712-S3717]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               SENIOR CITIZEN HOME EQUITY PROTECTION ACT

  The PRESIDING OFFICER. The Banking Committee is discharged from S. 
562, and under the previous order the Senate can proceed to consider 
that bill.
  The clerk will report.
  The assistant legislative clerk read as follows:

       A bill (S. 562) to amend section 255 of the National 
     Housing Act to prevent the funding of unnecessary or 
     excessive costs for obtaining a home equity conversion 
     mortgage.


                         Privilege of the Floor

  Mr. D'AMATO. Mr. President, I ask unanimous consent that Lehn 
Benjamin be admitted to the floor for the purposes of this legislation.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Mr. President, I rise today to support the legislation 
known as the Senior Citizens Home Equity Protection Act. Now, that is 
legal jargon for saying that we have a real problem, one that is, on a 
daily basis, getting worse and worse, one that is exposing our most 
vulnerable homeowner population--our senior citizens--to very, very 
serious abuses.
  Let me, if I might, just explain to you the problem without going 
through all of the intricacies of this legislation, which I might add 
is supported and cosponsored by approximately 25 of my colleagues. The 
bill's cosponsors are about equally divided, Republicans and Democrats, 
and include just about the entire Banking Committee.
  Who are these people who are being scammed, who are being victimized? 
They are our parents, our grandparents, our senior citizens. They are 
elderly homeowners in America who are being induced by some people who 
masquerade as estate planners. This is not an attack on estate 
planners. This is not an attack on those financial consultants who give 
people advice. This is an attempt to stop thieves, con artists and 
swindlers, masquerading as helpers to the elderly, but who are nothing 
more than rip-off artists.
  What do they do? Congress, through HUD, has initiated a program of 
reverse mortgages whereby many seniors who are cash poor and who have 
equity in their homes, people who have paid off their homes, and find 
themselves without the ability to pay their taxes, to keep up their 
home, or to take care of their daily needs, people have utilized 
reverse mortgages whereby they can go to the bank. They might have 
$100,000 value in their home and may receive a $50,000 mortgage which 
they may take out on a monthly basis or they may take out the entire 
amount and thereby budget for themselves their needs.
  Now who is a typical borrower of this reverse mortgage plan? What is 
the profile? They are 76 years old. They are with less means than a 
typical elderly home owner. Their annual income is $10,400 per annum. 
One-quarter of them have incomes of less than $7,700. Mr. President, 78 
percent of the total income that they have comes from Social Security.
  What do the scam artists do? Today, because of the availability of so 
much credit information and information with respect to the lives of 
every citizen, they solicit those people who are elderly, who own their 
own home. Many of them are living alone. Sixty percent of these people 
that use the HUD reverse mortgage program need to use it because they 
do not want to be forced to sell their homes and leave their 
communities. That is where their friends and neighbors and relatives 
live. Sixty percent are females living alone, 12 percent are males 
living alone. So, fully over 70 percent are elderly who are living 
alone.
  So they get a profile on these people and they literally go door-to-
door and say, ``We are in the business of financial consulting. If you 
would like, we could help you obtain a mortgage, a reverse mortgage, 
one you do not have to pay back. Only when you eventually sell your 
home or if you pass away, will the proceeds come due, and we can get 
you $50,000 or $60,000 or $70,000.'' For this advice, they often charge 
these people 10 percent of the mortgage loan amount. Most times they 
never tell them that there will be any kind of a fee, nor do they 
advise them that this information is available free, or that HUD will 
make this available, or send them the information.
  So literally, because they know of this program, they are able to go 
out and take as much as 10 percent for a $50,000 mortgage for 
information that is available at no cost, and literally do nothing but 
relieve the people of their money.
  Here is, Mr. President, an advertisement. They are not happy just 
going door-to-door or by telemarketing themselves. They are now 
franchising, franchising, this kind of thievery. Here is an 
advertisement called ``America's Trust, Inc.--Tap into a totally new 
market of opportunity. Duplicate the system that allowed us to expand 
by 400 percent in 60 days.'' It goes on to say if you want to become 
one of our door-to-door solicitors or one of our telemarketers, why, 
you can earn a 3-percent commission, and, by the way, you can do 
literally dozens of these referrals on a weekly basis and we will give 
to you a 3-percent commission, because they give them 3 percent and 
they keep 7 percent. And this poor homeowner is paying money for a 
service that virtually gives them nothing, but just refers them to a 
Government program. That is wrong.

