On February 24, the Senate Special Committee on Aging held a hearing entitled, “Predatory Lending: Are Federal Agencies Protecting Older Americans from Financial Heartbreak?”
In his opening statement, Chair Larry Craig (R-ID) said that seniors “seek to live comfortably in their advancing years, but also must meet the rising financial costs of medical care and everyday living expenses. To meet these costs our seniors, who are often on very limited incomes, tap into the equity of their homes. In so doing, all too often they are taken advantage of by those persons with dishonest motives.”
David Wood of the General Accounting Office (GAO) summarized a recent GAO report on the challenges facing federal and state agencies in combating predatory lending. He stated that “while there are no comprehensive data, federal, state, and consumer advocacy officials report that elderly people have disproportionately been victims of predatory lending.” Mr. Wood explained that because older homeowners have more equity in their homes, abusive lenders targeted these borrowers in order to “strip” the equity. He also said that abusive lenders often try to convince elderly borrowers to repeatedly refinance their loans and market home equity loans as a source of cash for older homeowners with high medical expenses. Mr. Wood noted that the elderly are particularly susceptible to predatory lending practices because of physical impairments associated with aging, diminished cognitive capacity, and the lack of family and social support systems.
Mr. Wood said that a number of federal agencies, states, nonprofits, and trade organizations have funded financial education for consumers to raise consumer awareness of predatory lending practices, but “consumer education by itself has limits as a tool for deterring predatory lending.” He outlined the difficulties seniors face: the complexity of mortgage loans makes it difficult to implement an education campaign that provides enough information for less sophisticated consumers to determine whether a loan contains abusive terms; predatory lenders and brokers use aggressive marketing tactics that are designed to confuse consumers; and the consumers who are often the targets of predatory lenders are some of the hardest to reach with educational information. Mr. Wood also noted that federal consumer protection and fair lending laws that address predatory lending “do not generally have provisions specific to elderly persons.”
Testifying on behalf of the Department of Housing and Urban Development (HUD), John Weicher highlighted a Federal Housing Administration (FHA) program that specifically serves the elderly. He explained that the Home Equity Conversion Mortgage Program or “reverse mortgage program” is designed to enable elderly homeowners to convert the equity in their homes into income that can be used to pay for home improvements, medical costs, and living expenses. Because “the frontline of protection against predatory lending is an informed consumer,” Mr. Weicher said that HUD works with the AARP to educate homeowners on how to make informed decisions about converting the equity in their homes to cash without having to sell their homes or make monthly loan repayments. He said that HUD also works with other consumer organizations on public education campaigns targeting predatory lending.
Howard Beales of the Federal Trade Commission (FTC) focused his testimony on the subprime lending market, the extension of credit to persons who are considered to be higher-risk borrowers. He noted that “more than a quarter of subprime borrowers are 55 years of age or older, compared to only 14% of prime borrowers,” and the illegal practices of subprime lenders “can be particularly devastating to seniors.” Mr. Beales said that the FTC has developed consumer education publications and launched Web pages that are of particular relevance to seniors.
Testifying on behalf of the AARP, Lavada DeSalles cited a recent AARP study: “Approximately 7 of 10 older homeowners reported having received information offering them the opportunity to borrow money against the equity in their homes. In addition, ill-intended home improvement contractors go door-to-door, ‘finding’ home repair ‘emergencies’ with home-secured loan documents in hand and ready to sign.” She stated that the AARP was particularly concerned about subprime lending. According to one study, “Nearly two-thirds (61%) of older borrowers with refinanced subprime loans, reported that the broker/lender not themselves initiated the contact,” she said. To improve consumer financial literacy, Ms. DeSalles said that the AARP has sponsored workshops on avoiding predatory lending, partnered with legal services providers to train attorneys who work with victimized homeowners about the legal issues surrounding predatory lending, and implemented an educational campaign entitled, “They didn’t tell me I could lose my home.”
The committee also heard testimony from Veronica Harding, who shared her personal experience with predatory lending, comparing credit debt to drugs. She stated, “They start by sending you credit cards in the mail, making you believe that you can instantly buy the things you can’t really afford, and making you think that’s the smartest thing you could do for yourself. And before you know it, when you start sinking into debt that is too big to handle, they come selling you the hard stuff, the mortgages, telling you this will make everything better.”
