HOUSE OF REPRESENTATIVES COMMONWEALTH OF PENNSYLVANIA * * * * * * * * Reverse Mortgages & Long-Term Care Insurance * * * * * * * *

Transcription

1 HOUSE OF REPRESENTATIVES COMMONWEALTH OF PENNSYLVANIA Page 1 * * * * * * * * Reverse Mortgages & Long-Term Care Insurance * * * * * * * * House Aging and Older Adult Services Committee BEFORE: Irvis Office Building Room G-50 Harrisburg, Pennsylvania Thursday, March 26, :02 a.m. --ooo-- Honorable Phyllis Mundy, Majority Chairman Honorable Frank Burns Honorable Steve Samuelson Honorable Brendan Boyle Honorable Vanessa Brown Honorable William Kortz Honorable Barbara McIlvaine-Smith Honorable Eddie Day Pashinski Honorable Ken Smith Honorable Tim Hennessey, Minority Chairman Honorable Karen Boback Honorable Seth Grove Honorable Duane Milne Honorable RoseMarie Swanger IN ATTENDANCE: Honorable Rosita Youngblood 1300 Garrison Drive, York, PA (717) Fax (717)

2 1 ALSO PRESENT: Page 2 2 Charles Quinnan 3 Majority Executive Director 4 Alicia Riegel-Kanth 5 Majority Research Analyst 6 Louise Stepanic 7 Majority Legislative Assistant 8 Sharon Schwartz 9 Minority Executive Director 10 Carol Turner 11 Minority Legislative Assistant

3 1 C O N T E N T S Page 3 2 WITNESSES PAGE 3 PART I - REVERSE MORTGAGES: 4 Ray Landis, Associate State 6 Director for Advocacy 5 AARP Pennsylvania 6 Paul Wentzel, Jr., Legislative Liaison 41 & Executive Asst. to the Secretary 7 Pennsylvania Dept. of Banking 8 Nancy Burns, Certified Senior Advisor 109 HCI Mortgage 9 PART II - LONG-TERM CARE INSURANCE: 10 The Honorable Joel Ario, Insurance Commissioner Pennsylvania Insurance Department 12 Provider Panel: 13 - Anne M. Wantz, Chief Operating Officer PA Health Care Association (PHCA) 15 - Ron Barth, President & CEO 231 PA Association of Non-Profit Homes and 16 Services for the Aging (PANPHA) 17 - William Minnix, Jr., President & CEO 237 American Association of Homes and 18 Services for the Aging (AAHSA) 19 Samuel Marshall, President & Chief 257 Executive Officer 20 Insurance Federation of PA, Inc (Written testimonies submitted by: William Bogdan, Yardley, PA; 23 Betsy Woolf, Mamaroneck, NY) 24 25

4 1 SUPPORT INDEX Page REQUEST FOR PRODUCTION OF DOCUMENTS 4 Page Line Page Line Page Line

5 Page 5 1 CHAIRMAN MUNDY: Well, I think we will 2 get started. It is a Thursday and members are 3 back in their districts and at other meetings, 4 and I know there are several other meetings 5 going on this morning, including a PANPHA event 6 over at the Hilton, so. 7 Our hearing this morning, the Aging 8 and Older Adult Services Committee hearing, is 9 about reverse mortgages. And the good news is 10 that the transcript, which will be so ably 11 provided by our stenographer, will be on the 12 internet available for anybody who wants to see 13 it. 14 So those of you who are testifying, we 15 very much appreciate your participation today, 16 and hope that you won't feel as though your time 17 is wasted on so few people being present this 18 morning. 19 Reverse mortgages are obviously a 20 topic of interest to older adults, and I think 21 it is probably something we don't know enough 22 about; so, to the extent that we can help 23 enlighten people as to what they are, how they 24 work, what some of the present pros and cons 25 might be, how they might be beneficial to older

6 Page 6 1 people who are trying to stay in their homes as 2 long as possible, I think that would be of great 3 service to the older people in Pennsylvania. So 4 that's really why we are holding the hearing 5 this morning. 6 And my colleague, Representative 7 Hennessey, may or may not be here this morning. 8 We are not sure. So we are going to begin 9 without him. 10 Our first testifier this morning is 11 Ray Landis, who is the Associate State Director 12 for Advocacy of AARP Pennsylvania. Thank you 13 very much, Mr. Landis, for being here, and we 14 look forward to what you have to say on reverse 15 mortgages. 16 MR. LANDIS: Thanks for the 17 opportunity to be here. This is a topic that 18 there is not a lot of knowledge about, I 19 believe. And it is, especially in these 20 economic times, it is becoming more and more 21 important for older Pennsylvanians and older 22 Americans to know more about and for all of us 23 to understand how the product works and some of 24 the benefits and some of the pitfalls. 25 It is a situation right now that we

7 Page 7 1 are facing for many older Pennsylvanians where a 2 lot of people did responsible planning for their 3 retirement years, put money away, and much of 4 this responsible planning has been turned on its 5 head because of our economic situation; so, in 6 looking at reverse mortgages, they seem 7 attractive to older people, especially older 8 people who are cash poor and house rich, and 9 more and more older people that are in this 10 situation are exploring the idea of reverse 11 mortgages. 12 One of the things that a study that 13 AARP did, reveals is that of the 21.1 million 14 older homeowners in the United States, and 15 that's homeowners over the age of 62, only one 16 percent of those older homeowners have actually 17 taken out a reverse mortgage. 18 Now, I want to make clear at the 19 beginning of my testimony that AARP does not 20 endorse any reverse mortgage lender or product, 21 and our purpose is strictly to be a provider of 22 information on this topic to our members and to 23 other older Americans because this is an 24 intensely personal decision and it really is 25 based on the financial situation of the