  Mr. President, that is why we are seeking to pass this legislation 
that would stop unscrupulous high-pressure middle men from preying on 
elderly homeowners by exploiting the reverse mortgage program.
  I have explained to you what the problem is. The bill will put an 
immediate stop to the practice of predators taking advantage of senior 
citizens. HUD's Federal Housing Administration Conversion Mortgage 
Program, known as HECM, is a reverse mortgage program. It allows 
seniors age 62 and older to borrow against the equity in their homes. 
It is a great program; it has assisted approximately 20,000 people. 
But, again, we find the masquerader coming and preying on the elderly. 
The average person is 76 years old and has an average income of 
$10,400. These homeowners are tracked down and enticed to apply for a 
reverse mortgage and conned into paying thousands of dollars for this 
service, which HUD provides for free. They are totally unregulated 
companies, often changing names and locations.
  The following are true examples: One 75-year-old woman who resides in 
southern California read a brochure about reverse mortgages at a senior 
citizens center. She contacted the so-called information service, one 
of these scam artists, who met with her and referred her to a lender. 
The FHA-approved lender then handled the loan for her. She was 
surprised and shocked to learn that she now had to pay $5,200 to the 
so-called information service for that referral. That is just wrong.
  Another elderly woman, also in California, was called by a 
telemarketer

[[Page S3713]]

who persuaded her to apply for the HUD reverse mortgage program. This 
person called himself an estate planner. She paid the planner $5,500 
just for the referral--no other services. She paid a 10-percent fee 
just for them saying, ``Here, call HUD.''
  Here is another heartbreaking story. A 91-year-old California widow 
with cataracts was solicited for a reverse mortgage. While she 
originally refused, she said she was eventually worn down and agreed. 
Due to her cataracts, she was unable to read the mortgage documents, 
and nobody explained to her what she was signing, and she ended up 
paying a 10-percent fee. She states that she would not have applied for 
the mortgage had she known she would be paying a 10-percent fee.
  This is what goes on and on and on. There are stories about people 
who are literally coerced, because of their age, to invest their 
mortgage proceeds in annuities they had no real reason to want or need. 
These practices must be stopped. This bill will provide HUD the ability 
to issue an immediate interim order, setting rules and regulations so 
that legitimate estate planners can continue, and those high-jinx 
artists who are abusing and defrauding--and actually franchising--what 
is left of senior citizens' assets will be precluded from doing so.
  HUD--and I have spoken to Secretary Cuomo who, within an hour of the 
final passage of this legislation, will enact those rules and 
regulations that will prevent these scam artists from dealing with FHA-
approved lenders. They will no longer be permitted to do that. The 
lender will be precluded from working with anyone who is receiving 
these types of commissions. Now, HUD has attempted to do this. The 
court system has said, no, you must follow proper rulemaking 
procedures. That is why we are here. That is why it is a situation of 
some exigency, because every day, every hour, we have more and more 
seniors who are potentially being victimized. So it is an urgent 
question of time.
  Mr. D'AMATO. Mr. President, I ask unanimous consent that Senator 
McCain and Senator Domenici be added as cosponsors to S. 562.
  The PRESIDING OFFICER (Mr. Smith of New Hampshire). Without 
objection, it is so ordered.
  Mr. D'AMATO. Mr. President, I simply want to say that no one has 
worked harder in bringing this matter to light and sponsoring this 
legislation than Senator Bryan. He has pointed out that there are 12 
million elderly homeowners who own their homes free and clear, and what 
has taken place is that they have become targets of these people who 
masquerade as estate planners. There are tens of thousands of older 
homeowners who are house-rich but cash-poor and have successfully 
utilized this program. But we have to see to it that we keep these scam 
artists from moving in further. The success of the reverse mortgage 
program has opened the door to scam artists that are moving into our 
communities.
  To date, fortunately, this has not become a situation that is 
widespread. Hopefully, we will be educating people by speaking to them 
today and telling them to watch out. But, more importantly, we should 
see to it that they have the protections afforded by this legislation. 
Let me also say that the State of Nevada has many senior citizens who 
are potential targets. Obviously, the Senator from Nevada is very 
concerned.
  Mr. President, one who has worked tirelessly in this matter has been 
Senator Dodd. I yield the floor to my friend and colleague, Senator 
Dodd.
