Congressional Record, Volume 143 Issue 51 (Friday, April 25, 1997)

[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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