8 Page 8 1 individuals that are considering this product. 2 And what I provided for all members of 3 the committee--mine is in color but yours is in 4 black and white--is a publication that the AARP 5 foundation has put out, consumer publication, 6 entitled, Reverse Mortgage Loans: Borrowing 7 Against Your Home. 8 And this is the publication that AARP 9 has put out that is designed to provide the 10 basic information about reverse mortgages. And 11 in our minds, the most important part of this 12 publication is Part 1, right at the beginning, 13 where it addresses the questions that anyone 14 that is considering a reverse mortgage should be 15 asking before they take this step. 16 And the first question is the basic 17 question: Do you really need a reverse mortgage 18 based on your financial situation? 19 The second is: Can you afford a 20 reverse mortgage? Because there are many costs 21 involved in a reverse mortgage that individuals 22 and couples that are considering a reverse 23 mortgage don't realize there are at the outset. 24 The third is: Can you afford to start 25 using up your home equity now? And this

9 1 question really needs to be asked of younger Page 9 2 retirees because, as we know, individuals are 3 living longer and longer. And for folks that 4 are in their late 60's, especially if they start 5 using up their home equity by taking a reverse 6 mortgage at that point in their lives, if they 7 live to be into their late 80's, early 90's and 8 exhaust their home equity, they could be put in 9 a very difficult financial situation. 10 The fourth question that we think 11 people need to ask is: Do you have less costly 12 options? Because, as I mentioned, reverse 13 mortgages can be costly, and there are other 14 options that may be available for people that 15 can work for them in place of a reverse 16 mortgage. 17 And finally the fifth question is: Do 18 you fully understand how these loans work? And 19 the answer to that question, we feel strongly, 20 is that individuals need to consult closely with 21 someone who understands reverse mortgages before 22 they take the step instead of just jumping right 23 into it. 24 As we have discovered when surveying 25 older Americans, when these questions are

10 1 thoroughly considered by those considering Page 10 2 reverse mortgages, many people decide not to 3 pursue this or at least to put the idea of a 4 reverse mortgage off. 5 And we come to this conclusion based 6 on a study that AARP conducted a couple years 7 ago among people who considered taking out a 8 reverse mortgage. And the results of this study 9 were issued as a report by the AARP Public 10 Policy Institute, entitled, Reverse Mortgages: 11 Niche Product or Mainstream Solution? That 12 report is available on our web site. 13 I have one copy of it. But in the 14 interest of saving some trees, I did not print 15 out a copy of that for everybody on the 16 committee. But you can obtain that on our web 17 site. 18 CHAIRMAN MUNDY: Can you give us your 19 web site address for the stenographer? 20 MR. LANDIS: Sure. The web site 21 address is And just a search for 22 reverse mortgages will bring this one up, among 23 the first one or two sites that you would find 24 on that. 25 There are some important conclusions

11 Page 11 1 in this report and that is what I would like to 2 base most of my testimony on, and just discuss 3 some of the findings of this report and why 4 individuals decide to take out a reverse 5 mortgage but also why individuals decide not to 6 take out a reverse mortgage. 7 And I think the first thing to look at 8 is--and it is really sort of a controversial 9 aspect of a reverse mortgage--is whether 10 individuals are looking at this to address their 11 basic needs or whether they are considering a 12 reverse mortgage in order to afford some extras 13 in their life. 14 And when AARP did the survey, we found 15 that the answer to this question varies among 16 those who are considering reverse mortgages and 17 one of the main factors is age. Those 18 considering a reverse mortgage, over the age of 19 80, overwhelmingly are considering it because of 20 their basic needs. Because at that point, they 21 are running out of money and they are having 22 difficulty affording whether it is property 23 taxes, health care costs or any of those more 24 basic needs. 25 We found, particularly, those over the

12 1 age of 80 that were considering reverse Page 12 2 mortgages seem to be females, and females who 3 were living on their own whether they had been 4 divorced or widowed, and those seem to be 5 individuals that were more likely to have that 6 basic need for extra funds at that time in their 7 life. 8 On the contrary, married couples under 9 the age of 75 were much more likely to say that 10 they were considering a reverse mortgage in 11 order to afford some extras in their life, 12 whether it would be to upgrade their current 13 standard of living, to try to make some 14 purchases that they had been putting off. 15 Or, interestingly, one of the things 16 that was cited by individuals at that age was 17 home improvements. That they wanted to do 18 improvements to their home and they felt that a 19 reverse mortgage was a way to get the funding to 20 do that. 21 Another question that was as a 22 follow-up to those who were asked about why they 23 were considering a reverse mortgage was the main 24 and primary reason for looking into this option. 25 And for those who were asked about--

13 Page 13 1 who responded that they needed to--the reverse 2 mortgage to afford basic necessities, the most 3 common answer that we got of the main reason was 4 that people needed to pay off their regular 5 mortgage. So they were using a reverse mortgage 6 to finally pay off that regular mortgage that 7 they had that might have been at a higher 8 interest rate than they felt they should be 9 paying at that time. 10 And one of the factors that goes into 11 this is that paying off your existing mortgage 12 is a requirement to get a reverse mortgage under 13 the federal plan. 14 The other big factor in this, for 15 those who needed the reverse mortgage for basic 16 necessities, were health care costs. Many more 17 individuals, who described themselves in poor or 18 fair health, said they considered a reverse 19 mortgage as a way to be able to afford their 20 health care. 21 And again, even though it was more of 22 a factor for those who were trying to get some 23 extras, home improvement costs were also a big 24 factor for those over the age of 80 who might 25 have been contemplating trying to sell their

14 Page 14 1 house at some point but felt they needed to do 2 some home improvements before they would want to 3 put their house on the market. 4 Now, these are reasons that 5 individuals who did consider a reverse mortgage, 6 and eventually took out a reverse mortgage, felt 7 that they wanted to pursue this route. But as I 8 mentioned earlier, only one percent of all older 9 homeowners have actually taken out a reverse 10 mortgage. 11 And one of the questions that we tried 12 to explore in our survey was why ninety-nine 13 percent of the people chose not to take out a 14 reverse mortgage. 15 And the first reason that we found was 16 that when you looked at the requirements for a 17 reverse mortgage and how much a house was worth 18 and what the cash benefit would be, out of those 19 twenty-one million older homeowners, ten million 20 of those homeowners were eliminated right away. 21 They would not get enough of cash benefit or 22 they did not qualify based on their financial 23 situation to take out a reverse mortgage just 24 because of their income levels and the high 25 initial costs of a reverse mortgage.