  The PRESIDING OFFICER. The Senator from Connecticut.
  Mr. DODD. Mr. President, I thank my colleague from New York. Let me 
begin these brief remarks by commending our colleague, the chairman of 
the Banking and Housing Committee, Senator D'Amato, for pushing this as 
effectively and expeditiously as he has. We know it is hard to get on 
the agenda here with all the other matters we have to consider. The 
fact that we are considering this legislation as quickly as we are is a 
credit to him and also to the leadership of the majority leader, 
Senator Lott, and the Democratic leader, Senator Daschle. It is 
noncontroversial because all of our colleagues, I think, recognize what 
is being done to senior citizens.
  Senator D'Amato has rightfully pointed out the tremendous work done 
by Richard Bryan, our colleague from Nevada, who has been deeply 
involved in this issue. Also, Andrew Cuomo, the Secretary of Housing 
and Urban Development and his staff have done an excellent job on this 
issue. He has worked hard to prevent scam artists from taking advantage 
of elderly Americans in these reverse mortgage opportunities. So many 
people can rightfully sit at the table and take credit for where we are 
today--about to pass critical legislation that will help our senior 
citizens.
  Mr. President, everyone in this country needs a safe and secure place 
to live; that is a dream as old as the Republic. In recent years, the 
Department of Housing and Urban Development has developed a number of 
innovative programs that are helping many more Americans achieve the 
dream of home ownership. The National Home Ownership Strategy, a 
public-private partnership of 62 organizations, has helped to increase 
home ownership to a rate of 65.6 percent, Mr. President. That is the 
highest rate in 15 years. As an aside, I am very hopeful that we will 
continue to work on creative ideas, under the leadership of the 
chairman of the committee, and others, to increase home ownership in 
more of our disadvantaged areas. We have subsidized rents for years, 
and there has been real value in that, in providing decent shelter for 
people. I would like to see us do more to subsidize equity and 
ownership. Nothing does more to clean up a street or a neighborhood 
than people who have an equity interest or financial interest in what 
happens to the buildings on their block.
  I know the chairman and others have expressed a strong interest in 
this. So maybe we can move even further than we already have, and 
increase home ownership rates even higher.
  The bill we are considering today will help protect homeowners. It 
will protect senior citizens who have worked hard, struggled to save, 
and built decent homes for their families. Our senior citizens fought 
very hard to get their homes. These are people who didn't have the 
advantages of a lot of new opportunities that banks provide, and that 
HUD has provided, to get out and make those downpayments on that first 
home. These are our retired citizens now, who have fought to keep their 
homes, who held two, three, four jobs to do so, and paid off those 
mortgages. They are sitting there holding their home free and clear of 
any debt. And now, as a result of that, financial institutions very 
creatively are offering the reverse mortgage, which the chairman has 
talked about, and are saying you can borrow against that equity in 
order to take care of medical bills, groceries, or heating bills you 
may have, and other things that come up. It is a very creative idea to 
be able to reverse a mortgage, in effect, for things that people need.
  But what happens, of course, when something like this comes along, 
there are always the thugs who try to take advantage of people. This is 
nothing new. They are always out there. They run around and go door to 
door, literally, Mr. President, where these elderly people live and rip 
them off, as the chairman pointed out passionately this morning. These 
are people who have worked hard and done everything right and live 
alone, in some cases, and their family may be removed and they don't 
get the kind of advice they should be getting. You can say ``caveat 
emptor, buyer beware; you ought to do a better job.'' But it is 
difficult. They are frightened and scared, and some fast-talking 
salesman comes in with a quick deal and they don't know the difference.
  As a result of the chairman's efforts this morning and the unanimous 
support that I think we are going to have from all of our colleagues 
here, we are going to slam the door on these scam artists--loan sharks 
is really what they are. That is simple terminology that most people 
can understand.
  So I am very pleased, Mr. President, to join my colleague from New 
York, and others, this morning in urging the adoption of this 
legislation and urging the House, which I hope will move quickly on 
this, so that we can submit this bill to the President for signature. I 
know the President strongly supports our efforts here as well.
  This is a good example of a Congress working together to take care of 
a

