Feb 5, 2009 12:50 pm US/Central
Minnesota AG, Lawmakers Target Reverse Mortgages
ST. PAUL (AP) ―
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A reverse mortgage is a type of loan that allows seniors to convert home equity into cash.
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Attorney General Lori Swanson and DFL lawmakers said Thursday that new legislation targeting reverse mortgages could prevent lenders from taking advantage of senior citizens in the wake of the country's mortgage crisis.
Swanson said the crisis has led many brokers and lenders into the reverse mortgage business, where they try to persuade seniors to take out the loans to convert home equity into cash. Seniors normally make no interest or principal payments during the life of the loans, but they must pay the loans back when they move or die.
Some seniors are entering into bad reverse mortgage deals, which can come with high interest rates and fees, Swanson said. And some brokers are trying to get seniors to take out a reverse mortgage loan and use the money for risky investments, she said.
The legislation would allow seniors to rescind a reverse mortgage agreement within 30 days. It would also require seniors seeking a reverse mortgage to get independent counseling on the risks and benefits of the loan. In addition, lenders would have to have reasonable grounds for believing the reverse mortgage is good for the borrower.
The bill was introduced in both the House and Senate on Thursday.
"Reverse mortgages are good for some seniors but not all seniors," Swanson said. "Seniors should go slow to make sure they fully understand the product and whether it is in their best interest."
Rep. Jim Davnie, DFL-Minneapolis, said the country's economic troubles will hit some seniors hard, and lawmakers need to make sure reverse mortgage lenders don't cause even more problems for homeowners.
"We've got an opportunity to get ahead of this potential crisis," Davnie said.
(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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