Claire McCaskill

Fraud Enforcement and Recovery Act of 2009 - April 23, 2009

Claire McCaskill
April 23, 2009— U.S. Senate, Washington, DC
Congressional floor speech
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Madam President, once upon a time, someone had a good idea about trying to open the mortgage market to as many people as possible. Between that moment and now, we have seen a giant economic crisis that has mushroomed out of control. We have sat around for months now trying to figure out how did it happen and why did it happen.

One of the reasons it happened is, using common sense, we said to people: You can go make money by talking people into borrowing money, and you do not have to worry about whether they pay it back. Let me go through that one more time. We said to a market, the mortgage market: If you go talk people into borrowing more money than they can afford, it does not matter if they can pay it back, you do not need to worry about that because you are going to make your money anyway.

In other words, the people closing their loans had no skin in the game. They were not a partner to the risk. So that is how we got people qualifying for loans by wearing a special costume and photograph. That is how you got these "liars loans." They were called "liars loans." Everybody knew people were lying to get these loans, but no one was doing anything about it because the people who were making the loans were making the money and had no risk.

You would think with this occurring, we would now be on hyper alert for the exact same set of circumstances, but we are not. Because it is going on today as we speak. If you turn on any cable channel almost anywhere in America, before midnight you are going to see an ad that says to seniors: You need to take advantage of a great Government program, a Government benefit. You can be paid cash for the value of your house without any risk. They are called reverse mortgages.

It is a type of home loan that converts the value in your home you have acquired over a lifetime and converts it to cash. Now, in and of itself, this is not a bad concept. People ought to be able to borrow against the value of their homes. We do it with home equity loans.

Here is the problem. We have the people closing these loans who have no skin in the game. Guess who is insuring all these loans. We are. The taxpayers. There is no risk to those people paying for those ads on cable TV, no risk. Reward. No risk. We are taking the risk.

If, in fact, the housing markets go down and the value of someone's property goes down and it is time for that loan, the value of that loan to be recovered when the house is sold, if it does not sell for enough money, guess who is left holding the bag.

Hello. Subprime mortgages chapter two. We are back. We have the same issue we had with the subprime. Since we began this program in 1990, HUD has endorsed and insured 500,000 loans. But, wait, we took the cap off it recently. We anticipate that HUD will, in fact, insure 200,000 of these loans this year alone. We have done 500,000 loans since 1990, and we are going to do 200,000 loans this year. We are talking about a huge growth in the potential liability to the American taxpayer.

These are complex and expensive loans. For many elderly, the equity they have in their home is it. With the economic circumstances we have right now, there is going to be a lot of pressure on the elderly to enter into one of these reverse mortgages, maybe to help other family members who have lost a job.

It is important we fix this program. It is embarrassing that we let the subprime mess go for as long as we did, without anybody saying: Whoa, hold on. It will be doubly embarrassing if we allow this reverse mortgage situation to go down the exact same path.

With these loans, as they increase dramatically in number and value, we are also seeing an increase in fraud. The HUD inspector general has been working in the reverse mortgage field, and all the other inspectors general in our country have done a great job of beginning to find problems of a specific nature as it relates to fraud.

Some of it is where we have inflated appraisals. Some of it is where you have shoddy repairs being done, which decrease the value of the home, which increase the risk to the taxpayer. Some of it is people continuing to collect the proceeds on the home past the time they should, past perhaps the death or the moving out of the senior who did the loan in the first place.

Why is the fraud increasing? I have a theory why the fraud is increasing. All the bad actors over there in subprime, they are looking for a new stream of money so they are all sliding over and saying: Hey, let us start making these reverse mortgages to seniors.

OK. We have to do something about this now. I filed an amendment to the legislation that is in front of the Senate that will do some important things in terms of fraud prevention and detection and enforcement provisions: We are going to require the borrower to certify they reside in the property; to report the termination of the residence to HUD; require that in the case of a property that is purchased with the proceeds of a reverse mortgage, the property is owned and occupied for at least 180 days, so we do not have the flipping we have seen in the subprime market; require these properties be appraised by certified appraisers, HUD-certified appraisers; we have to verify the purchase price to ensure the appraised value is not inflated and make sure the appraised value is not too high in relation to comparable properties--you can imagine how important this is right now since our housing market values

Would it not have been nice had we done that back when we started having the problems with subprimes? Conduct independent audits and inspections of reverse mortgage lenders to make sure they are in compliance with the requirements; and to compare the reverse borrower's record against the Social Security's death master file for early indications for when payouts should end because payouts under these reverse mortgages stop at the death of the recipient of the reverse mortgage; provide that any limitation on when criminal charges can be brought against fraud perpetrators in this area be calculated on when we find out about the criminal activity, not when it occurred. Because, in many instances, we may not find out about the fraud until the elderly person dies, and then they find out that maybe they thought they still had value in their home, but they were lied to.

This is an important one: Provide that advertising for reverse mortgages cannot be false or misleading and must present a fair and balanced portrayal of the risks and the benefits of the product.

The fraud is the first step. Going after fraud is the first step, but we have to do more. It is very important that we protect our seniors from predatory lenders. When you see these ads on TV, it sounds too good to be true. "Government benefit," "No risk." But there is a huge risk. There is a risk of a senior paying more than they should for a product that does not work for them and a very big risk for the taxpayers of this country.

I look forward to working with the Senate Judiciary and Banking Committees as well as HUD and the HUD inspector general and GAO to get the things done we must do to clean up this problem. If we do not learn from our mistakes, we are doomed to repeat them. I urge all my colleagues to become knowledgeable about this reverse mortgage area, get word to their constituents to be careful about these reverse mortgages. They are very dangerous.

At the end of the day, if someone is making money off you and they do not care whether you can pay it back, it is a dangerous combination.

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