[[Page S3714]]

problem that exists in the country. This legislation will provide our 
elderly citizens, our seniors, with the security of knowing that the 
reverse mortgage, which they are taking out for their needs, will not 
cost them more than it should. So I am delighted to be a cosponsor of 
this. I commend the chairman again, and others, for their work. I thank 
the Housing and Urban Development Agency, under the leadership of 
Andrew Cuomo, for being so supportive. I look forward to the passage of 
this bill, Mr. President.
  I thank my colleague and I yield the floor.
  Mr. D'AMATO. Mr. President, let me commend Senator Dodd for his 
leadership in this and say to him that, No. 1, it is absolutely 
imperative that we see to it that our senior citizens are protected. If 
you stop and look at the numbers that I have indicated to you, 72 
percent of all of these seniors live in their homes alone. For the most 
part, they are widows or widowers. What targets, what inviting targets 
they are. They are struggling to keep their homes, and these scam 
artists come along and say, ``We have the way for you to do it.'' Well, 
there is a way provided by the reverse mortgage program, without being 
ripped off for $5,000 or $6,000. They are bandits. We are going to make 
this immoral, horrible practice now illegal. Technically, they have 
been able to get away with this. This legislation will give to 
Secretary Cuomo the ability to prevent this. He has said to us that, 
within 1 hour of Congress giving him that authority, he will exercise 
that authority. So that is the least we can do.
  I ask that Senator Helms be added as an original cosponsor.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. D'AMATO. Let me say that Senator Dodd has mentioned something 
that I think we can do, and that is we will attempt to do two things. 
First, where we have struggling communities that are working to upgrade 
themselves, we can and should be able to make the kind of investment 
that for not much in the way of dollars will lead to revitalization.
  I have met with people in the community today from Riverhead, Long 
Island, where a self-help program is attempting to take some of the old 
homes, in many cases that have been abandoned, and upgrading them. They 
are doing this on their own initiative. They are doing this without any 
Federal funds.
  It seems to me that through an enlightened program of revolving 
credit that we could provide a minimal amount of money--not tens of 
millions--but in some cases $100,000, or maybe something in the area of 
several hundreds of thousands of dollars, which communities could use 
in their own self-help programs to purchase distressed properties, 
coupled with low-rate mortgages for first-time home buyers. They want 
to be in a position where they can say to their communities, ``Help us 
rehabilitate these distressed properties'' and then provide young 
people the opportunity of homeownership that otherwise might not be 
available.
  I am looking forward to working with Senator Dodd in this area. 
Sometimes it is a small program in a community that can grow and 
develop a pride that can bring about increased support for 
homeownership in that community.
  I am looking forward to working to do that. I think the potential is 
unlimited. We have an obligation to attempt to do that. We don't need 
big national organizations that sometimes become counterproductive. 
They are worried about their own image, and they have lost sight of how 
to help smaller communities help themselves as opposed to Big-Brother 
Government coming in and saying, ``By the way, we can give them some of 
these tools.''
  So I share this with you because I was so impressed by Mrs. Stark, 
whose husband is the local supervisor in the Town of Riverhead, who 
said ``This is what we are doing, Senator.'' I said, ``You know, we 
should be part of this to try to provide that opportunity.''
  We are talking about an important subject, protecting the elderly. We 
have an obligation to see to it that we protect them, but also to give 
real opportunities to young families as well.
  I look forward to working with my friend and colleague on this.
  Mr. D'AMATO. Mr. President, I know of no one else in the majority who 
seeks to speak to this issue. We would yield back all of our time.
  Mr. DODD. On behalf, Mr. President, of Senator Sarbanes of this side, 