15 Page 15 1 And so, when you eliminate almost half 2 of older homeowners from being eligible for a 3 reverse mortgage in the first place, then you 4 are dealing with a much smaller group of older 5 homeowners who will be considering this. 6 But it is still significant, the 7 number of people who, after considering a 8 reverse mortgage, decided that they would not 9 take out a reverse mortgage. 10 The reasons that were cited, when we 11 did our survey among the people who did not take 12 out a reverse mortgage, the reasons -- There 13 were a number of reasons cited. 14 And the first reason were the high 15 costs, the high initial costs. And those costs, 16 the loan initiation fee, and the other costs 17 involved in taking out a mortgage were 18 prohibitive for many people who were looking for 19 this quick cash infusion that they felt that a 20 reverse mortgage could bring them. 21 And they looked at this, and they 22 said: You know, if I have to pay these kinds of 23 costs up-front, maybe there is a better way to 24 address my financial needs at this point. 25 Other reasons cited by those who did

16 Page 16 1 not take out reverse mortgages included, after 2 counseling, they realized that a reverse 3 mortgage might not be necessary for their 4 financial situation, a realization that it might 5 make more sense for them in the future instead 6 of the present. 7 And that goes back to that case of 8 individuals and couples in their 60's thinking 9 about how long they might live; and that their 10 home equity might diminish as they grew older; 11 and that a reverse mortgage might make more 12 sense for an older person instead of someone in 13 their late 60's; and also the discovery of other 14 ways to meet their financial needs. 15 And from our conclusion in doing the 16 survey of the people who chose not to take out a 17 reverse mortgage was that the counseling, 18 financial counseling, is a critical factor so 19 that people do explore the pros and cons of a 20 reverse mortgage before they take this step, and 21 we think that that is very important. 22 Another interesting aspect of the 23 study that we did was the increase in consumer 24 awareness. AARP did this study in , 25 and we issued it in late We had also done

17 1 a study in 1999, a very similar study about Page 17 2 reverse mortgages. 3 And we found that in 1999 only 4 fifty-one percent of the people that we surveyed 5 had even heard of a reverse mortgage, and by that number had increased to about 7 seventy percent so there was a much greater 8 knowledge that this product was available and 9 might be something that folks would consider. 10 However, one of the striking things 11 about that was that when the product was 12 described to people who took the survey in 1999, 13 nineteen percent of the people said they would 14 consider a reverse mortgage for themselves, 15 whereas in only fourteen percent of 16 the people thought that it might be something 17 that would work for themselves. 18 Now, I guess one of the factors to 19 think about in was that was at the 20 peak of the stock market boom, and at that point 21 in time, many people might have said: Well, I 22 don't need this. I am doing quite well 23 financially. 24 I suspect if we did that survey at 25 this point in time, you know, with our current

18 Page 18 1 economic situation, that that number might be 2 higher, as people have suffered some losses in 3 their investment income. 4 The final part of this study was to 5 analyze the satisfaction of those who took out 6 reverse mortgages. And generally, borrowers 7 were very satisfied with how reverse mortgages 8 had impacted their lives, particularly those 9 homeowners above the age of 80, and the biggest 10 factor for them was that a reverse mortgage had 11 enabled them to remain in their home. 12 Now, one factor that we do need to 13 keep into consideration is that reverse 14 mortgages are, even though they have been around 15 for a while, the use of them has been greatly 16 increased over the past few years. And in our 17 survey, nine out of ten of the borrowers had 18 only had a reverse mortgage for three years or 19 less. 20 And that initial satisfaction seems to 21 be quite great at this point. But we are still 22 not sure of what the long-term satisfaction with 23 the reverse mortgage might be, just because 24 there is not enough experience with those 25 reverse mortgages, and we really have not had a

19 Page 19 1 chance to survey folks who have had a reverse 2 mortgage for a long period of time and enough 3 numbers to be significant. 4 This survey and the other information 5 that we gathered on reverse mortgages have led 6 to five conclusions that AARP has about reverse 7 mortgages. 8 Our first conclusion is that the most 9 common reverse mortgage product, which is the 10 Federal Housing Administration's Home Equity 11 Conversion Mortgage, has successfully created a 12 foundation for the financial structure of the 13 reverse mortgage industry, and we feel this is 14 demonstrated because the volume of reverse 15 mortgages has grown significantly over the last 16 few years. 17 And our second conclusion is that 18 homeowners who take out a reverse mortgage are 19 expressing a high degree of initial 20 satisfaction. 21 Our third conclusion is that the 22 initial loan costs are too high and this is 23 preventing many older homeowners from taking out 24 a reverse mortgage. 25 The fourth is that consumer knowledge

20 Page 20 1 and confidence in reverse mortgages is still 2 low, and we need to address that and figure out 3 what will bring confidence in the reverse 4 mortgages to a higher level. 5 And finally, we do need to do more 6 research, as we go on in time here, on what the 7 long-term impact of reverse mortgages is to 8 individuals. 9 As I mentioned, you know, we are 10 living in a different time than when our survey 11 was done. And we do feel that over the next 12 year or two, more and more older homeowners are 13 going to be considering reverse mortgages 14 because of the impact that the economic 15 situation has on their finances. 16 But one thing we do have to consider 17 is the reduction in the value of homes that has 18 occurred in this economic climate, and that is 19 going to significantly impact the benefits that 20 individuals could get from a reverse mortgage. 21 There were some steps taken at the 22 federal level on reverse mortgages over the last 23 couple of years. 24 And AARP supported the provisions that 25 the U.S. Congress included in the Housing Bill

