Panel Looks at Reverse Mortgages

On Wednesday, a Senate panel will examine the increasingly popular reverse mortgages and what lawmakers say are abusive sales practices that prey on senior citizens.

The Senate Special Committee on Aging is holding a hearing set for 10:30 a.m. EST on reverse mortgages, typically used to finance retirement or pay unexpected medical bills. They are becoming the escape route of choice for seniors caught in the tight straits of high-risk mortgages.

Unlike a traditional mortgage, the reverse mortgage allows homeowners over age 62 to take money out of their home to help pay for their retirement or to get cash. Rather than paying back a mortgage, the lender pays part of the equity in the home to the senior owner, either in a lump sum, regular cash payments or some combination of the two.

The lender takes some of home's equity as payment. The contract ends once the home is sold.

Some experts warn that if homeowners choose to receive monthly payments over a fixed period of time, they could outlive the payments and still be liable for property taxes, property upkeep and other expenses.

In addition, some lawmakers say the reverse mortgage industry is not immune from abusive sales practices targeting seniors, such as aggressive marketing and excessive fees. Sen. Claire McCaskill, D-Mo., a member of the Committee on Aging who is presiding over Wednesday's hearing, wants to ask experts and government officials about what measures, such as financial counseling, are needed to protect seniors taking out reverse mortgages.

Statistics show that in 2006, borrowers nationwide took out 85,639 reverse mortgages, up from 48,493 the year before.

Several large financial institutions are getting into the business through acquisitions. In recent months, Genworth Financial Inc. agreed to buy Liberty Reverse Mortgage Inc. and Bank of America Corp. acquired the reverse-mortgage business of Seattle Mortgage Co.