Attorney General Lori Swanson says tougher laws are needed to prevent Minnesota senior citizens from getting stung by inappropriate reverse-mortgage loans.
Swanson says unscrupulous brokers and lenders who contributed to the recent mortgage meltdown are now targeting seniors.
Reverse mortgages 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.
During a State Capitol news conference today, the DFLer said she's backing legislation to beef up loan counseling requirements and provide other protections.
"Seniors should go slow in making sure that they fully understand the product and whether it's in their best interest," said Swanson. "They should understand that if their home equity is depleted, there may not be money available to pay for health care and living expenses. And they should exercise great caution anytime someone tells them, 'Take a out a reverse mortgage to put on a new roof or take out a reverse mortgage to buy an annuity or long term care insurance.'"
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.
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.
(The Associated Press contributed to this report)