21 Page 21 1 that was signed into law by President Bush last 2 year that limited origination fees on reverse 3 mortgages and created a national home value 4 limit that actually increased the equity that 5 older homeowners could attain when taking out a 6 reverse mortgage. 7 And we feel that this step will help 8 to the address the reduction in home values that 9 has taken place in the current housing market. 10 In addition, the new federal stimulus 11 package did increase the loan limit available 12 for reverse mortgages which will enable older 13 Americans to borrow more against their homes. 14 Now, of course, this provision really 15 impacts homeowners who have high-value homes. 16 In the face of declining home values, many 17 homeowners, this won't make a big difference to 18 many homeowners; but it does for those at the 19 higher end of the home market, it does make a 20 difference. 21 So in summary, AARP feels the most 22 critical aspect of the reverse mortgage issue is 23 to ensure that potential borrowers do carefully 24 consider their options before committing to this 25 process.

22 Page 22 1 And we highly recommend that anyone 2 contemplating taking out a reverse mortgage meet 3 with a financial counselor to discuss the pros 4 and cons as they relate to their individual 5 financial situation. 6 Our studies do indicate that some 7 older homeowners can benefit from a reverse 8 mortgage and can and are using it to stay in 9 their home and in their community, which we know 10 is a goal of most older Pennsylvanians; but the 11 high initial costs of this product combined with 12 options for addressing financial concerns in 13 other ways may make a reverse mortgage a bad 14 decision for others. 15 AARP does have a great deal of 16 consumer information beyond the information I 17 provided the committee today, and it is 18 available on the web site, as I mentioned 19 before, or through our office here in 20 Harrisburg. 21 I will say that the booklet that I 22 brought along today, I think is--of the 23 information we have--is probably the most 24 consumer friendly and provides the greatest 25 amount of information for individuals, below the

23 1 level of going to a financial counselor. Page 23 2 I would be happy to share any of the 3 other information we have with the committee, 4 and I am also pleased to answer any questions 5 you have at this time. 6 CHAIRMAN MUNDY: Thank you, Mr. 7 Landis. I appreciate your testimony very much. 8 I have lots of questions. I am not 9 sure that you are the best person to direct them 10 to. I don't expect that in your role as an AARP 11 advocate, you are an expert in reverse 12 mortgages. But I do appreciate, you know, your 13 survey, and raising some issues. 14 So if you are not the right person to 15 answer these, you can just tell me so. Maybe 16 Mr. Wentzel, later on, would be better in the 17 banking department. Or Nancy Burns, who 18 actually does these mortgages, would be better. 19 But let's see how we go. 20 MR. LANDIS: Sure. 21 CHAIRMAN MUNDY: First of all, you 22 mentioned the high initial costs. What are some 23 of the factors involved in them? What are some 24 of those high costs? Origination fees? 25 MR. LANDIS: Yeah, origination fees.

24 Page 24 1 And, you know, the idea of a reverse mortgage, 2 of course similar to taking out a regular 3 mortgage, so I believe our study shows that the, 4 you know, the average cost nationwide was 5 approximately eight thousand dollars. And that, 6 you know, the study is so thick, I can't -- It 7 is hard to go -- 8 CHAIRMAN MUNDY: Right, right. 9 MR. LANDIS: -- directly to that, but. 10 And that, I think that older homeowners see that 11 as prohibitive because of one of the reasons 12 that they are taking out a reverse mortgage, 13 which is they need this quick infusion of money. 14 CHAIRMAN MUNDY: Right. If they had 15 eight thousand dollars to spend MR. LANDIS: Right, um-hum. 17 CHAIRMAN MUNDY: -- they might not 18 need the reverse mortgage to begin with. 19 MR. LANDIS: Yeah, um-hum. Um-hum, 20 um-hum. 21 CHAIRMAN MUNDY: And you mentioned 22 eligibility. What are the federal -- And are 23 they federal in nature? I assume they are 24 federal, the eligibility requirements, to get a 25 reverse mortgage?

25 Page 25 1 MR. LANDIS: Yes, they are. And I 2 think our later testifiers will probably be able 3 to talk more about the difference between the 4 federal program and private reverse mortgages. 5 But there are private products out 6 there. But the most popular product right now 7 is the federal program, and there are financial 8 eligibility provisions in that, and the biggest 9 one is the value of the home. 10 That, you know, many older homeowners 11 are living in homes that frankly don't have a 12 lot of value. And they -- You know, it may be a 13 smaller home, it may be a home that is in need 14 of home repairs, and because of the low value of 15 the home, there is a threshold that homeowners 16 have to meet with the value of their home before 17 they could be eligible for a reverse mortgage 18 under the federal program, in my understanding 19 at least. And then that is a big factor, I 20 think in the qualification. 21 CHAIRMAN MUNDY: Other members have 22 questions. But before I go -- And I may come 23 back. We'll see. You talked about fully 24 understanding how the loans work. And I guess 25 my question for you would be: Who would be the

26 Page 26 1 best kind of person to consult? One would think 2 that you would not necessarily want to go to 3 someone who is selling these mortgages. 4 MR. LANDIS: Um-hum. 5 CHAIRMAN MUNDY: Who would be a good 6 person to consult if you were considering a 7 reverse mortgage? 8 MR. LANDIS: My thought would be that 9 there are counselor -- financial You know, independent financial 11 counselors are one way to go. The federal 12 government, in their federal program, does 13 require counseling and has a list of providers 14 that are CHAIRMAN MUNDY: Oh, they do. 16 MR. LANDIS: -- that are available. 17 Or a list of counselors, I should say, that are 18 available for discussion about the loans and 19 about individuals' financial circumstances. So 20 that is one provision of the federal program 21 that we think is important, is that they do 22 require this counseling and this discussion 23 before someone can jump into the federal program 24 and take their -- and get a reverse mortgage. 25 So that that is one avenue that at