we yield back this time as well.
  The PRESIDING OFFICER. The bill is before the Senate and open to 
amendment. If there be no amendment to be proposed, the question is on 
the engrossment and third reading of the resolution.
  The bill was ordered to be engrossed for a third reading, was read 
the third time, and passed as follows:

                                 S. 562

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Senior Citizen Home Equity 
     Protection Act''.

     SEC. 2. DISCLOSURE REQUIREMENTS; PROHIBITION OF FUNDING OF 
                   UNNECESSARY OR EXCESSIVE COSTS.

       Section 255(d) of the National Housing Act (12 U.S.C. 
     1715z-20(d) is amended--
       (1) in paragraph (2)--
       (A) in subparagraph (B), by striking ``and'' at the end;
       (B) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (C) by inserting after subparagraph (B) the following:
       ``(C) has received full disclosure of all costs to the 
     mortgagor for obtaining the mortgage, including any costs of 
     estate planning, financial advice, or other related services; 
     and'';
       (2) in paragraph (9)(F), by striking ``and'';
       (3) in paragraph (10), by striking the period at the end 
     and inserting ``; and''; and
       (4) by adding at the end the following:
       ``(11) have been made with such restrictions as the 
     Secretary determines to be appropriate to ensure that the 
     mortgagor does not fund any unnecessary or excessive costs 
     for obtaining the mortgage, including any costs of estate 
     planning, financial advice, or other related services.''.

     SEC. 3. IMPLEMENTATION.

       (a) Notice.--The Secretary of Housing and Urban Development 
     shall, by interim notice, implement the amendments made by 
     section 2 in an expeditious manner, as determined by the 
     Secretary. Such notice shall not be effective after the date 
     of the effectiveness of the final regulations issued under 
     subsection (b).
       (b) Regulations.--The Secretary shall, not later than the 
     expiration of the 90-day period beginning on the date of the 
     enactment of this Act, issue final regulations to implement 
     the amendments made by section 2. Such regulations shall be 
     issued only after notice and opportunity for public comment 
     pursuant to the provisions of section 553 of title 5, United 
     States Code (notwithstanding subsections (a)(2) and (b)(B) of 
     such section).


                               section 2

  Mr. MACK. I would like to engage the chairman of the committee in a 
colloquy to further define the purpose of section 2 of the Senior 
Citizen Home Equity Protection Act. Section 2 would authorize new 
disclosure requirements by amending the existing eligibility 
requirements of HUD's home equity conversion mortgage [HECM] program. 
The National Housing Act would be amended to ensure that to be eligible 
for FHA insurance a home equity conversion mortgage shall have been 
executed by a mortgagor who has received full disclosure of all costs 
to the mortgagor for obtaining the mortgage, including any costs of 
estate planning, financial advice or other related services.
  Is it correct that this section would authorize HUD to require HUD-
approved housing counseling agencies and FHA-approved lenders offering 
the HECM program to ask potential borrowers a series of questions aimed 
at determining if they have been or are about to be charged unnecessary 
or excessive fees by a service provider?
  Mr. D'AMATO. That is absolutely correct. Questions asked should 
include: has the prospective reverse mortgage recipient made or signed 
any agreement or contract authorizing any fees to a third party? Does 
the homeowner have the intention to or made any commitments to a third 
party to use the reverse mortgage proceeds to purchase any annuities, 
life insurance policies, or for other investment purposes? Has the 
homeowner been referred to the HUD-approved housing counseling agency 
or FHA-approved lender by a third party broker?
  Mr. MACK. Is it also the intent of the legislation that any third 
party broker should be required to inform the homeowner of the 
availability of information and assistance regarding the HUD home 
equity conversion mortgage program at little or no cost from HUD, HUD-
approved housing counseling agencies and FHA-approved lenders?