27 1 least individuals who are considering the Page 27 2 federal program could pursue, but I think that 3 entities like the Pennsylvania Housing Authority 4 would have lists of counselors who could provide 5 information to you. 6 CHAIRMAN MUNDY: PHFA? 7 MR. LANDIS: Yes, um-hum. 8 CHAIRMAN MUNDY: Okay. Thank you. 9 Representative Pashinski. 10 REPRESENTATIVE PASHINSKI: Thank you, 11 Madam Chairman. Thank you, Mr. Landis. 12 On the reverse mortgage, could you 13 please tell me, what are the time frames that 14 are offered in acquiring the reverse mortgage to 15 the point where you come down to zero? 16 MR. LANDIS: You mean as far as when 17 you get REPRESENTATIVE PASHINSKI: In other 19 words, a twenty-year mortgage. A twenty-year 20 mortgage, a thirty-year mortgage. 21 MR. LANDIS: And the products that are 22 offered will differ in length. And I suspect 23 that the folks that offer the reverse mortgages 24 can talk about the private reverse mortgage 25 market and the length of time.

28 Page 28 1 The reverse mortgages, I mean, are 2 usually taken out in one of two ways: Someone 3 will get a lump sum payment right at the 4 beginning, and it could be, you know, X amount 5 of the value of their home; and then they could 6 get payments over time, you know, yearly 7 payments over time that -- And then that that 8 mortgage -- 9 You know, a lot of it, of course, 10 depends upon how long a person will be, you 11 know, living in their home. Or, you know, when 12 they decide to move out of their home and maybe 13 move into a -- you know, whether it would be an 14 apartment or a long-term care facility. But the 15 length of time that the loan would go on would 16 be based on how long that person would stay in 17 their home. 18 Now, there is a limit. And much like 19 a fifteen-year mortgage, a regular mortgage, or 20 a thirty-year, regular mortgage, you know, based 21 on how much the person is getting monthly or how 22 much they took in the lump sum payment at the 23 beginning, that would go into the factor of 24 determining how long that reverse mortgage would 25 last. You know, how long there would be money

29 Page 29 1 and equity remaining in the house until there is 2 no more equity. And then the home is completely 3 owned by the lender, whether it be the federal 4 program in this case or a private lender. 5 REPRESENTATIVE PASHINSKI: And I am 6 interested in getting some concrete numbers on 7 that. 8 MR. LANDIS: Sure. 9 REPRESENTATIVE PASHINSKI: You know, 10 the time frames. 11 MR. LANDIS: Um-hum. 12 REPRESENTATIVE PASHINSKI: And with 13 respect to the housing market collapse, how that 14 affected it. You know, maybe when the initial 15 contract was consummated, a house might be worth 16 a hundred thousand and now after the collapse it 17 might be worth sixty thousand. 18 MR. LANDIS: Um-hum. 19 REPRESENTATIVE PASHINSKI: Does that 20 play a role in it? 21 MR. LANDIS: Um-hum. 22 REPRESENTATIVE PASHINSKI: And the 23 last question is: When an individual applies 24 for membership in AARP, is this particular issue 25 addressed at all?

30 Page 30 1 MR. LANDIS: Not when they apply for 2 membership. I mean, this is, you know, one of 3 the -- This publication, obviously, is one of 4 the many publications that AARP has available to 5 its members. 6 And one of the things that I think we 7 struggle with is getting the knowledge of this 8 publication and our other publications out to 9 our members. I mean, it is not one of the 10 things that is sent to our members in their 11 initial membership package, certainly. And we, 12 you know, with our wide variety of members, it 13 is sometimes difficult to know who is interested 14 in this and who is not. 15 REPRESENTATIVE PASHINSKI: Absolutely. 16 MR. LANDIS: So we can try our hardest 17 to get the idea that we have this publication 18 available to our members. And if any help that 19 anyone could provide to us, in letting 20 individuals know that this information is 21 available, we are glad to get it out to as many 22 people--whether they are AARP members or not--as 23 possible. 24 REPRESENTATIVE PASHINSKI: Thank you. 25 Thank you, Madam Chairman.

31 1 CHAIRMAN MUNDY: Representative Page 31 2 Samuelson. 3 REPRESENTATIVE SAMUELSON: Thank you. 4 I appreciate your advocacy, and your suggestion 5 that people seek financial counseling. I know 6 there are many alternatives for seniors, and one 7 that we have talked about on this committee is 8 that property tax/rent rebate program, which is 9 a wonderful program. You can get up to six 10 hundred fifty dollars back. 11 But yet the utilization is still just 12 over eighty percent. There are over a hundred 13 thousand people who could get that today. 14 But I appreciate everything that AARP 15 does to get the word out and get information 16 out. 17 My question, my concern is about the 18 fees that you spoke of, the average fees of 19 eight thousand dollars. For many seniors, their 20 home represents their life savings, the equity 21 in their home is their life savings. 22 And to hear that the folks who sell 23 these reverse mortgages would take eight 24 thousand dollars from our seniors, it seems like 25 there are so many other alternatives; perhaps a

32 Page 32 1 home equity line of credit, a home equity loan 2 where the fees might just be a few hundred 3 dollars. 4 So I am trying to understand the 5 disparity between a home equity loan where you 6 could have reasonable fees and a reverse 7 mortgage where you would lock in with eight 8 thousand dollars coming out of the value of the 9 home. 10 I guess my question is: Isn't the 11 home equity loan a more realistic alternative? 12 And, do banks and financial 13 institutions make home equity loans available to 14 senior citizens at the same way they do to folks 15 who are still in the work force? 16 MR. LANDIS: On the question about the 17 initial fees, and I think, you know, what the 18 one thing our study showed, is that that was a 19 reason why many people did not, in the end, take 20 out a reverse mortgage, because of this high 21 initial fee. 22 And, you know, I am not going to make 23 the arguments for lenders, certainly, but I 24 think that lenders would argue that this is a You know, a reverse mortgage is similar to a

33 1 regular mortgage in the need for mortgage Page 33 2 insurance and initiation fees. And they -- It 3 is treated that way. 4 And I think those of us that have 5 purchased a home and taken a mortgage know that 6 those fees are significant and the reverse 7 mortgage fees are similar. And I think that 8 that is one thing about the product, that folks 9 believe that they should be lower. And in 10 reality, they are not because they are treated 11 as a regular mortgage by the lenders. 12 On the issue of the home equity loans 13 and how they are available to seniors? I have 14 got to be honest, I am not sure. Certainly, you 15 know, that would be an avenue that seniors could 16 look at as an alternative to a reverse mortgage. 17 But I think that one of the things 18 that is attractive about a reverse mortgage to 19 many people, especially old, you know, the 20 people over the age of 80, is the ability to get 21 out of a reverse mortgage that lump sum, that 22 significant lump sum payment off of the value of 23 their home. 24 And that's probably something that a 25 home equity loan could not provide, if there was

34 1 an emergency situation or a health care Page 34 2 situation where an individual needed that, you 3 know, that significant amount of money right 4 up-front. 5 And that is one thing that the reverse 6 mortgage cannot provide, even with. And I think 7 folks that need that consider the, you know, the 8 fees to be high. But they do not match that big 9 amount of money that folks are getting. 10 REPRESENTATIVE SAMUELSON: And the 11 last question. You spoke about the new federal 12 law supported by President Bush that limited 13 origination fees last year. Have any states 14 taken action to limit the magnitude of these 15 reverse mortgage fees? 16 MR. LANDIS: I am not aware that 17 states have acted individually to limit the 18 reverse mortgage fees because at this point the 19 vast majority of reverse mortgages come out of 20 the federal FHA program. 21 Now, as we see more reverse mortgages 22 available in the private market, it is possible 23 that states might want to consider that 24 approach. But I think the market is, you know, 25 for the private market, is fairly small right

35 Page 35 1 now. Although, I am sure it's growing and will 2 be growing, so. 3 CHAIRMAN MUNDY: Representative 4 Boback. 5 REPRESENTATIVE BOBACK: Thank you, 6 Madam Chairman. 7 So, Mr. Landis, you have to be 62 8 years old or older. You can get a lump sum for 9 your home. So suppose your home is valued at a 10 hundred thousand dollars. You pay your eight 11 thousand dollars and then you are given a lump 12 sum of a hundred thousand dollars? 13 MR. LANDIS: You probably would not 14 get the full one hundred thousand dollars. I 15 mean, there is a formula that is in the federal 16 program that will enable you to get a portion of 17 that. 18 And not being, as Representative Mundy 19 said, not being an expert, I don't know how the 20 formula works. But you would be able to get a 21 portion of that hundred thousand dollars' value 22 in a lump sum. Or you could choose to not take 23 the lump sum and take it, you know, get money 24 yearly into that, that you could factor it in 25 your budget.

36 Page 36 1 REPRESENTATIVE BOBACK: All right. 2 But suppose you do take it, though, as a lump 3 sum. 4 MR. LANDIS: Um-hum. 5 REPRESENTATIVE BOBACK: That is 6 nontaxable? Or is it taxable? 7 MR. LANDIS: That is a question I am 8 not positive about. I think I will let -- 9 MS. BURNS: I will tell you. 10 REPRESENTATIVE BOBACK: Okay. She 11 will tell us. Okay. Thank you. We will have 12 to remember that. 13 And then, suppose it is the single 14 person that you talked about before. I think 15 the gentleman in his 80's or the woman or 16 whatever. 17 MR. LANDIS: Um-hum. 18 REPRESENTATIVE BOBACK: They pass 19 away. Now, they have children. So what 20 happens? Does the bank then sell the home and 21 pay off the debt and what is left it goes to the 22 children? Or does it just become, if you didn't 23 take the lump sum CHAIRMAN MUNDY: Let her take that. 25 REPRESENTATIVE BOBACK: Oh, she will

37 1 take that? Page 37 2 MR. LANDIS: Yeah, she can. 3 REPRESENTATIVE BOBACK: Okay. 4 MR. LANDIS: But that is a factor. I 5 mean, you know, that is a factor that any 6 individual taking out a reverse mortgage, 7 individual or couple has, you know, must factor 8 in, is the impact on their heirs. 9 Because, obviously, you know, you are 10 lessening the equity value that you have in your 11 own home. And when you pass away, that that 12 value would be less for, you know, for your 13 estate. So that is a factor that anyone taking 14 out a reverse mortgage, you know, would probably 15 want to discuss with their heirs. 16 REPRESENTATIVE BOBACK: Okay. I thank 17 you. And I am a proud member of AARP. 18 MR. LANDIS: Thank you. 19 REPRESENTATIVE BOBACK: So I 20 appreciate your advocacy. Thank you. 21 MR. LANDIS: Okay. 22 CHAIRMAN MUNDY: Mr. Landis, you do 23 raise another good point, though. And it might 24 be arguable as to whether you would qualify for 25 one of these reverse mortgages if you were