[[Page S3715]]

  Mr. D'AMATO. Yes, that is the intention. S. 562 also includes a 
requirement for disclosure to the mortgagor of the costs of all 
services related to obtaining the HECM loan, including estate planning 
and financial advice. HUD should implement this disclosure requirement 
in a reasonable manner. HUD will not be required to mandate disclosure 
of the costs of services of persons such as attorneys or accountants 
who are in the business of giving professional advice. For fees not 
required to be included in the mortgagee's good faith estimate under 
the Real Estate Settlement Procedures Act, mortgagees should be 
permitted to rely on inquiries made to the mortgagors to determine if 
mortgagors have received the necessary disclosure of cost.
  Mr. MACK. Would the Senator please describe the implementation 
requirements of S. 562?
  Mr. D'AMATO. I would be pleased to do so. I believe the National 
Housing Act currently gives HUD the power to protect elderly homeowners 
seeking home equity conversion mortgage loans, including the authority 
to regulate or prohibit unnecessary or excessive fees that mortgagors 
pay to third parties for referrals to HECM lenders and related 
services. Due to the urgent need to protect elderly homeowners, S. 562 
will require HUD initially to implement these provisions through an 
interim notice in the Federal Register. HUD will also be required to 
proceed with formal notice and comment rulemaking and issue a final 
rule within 90 days. If needed to meet the 90-day target, HUD may 
provide an abbreviated public comment period.
  Mr. BRYAN. Mr. President, many of our senior citizens are once again 
being targeted by scam artists. This time, senior citizens are being 
charged excessive fees by so-called estate planners who provide 
information on reverse mortgages and charge 8 percent to 10 percent of 
the loan.
  More than 12 million elderly homeowners own their homes free and 
clear of mortgages. This implies the availability of a potentially 
large market for home equity conversion programs. Reverse mortgages, 
one of the hottest financial products of the 1990's for seniors, allow 
homeowners to tap into the equity in their homes and use that equity as 
a source of income. They work much like traditional mortgages, only in 
reverse. Rather than making a payment to your lender each month, the 
lender pays the homeowner. Depending on the loan, a reverse mortgage 
becomes due with interest when the homeowner moves, sells the property, 
or dies.
  The reverse mortgage program provides tens of thousands of older 
homeowners, who are ``house-rich, but cash-poor,'' the opportunity to 
turn their home equity into spendable cash to deal with major financial 
setbacks such as home repairs, significant health costs, or basic 
living needs. Reports of abusive practices should not diminish the 
value of this product. Rather, we must find a way to protect senior 
homeowners from scam artists who prey on the vulnerabilities of elderly 
Americans.
  Mr. President, senior citizens across the country are being charged 
scandalous fees for information that can be obtained free from HUD. 
According to HUD, many older Americans who sign contracts with estate 
planning services and are charged large fees are unaware that the same 
information is available from HUD at no cost. Generally, estate 
planners fees range from 6 to 10 percent of the loan amount. This 
translates into $3,000 to $5,000 for a $50,000 loan or $6,000 to 
$10,000 for a $100,000 loan.
  Pauline and Jim Mitchell both 79 years old from Henderson, NV were 
forced to spend most of their savings when Pauline's mother--who was 
stricken with Alzheimers--moved in with the Mitchells for 7 years 
before she passed away last year. When the Mitchells were approached by 
a door-to-door salesman about obtaining a reverse mortgage to pay off 
expenses, they were extremely interested. What they did not know, 
however, was that it would cost them $4,500. It was not until they 
received their lump sum check of $31,000, did they realize that $4,500 
had been taken out--in addition to the normal closing costs. That 
represents a 12 percent commission above and beyond closing costs--for 
a service they could get for free if they had contacted HUD or the 
lender directly. At most, they should have been charged a few hundred 
dollars referral fee--not $4,500.
  Mickey Kimberlin and her husband James from Las Vegas were charged 
$4,000 for information about a reverse mortgage. The Kimberlins were 
interested in obtaining a reverse mortgage to help pay for mounting 
family medical bills. When they were contacted by a representative of 
America's Trust Inc. of San Juan Capistrano in California, they did not 
realize they would be charged 8.5 percent of the loan.
  The Senior Citizen Home Equity Protection Act will protect senior 
citizens receiving a HUD home equity conversion mortgage from further 
exploitation by these predator lenders. Our legislation will no longer 
allow scam artists to hide outrageous reverse mortgage fees. Full 
disclosure of the costs and the ability of HUD to prevent excessive 
fees are important and necessary steps to take to protect senior 
citizens seeking reverse mortgages.
  Mr. President, I urge my colleagues to join me in supporting this 
important legislation to protect our Nation's senior citizens.
  Mr. SARBANES. Mr. President, I strongly support the Senior Citizens 
Home Equity Protection Act and commend Chairman D'Amato and Secretary 
Cuomo for identifying this problem and moving so quickly to develop a 
solution. The act will give HUD the tools it needs to put an end to the 
unethical practice of charging senior homeowners what has amounted to 
millions of dollars for information which HUD provides for free on the 
Home Equity Conversion Mortgage Program.
  The Home Equity Conversion Mortgage Program enables seniors, who have 
built up equity in their home, to borrow that equity to meet medical 
costs, make repairs on their homes, or meet their daily living 
expenses. Working with participating lenders, FHA insures this loan, 
smoothing the way to complete the transaction. Homeowners receive 
payments from lenders on a monthly basis, in a lump sum, or as a line 
of credit. The size of the loan depends on the owner's age, the 
interest rate, and home's value, but the average size of the loan is 
$42,465. Lenders recover their loan plus interest from the sale of the 
home when the owner dies or moves. Typically, the seniors that use this 
program depend largely on social security, perhaps supplemented by a 
very modest pension. For them, this program provides an invaluable 
service.
  The initial demonstration program was authorized in the 1987 Home and 
Community Development Act, which I supported. Many of the roughly 
20,000 reverse mortgages made to date have been made to low- and 
moderate-income seniors who have been able to build up equity in their 
homes over the years but now live on fixed, restricted incomes. This 
program enables them to turn a valuable but nonliquid asset into cash 
payments to supplement their resources. Clearly this is an important 
program that contributes significantly to the quality of life for our 
senior citizens. It is unthinkable that this important Federal program 
and the people it is intended to serve are being exploited by certain 
estate planning agencies who charge seniors 6-10 percent off the top of 
this loan--which, on the average $42,000 loan, can amount to over 
$4,000. This is tantamount to taking away the equity that seniors 
worked so hard to put into their homes over the years. In fact, HUD 
reports that some of these operators pressure seniors into taking out 
their equity in lump sums, just so the estate planner can collect their 
fee up front. A little over 77 percent of householders age 65 and older 
are homeowners--or 15.7 million senior Americans. The companies 
involved in this practice claimed to have done close to a thousand of 
these deals and have the potential to do much more harm if this is not 
addressed.
  As a nation we have long encouraged and recognized the value of home 
ownership--the stability it creates in communities, the asset it 
becomes to the owner, and the security it provides over time. I have 
long supported programs that increase home ownership among low- and 
moderate-income people, such as the Home Investment Partnership Program 
and affordable housing goals for Government sponsored enterprises, such 
as Fannie Mae. It is the