38 Page 38 1 eligible for PACE or PACENET or the property 2 tax/rent rebate program. 3 But if you were getting income from a 4 reverse mortgage, either in a lump sum or over 5 time, you could become disqualified for those 6 programs; is that correct? 7 MR. LANDIS: Well, I -- 8 CHAIRMAN MUNDY: I mean, I would 9 assume. 10 MR. LANDIS: Well, the income, yeah, 11 you know, that would be a factor because Well, I mean, that one of the joys 13 about our state lottery funded programs is that 14 there is not an asset test on them. So someone, 15 you know, with a home that had a significant 16 value but still had low yearly incomes could 17 well qualify for PACE or PACENET or property 18 tax/rent rebate because they had a very -- You 19 know, they would be very cash poor, but they 20 might be house rich. 21 So that would be a factor to consider. 22 You know, if you got a reverse mortgage and were 23 receiving that money in it, as income, I believe 24 that -- Although, I am not Tom Snedden should probably address

39 1 that question -- Page 39 2 CHAIRMAN MUNDY: Right. 3 MR. LANDIS: -- whether the income 4 from a reverse mortgage would -- 5 CHAIRMAN MUNDY: It probably would -- 6 MR. LANDIS: -- throw you out of 7 qualification for the, say, the PACE or PACENET 8 program. 9 CHAIRMAN MUNDY: It would probably 10 depend on how much it was. 11 MR. LANDIS: Yeah, um-hum. Yeah. 12 CHAIRMAN MUNDY: You know what your 13 normal income was MR. LANDIS: Um-hum, um-hum. 15 CHAIRMAN MUNDY: -- and then what your 16 income in addition would be. 17 MR. LANDIS: Um-hum, um-hum. 18 CHAIRMAN MUNDY: Okay. Thank you so 19 much -- Oh, I am sorry. Representative Kortz. 20 REPRESENTATIVE KORTZ: Thank you, 21 Madam Chairman. I apologize for being late. 22 Three other hearings today at the same time. 23 MR. LANDIS: Well, we saw you, our 24 testifiers, at the Consumer Affairs Committee 25 hearing, too.

40 Page 40 1 REPRESENTATIVE KORTZ: I do have a 2 quick question. I apologize for missing part of 3 your testimony. Did you say that the average 4 fee is eight thousand dollars? 5 MR. LANDIS: That is what our study 6 found the average fee was. And I am not an 7 expert enough to know how much that varies 8 geographically or -- 9 But our study showed that folks were 10 paying an average of eight thousand dollars, 11 especially if they needed reverse mortgage 12 insurance. That that was a factor in the fee, 13 yes. 14 REPRESENTATIVE KORTZ: Okay. And one 15 last question. I am under the understanding 16 that a person on Social Security -- And we have 17 three different ones. We have Social Security, 18 Social Security insurance, Social Security 19 disability. I understand that the middle one, 20 Social Security insurance, you cannot get a 21 reverse mortgage. Can you comment on that? Of 22 the three, that one you cannot get it on. 23 MR. LANDIS: That is one that I was As Representative Mundy mentioned earlier, I 25 know enough about these to be --

41 1 MS. BURNS: Dangerous. Page 41 2 MR. LANDIS: -- dangerous. There is a 3 good statement. But that question, I do not 4 know the answer to. And I'd leave that, perhaps 5 our further testifiers might know that, so. 6 REPRESENTATIVE KORTZ: Okay. Thank 7 you. Thank you, Madam Chairman. 8 CHAIRMAN MUNDY: Thank you. Anyone 9 else? All right. Thank you so much. I 10 appreciate your testimony. And your 11 information, available on your web site, I would 12 think would be very helpful to individuals 13 looking for reverse mortgage information. 14 MR. LANDIS: Thanks. 15 CHAIRMAN MUNDY: Our next testifier is 16 from the Pennsylvania Department of Banking, our 17 friend Paul Wentzel, who is the Legislative 18 Liaison and Executive Assistant to the 19 Secretary. Thank you very much for being here. 20 MR. WENTZEL: Good morning. 21 REPRESENTATIVE HENNESSEY: Good 22 morning, Paul. 23 CHAIRMAN MUNDY: Good morning. You 24 may proceed whenever you are ready. 25 MR. WENTZEL: Okay. Thanks for having

42 Page 42 1 the Department of Banking here today. We do not 2 get out much, other than with the -- 3 CHAIRMAN MUNDY: Well, you certainly 4 do not get out much to our committee. 5 MR. WENTZEL: That is right. Our 6 oversight committees are the Commerce Committee 7 in the House and the Senate Banking Insurance 8 Committee. And I do not know if we have ever 9 gone before any other committee. So this is a 10 pleasure to be with you all here today. 11 My boss, Secretary Kaplan, he loves to 12 do committee hearings. But he had a conflict, a 13 longstanding conflict, and just could not make 14 it today. 15 But we are in the process of drafting 16 legislation, and to address regulatory and 17 consumer protection concerns with regard to 18 reverse mortgages. And I am hoping that he can 19 come back to meet with you and have the draft 20 ready to receive your comments and input, and 21 that would be great. 22 So, hopefully, we can do that when it 23 is ready, and it should be ready in a couple of 24 months. 25 Some of the things that I have in my

43 Page 43 1 testimony were discussed, particularly with your 2 questions. But I am going to try not to read it 3 all, but I may have some things that are 4 redundant. 5 As you know, a reverse mortgage loan 6 is a type of home equity loan that allows a 7 borrower to convert some of the equity in their 8 home to tax-free cash while continuing to live 9 in the home. And we have discussed this in the 10 department. This appears to be a desirable 11 social policy from our perspective. 12 The Pennsylvania 2020 Vision Report 13 issued in 2008 under the leadership of the 14 Department of Aging--and Lisa Meade is here 15 today--cited a National Center for Seniors 16 Housing Research study which indicated that 17 eighty percent of the people age 55 or older 18 want to age in place by remaining in their homes 19 and communities. And you are probably more 20 aware of that than we are. Reverse mortgage 21 loans have been cited as an option for achieving 22 that goal. 23 However, we know that reverse mortgage 24 loans are not for everybody and since the vast 25 majority of reverse mortgage loans are marketed