[[Page S3716]]

low- and moderate-income senior homeowners to whom the reverse mortgage 
program is so important.
  In Maryland, we are making a special effort to increase the home 
ownership rates in low-income communities because there is no better 
way to start climbing the ladder of economic opportunity. A few weeks 
ago, HouseBaltimore, a partnership between the city of Baltimore, the 
Baltimore Empowerment Zone, and Fannie Mae announced that they have 
increased the number of low- and moderate-income homeowners in the city 
of Baltimore by 6,000 over the last 3 years. Earlier this month, the 
city of Baltimore was awarded a home ownership zone grant of over $5 
million. The zone will create 322 new home ownership opportunities, 242 
newly constructed units, and 80 rehabilitated units. These so-called 
estate planners undermine these efforts by taking a portion of this 
valuable asset away from senior Americans.
  Again, I want to thank Senator D'Amato and my colleagues on the 
Banking Committee for their responsiveness and willingness to undertake 
this effort, enabling HUD to take swift action and stop this practice. 
We need to continue to ensure all of our citizens live in decent, safe 
homes.
  Mr. GRAMS. Mr. President, I rise today in support of the Senior 
Citizens Home Equity Protection Act. This bill will help protect low-
income seniors from being gouged by people who are charging them 
massive and unnecessary referral fees when they receive a reverse 
mortgage through the Federal Home Equity Conversion Mortgage Insurance 
Demonstration Program.
  The Home Equity Conversion Mortgage Insurance Demonstration Program 
is a Federal program to benefit low- to moderate-income seniors that 
was authorized by section 417 of the Housing and Community Development 
Act of 1987.
  HECM provides an FHA guarantee for a special type of home equity loan 
for homeowners who are 62 years of age or older. HECM permits a senior 
citizen to borrow against the equity of his or her home. The senior 
receives cash through a reverse mortgage by either: First, a lump sum 
payment, second, a lifetime guaranteed monthly payment, third, a line 
of credit, or fourth a combination of monthly payment and line of 
credit. The HECM loan is repaid after the senior citizen passes away by 
his or her estate.
  Since the program's inception, approximately 20,000 loans have been 
closed. HECM is a good program, because it permits low-income seniors 
who are homeowners to be able to conveniently tap into their home 
equity. The median age of the participants is 76 years old and the 
median income level is approximately $10,000 a year.
  Unfortunately, a few companies are calling up seniors to let them 
know about the availability of HECM and then charging them a referral 
fee of 8 to 10 percent of the total loan. This is a scam, as the senior 
could contact a lender or HUD directly and not have to pay such a fee.
  The Senior Citizens Home Equity Protection Act responds to this 
problem. This bill amends section 255 of the National Housing Act to 
permit HUD, which manages this Federal program, to define and prohibit 
excessive referral fees for the HECM program.
  I am proud to be a cosponsor of this bill, and I commend Senator 
D'Amato for bringing this bill before us today.
  Mr. President, I yield the floor.
  Ms. MOSELEY-BRAUN. Mr. President, I am an original cosponsor of the 
Senior Citizen Home Equity Protection Act because I do not believe we 
can sit idly by while senior citizens are charged excessive and 
unnecessary fees for seeking to access the equity in their homes. It is 
an unconscionable practice.
  The Senior Citizen Home Equity Protection Act provides basic consumer 
protections for working people in their senior years who want to obtain 
a reverse mortgage so that they may live with a level of economic 
security. Reverse mortgages benefit people who have worked their entire 
lives, have managed to buy their own homes, but who do not have much 
extra income to live on after they retire.
  Under a reverse mortgage, the owner of the home gives a lender a 
mortgage on the home. The homeowner receives either a lump sum of money 
or monthly payments in return. The funds do not have to be repaid until 
the home is sold or the homeowner dies. The FHA's Home Equity 
Conversion Mortgage Program guarantees these reverse mortgages.
  This is a good program for some seniors and one which the Government 
supports. Unfortunately, there are some who are taking advantage of 
seniors and charging them excessive fees to complete the reverse 
mortgage transactions, including fees of up to 10 percent of the loan 
amount. The way these scams work is that mortgagors will offer to serve 
as financial advisors to senior citizens and then charge them 
exorbitant fees for providing the seniors with public information about 
the HUD reverse mortgage program.
  Those seeking a reverse mortgage generally do not have much income to 
spare. The average borrower is 76 years old and has an annual income of 
$10,400. Charging a $10,000 fee for a $100,000 reverse mortgage, as is 
done, is highway robbery.
  The Senior Citizen Home Equity Protection Act is not complicated 
legislation. There are only two provisions. The first provision 
requires that the senior has received ``full disclosure of all costs to 
the mortgagor for obtaining the mortgage, including any costs of estate 
planning, financial advice, or other related services.'' This will 
provide seniors with the information they need to make sound judgments 
concerning the value of the services they are receiving.
  The second provision provides that the HUD secretary has the 
authority to impose restrictions to ensure that a lender does not 
charge excessive, or unwarranted costs to the borrower for providing a 
reverse mortgage. This is a basic protection that allows HUD to police 
the bad actors who are ruining reverse mortgages as an option for too 
many seniors.
  HUD tried to address the problem, but a court ruled that the 
department had to go through its normal procedure to issue a rule 
governing fees charged by the advisers. Formal rulemaking can take as 
long as 6 or 7 months. We do not have 6 or 7 months. Every day seniors 
face the prospect of losing part of the equity in their homes because 
these scams are allowed to continue. This legislation will put an end 
to the scams.
  I thank Senator D'Amato for introducing this bill, I am proud to be 
an original cosponsor, and I urge all my colleagues to join me in 
supporting the Senior Home Equity Protection Act so that we can quickly 
enact this simple but crucial legislation.
  Mr. FAIRCLOTH. Mr. President, I felt compelled to speak today on 
behalf of S. 562 which I support as a cosponsor. It is a good bill and 
apparently long overdue. This legislation provides protections to 
homeowners who are receiving reverse mortgages by ensuring that there 
are no unnecessary or excessive costs charged for obtaining the 
mortgage.
  I state that this bill is apparently overdue because of the 
horrendous stories we have heard about the elderly being charged 
outrageous fees simply to find out information about the reverse 
mortgage program. Because the reverse mortgage program is only 
available to individuals over 62 years of age, these so-called scam 
artists are preying on older citizens who typically are cash-poor and 
in need of additional dollars, sometimes for health care costs or home 
improvements.
  A reverse mortgage is a loan that works backwards. It is beneficial 
for those who are house-rich but cash-poor. Instead of receiving a 
lump-sum amount that must be repaid in monthly installments, the 
homeowner gets to borrow money based on the equity in his home and 
nothing has to be repaid until the owner moves or dies. When the home 
is sold, the loan, along with the accrued interest, is repaid from the 
proceeds.
  Some of the estate planning companies who provide information on the 
reverse mortgage have been charging referral fees of up to 10 percent 
of the amount of the loan that is eventually taken out by the 
individual. The exorbitant fees being charged are outrageous. These 
companies have been preying on our country's older citizens, and this 
practice must be stopped.
  Just a few weeks ago, the Secretary of HUD, Andrew Cuomo, attempting 
to halt these practices, issued a departmental directive preventing 
lenders