44 Page 44 1 to consumers 62 years of age or older, which is 2 a uniquely vulnerable market, we believe that 3 additional consumer protections and regulatory 4 safeguards may need to be developed and amended 5 into the Pennsylvania mortgage laws. 6 For that reason, we have been studying 7 the reverse mortgage loan products thoroughly 8 and reviewing other states statutes on the 9 subject. And although the state legislation 10 regulation cannot address all reverse mortgage 11 loans at this time because we have federal 12 issues with federal preemption and national 13 banks that may be issuing these loans, our 14 position is that we should regulate that portion 15 of the industry operating in Pennsylvania to the 16 extent we can and protect Pennsylvania consumers 17 from fraud and abuse. 18 At the Department of Banking, we have 19 been all about mortgages for the past several 20 years, primarily focusing on foreclosure and 21 abusive lending issues. And back in 2003, the House passed a resolution that charged us 23 with studying abusive lending by mortgage 24 bankers and brokers, foreclosure issues. And we 25 spent about a year and a half doing that study

45 Page 45 1 and reported to the Commerce Committee and that 2 had resulted in some legislation, some 3 regulations. 4 But one of the other things that 5 resulted from the studies, we have grown the 6 department quite a bit, increasing our 7 licensing, compliance and non-depository 8 examination staff, and dramatically changing our 9 licensing procedures which I will get into 10 later. 11 We have also created a new 12 investigative unit that seeks out abusive 13 lending. It is a new group of people who are 14 law enforcement people that go out when we have 15 a sense that there might be some abusive lending 16 happening. They are not our examiners who look 17 for compliance. These are people who seek out 18 fraud and other abuse. They are doing a great 19 job for us. 20 This hearing's topic is timely because 21 a new area of some concern is reverse mortgage 22 lending. And reverse mortgage loans are now 23 generating a great deal of attention from state 24 mortgage regulators as the products become more 25 widely available.

46 Page 46 1 Just this afternoon, the Conference of 2 State Bank Supervisors and the American 3 Association of Residential Mortgage Regulators, 4 which are regulatory groups that we belong to, 5 are sponsoring a Webinar for the various state 6 departments around the country to discuss 7 regulatory and consumer protection issues 8 relating to reverse mortgage loans and what 9 actions the state should be taking. 10 So we have been working on, as I 11 mentioned, drafting some legislation. We are 12 going to learn more this afternoon from the 13 various banking commissioners. 14 Let me talk a little bit about reverse 15 mortgage loans, although some of this has been 16 discussed earlier. As you know, the primary 17 benefit of a reverse mortgage loan is that the 18 borrower may continue to live in their home as 19 long as they desire, even if they have exhausted 20 their equity. 21 Typically, a borrower can choose to 22 receive monthly payments, a lump sum--as was 23 mentioned earlier--a line of credit or a 24 combination of all of these. The amount that 25 may be borrowed is generally based on the

47 Page 47 1 borrower's age, life expectancy, the amount of 2 equity in the home, and the interest rate 3 charged by the lender. The maximum loan amount 4 generally ranges from fifty to seventy-five 5 percent of the home's fair market value. We may 6 hear later about that from the mortgage banker 7 that is here. 8 The loan is usually due with interest 9 when the borrower moves, sells, reaches the end 10 of a predetermined loan plan or passes away. 11 Upon the death of the borrower, the 12 heirs are required to pay off the loan either 13 through a conventional refinancing of the 14 mortgage or the sale of the property. 15 Kind of as an aside. When I take 16 calls from members about reverse mortgages, it 17 is usually not from the senior who is taking out 18 the reverse mortgage, it is usually from the 19 heirs, or the children, wondering, what did my 20 parents do? They thought the home will be there 21 when the parents pass away and it is not going 22 to be there. So, in fact, those are the only 23 complaints we actually get about the reverse 24 mortgages at the Department of Banking. 25 CHAIRMAN MUNDY: Interesting.

48 Page 48 1 MR. WENTZEL: Yeah. We were talking 2 about the up-front fees. A typical reverse 3 mortgage loan contains up-front fees and costs 4 which may -- that consumers should review very 5 carefully. These fees can amount to several 6 thousand dollars and will significantly increase 7 the amount owed on a loan. 8 Typical fees include an appraisal fee, 9 which would definitely be an up-front fee; an 10 origination fee, which would be up-front; 11 mortgage insurance premiums, which protect both 12 the borrower and the lender. I would think that 13 they would be spread out and may come out of the 14 equity. Closing costs and servicing fees, I am 15 not sure, but I think they may be spread out, 16 too. 17 And we are still learning, like you 18 are, about these reverse mortgages, and are not 19 expert on. 20 Some of the disadvantages are the 21 reduction, of course, in the equity and 22 property; that it may not be consistent with the 23 desire to maximize the estate for the heirs; and 24 the fact that closing costs are based on the 25 home's value rather than the amount borrowed,

49 Page 49 1 therefore, short-term or small loans are not 2 advisable under this product. And maybe we can 3 discuss that later with our mortgage provider 4 that is here. 5 Getting into the material I know a lot 6 more about, I will talk a little bit about the 7 Pennsylvania regulatory environment for reverse 8 mortgage loans because it is somewhat confusing. 9 As a financial institution regulatory 10 agency, the Department of Banking has 11 supervisory, regulatory and examination 12 authority over about two hundred and forty 13 state-chartered depositories and institutions. 14 This includes banks, savings and loan 15 associations--not many of them any more-- 16 savings banks, credit unions and non-depository 17 trust companies. 18 There are also national banks, 19 federally-chartered savings and loan 20 associations, federally-chartered savings banks 21 and federally-chartered credit unions that 22 operate in Pennsylvania outside the purview of 23 the Department of Banking and then basically 24 outside the purview of state law. 25 The state-chartered institutions