[[Page S3717]]

who insure loans through the FHA from dealing with the referral 
companies. However, just 10 days after the announcement of HUD's 
directive, a Federal judge here in Washington set the directive aside 
awaiting further hearing. While some of the mortgage originators have 
indicated that they have stopped dealing with the estate planning firms 
by their own initiative, many of us in the Senate want better 
safeguards.
  Senate bill 562 ensures that the practice of charging exorbitant fees 
in the reverse mortgage program are halted by doing two things. One, 
the bill requires that all fees and costs associated with the reverse 
mortgage program be disclosed to the homeowner. Two, the bill gives 
authority to the Secretary of HUD to ensure that the homeowner does not 
pay any unnecessary or excessive costs for obtaining the mortgage. This 
would include any costs of estate planning, financial advice, or other 
related services. S. 562 does not set prices or products in the reverse 
mortgage program, it only acts as a safeguard from excessive costs.
  I am proud to say that my State is home to the largest servicer of 
the FHA reverse mortgage. Wendover Funding, a Greensboro based mortgage 
banker, is the Nation's largest wholesale lender and administrator of 
these loans. Wendover currently services more than 11,500 reverse 
mortgages, representing approximately 60 percent of the market. Of 
these, Wendover has funded more than 400 loans to seniors in North 
Carolina.
  Many believe that FHA's involvement provided much-needed consumer 
protection to the reverse-mortgage industry. Lenders who make FHA-
backed loans have to abide by strict rules on rates and set-up fees and 
can't charge any hidden fees to make extra money. Unfortunately, some 
of the estate planning companies who refer the borrowers to the FHA 
lenders have not had the same restrictions put upon them.
  The several unscrupulous companies that have scammed thousands of 
unnecessary and exorbitant fees from elderly citizens have forced this 
Congress to act. The protections placed in S. 562 will ensure that 
senior citizens are no longer taken advantage of when they are looking 
at this new source of income. Our grandparents, as they face longer 
years of needed income and want to stay in their homes, will be able to 
do so and still be protected.
  Thank you Mr. President. I urge my colleagues support.
  Mr. JOHNSON. Mr. President, I rise today to express my strong support 
for the Senior Citizen Home Equity Protection Act introduced by Senator 
D'Amato, and to thank Chairman D'Amato for moving so quickly in 
response to the needs of the Department of Housing and Urban 
Development in efforts to crack down on the exploitation of our 
vulnerable low-income senior citizens.
  The Senior Citizen Home Equity Protection Act will assure that a 
homeowner pursuing a HUD home equity conversion mortgage, or reverse 
mortgage, is not charged unnecessary or excessive costs for obtaining 
that mortgage. The median age of reverse mortgage applicants is 76 
years. Most of these borrowers are very low-income, Social Security 
dependents, typically seeking additional funds for basic needs and 
medical expenses. Information on the program and the application 
process is provided by HUD free of charge. Yet, some businesses have 
been convincing seniors of services and counseling required before 
reverse mortgages can be secured. Many of these middlemen charge up to 
10 percent for services that seniors do not realize are unnecessary.
  S. 462 clarifies HUD's authority to appropriately restrict 
unnecessary or excessive costs related to the origination of a reverse 
mortgage. I believe it necessary to grant this regulatory authority to 
end fraudulent business activity so that legitimate business interests 
can be protected and the loan program can remain a viable alternative 
for seniors to turn to in the financial marketplace.
  My State of South Dakota recently remedied State law to allow for 
participation in HUD's reverse mortgage program, at the urging of the 
South Dakota AARP and the South Dakota Bankers Association. While we 
have been fortunate not to have felt the impact of these deceitful 
businesses in South Dakota, I am a strong supporter of this legislation 
to prevent the spread to my State, now that seniors can pursue these 
reverse mortgages.
  Senator D'Amato worked closely with HUD Secretary Cuomo to ensure 
that seniors can be protected while the viability of the loan program 
remains intact, and I urge my colleagues to support the Senior Citizen 
Home Equity Protection Act.
  Mr. D'AMATO. Mr. President, I know of no one else in the majority who 
seeks to speak to this issue. We would yield back all of our time.
  Mr. DODD. On behalf, Mr. President, of Senator Sarbanes of this side, 
we yield back this time as well.
  Mr. D'AMATO. Mr. President, I move to reconsider the vote by which 
the bill was passed.
  Mr. DODD. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.

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