Elder Financial Abuse

She was already in her late nineties, a renowned and beloved philanthropist, bearing a name that symbolizes wealth and status. Her son was already a senior citizen, when he schemed to rob her of her independence, her wealth, her properties, and her dignity. She was suffering from Alzheimer's Disease, chronic anemia, and other ailments that affect the elderly. Properties of great value were sold without the mother's knowledge, or with her dubious consent, and then no record was kept of the distribution of the proceeds. Roberta Brooke Astor died on August 13, 2007, at the age of 105.

On November 27, 2007, indictments on criminal charges were announced against Mrs. Astor's son, Anthony D. Marshall, and attorney Francis X. Morrissey Jr.

The criminal charges were grand larceny, criminal possession of stolen property, forgery, scheming to defraud, falsifying business records, offering a false instrument for filing, and conspiracy in plundering Mrs. Astor's $198 million estate. 

The trial of Marshall and Morrissey started March 30, 2009, and on October 8, 2009 the jury convicted Anthony D. Marshall of one of two charges of grand larceny, the most serious of a number of charges brought against him. The grand larceny conviction carries a mandatory prison sentence, meaning that Marshall could spend between 1 and 25 years in prison. Francis X. Morrissey Jr. was convicted of forgery.

All the money and status did not protect Brooke Astor from the depredations of her son.

If this happened to her, then, for most of the elderly, lacking the benefits of money and status, how may they hope to protect their financial interests from similar scurrilous plundering, when they are old and infirm?

The Consumer Financial Protection Bureau is involved in providing financial protection against elder abuse; indeed, it is specifically tasked with that responsibility. The Bureau's Office of Older Americans is charged by the Dodd-Frank Act with examining certifications of financial advisors who serve elderly individuals and it plans to make recommendations to Congress on how to protect older consumers. Recently, the CFPB issued an information request regarding Senior Financial Exploitation.

In considering the challenges that the elderly must face in order to avoid financial abuse, the following outline of the CFPB's recent information request should be looked upon as a set of questions, the answers to which may provide new ways and means to protect them from the snares of financial predators.

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IN THIS ARTICLE

Announcing the Information Request

Categories

Senior Financial Advisor - Certifications and Designations

Providing Financial Advice and Planning Information

Senior Certification and Designation Information Sources

Financial Literacy

Financial Exploitation of Older Americans

Financial Exploitation of Older Veterans of the Armed Forces

Library

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Announcing the Information Request

Using statistics from a recent study, the Bureau noted that Americans ages 60 and up lost at least $2.9 billion to financial exploitation in 2010 and that the total increased by 12 percent between 2008 and 2010. From 2008 to 2010, there was a 12 percent increase in the amount of money scammed from seniors. Also, women are more likely than men to be victims, and exploitation is most frequently perpetrated by family members and other persons in a position of trust.

CFPB Director Richard Cordray gave a speech at the White House on June 11, 2012, discussing the issuance of an information request regarding elder financial abuse. Dodd-Frank includes provisions that are intended to directly address the needs of senior citizens. Director Cordray said that misusing credentials that certify a person as an advisor for elderly clients is elder financial abuse, which instance he cites as but one reason for the information request. According to Mr. Cordray, based on the study, for each case of elder financial abuse that is addressed, forty-two actually go unreported.

Skip Humphrey, who runs the Office of Older Americans, has stated that the Bureau plans to look specifically at the needs of senior veterans. He has also referenced pension buyout plans as a particular problem. And Naomi Karp, a policy analyst at the Office of Older Americans, has addressed the difficulty that older people may experience in finding trustworthy advice when they need it, but are suffering from age-related cognitive impairment.

Categories

The Bureau is seeking comments in response to these questions:

Evaluation of senior financial advisor certifications and designations.

Providing financial advice and planning information to seniors.

Senior certification and designation information sources.

Financial literacy efforts.

Financial exploitation of older Americans, including veterans of the Armed Forces.

Senior Financial Advisor - Certifications and Designations

1. What resources do seniors have for determining the legitimacy, value, and authenticity of credentials held by their financial advisors and planners?

•     What sources have been found most helpful, accurate, and thorough?
  • Among other things, comments could address issues such as state or organizational level review standards, evaluation practices, or selection criteria to determine the validity of proposed senior certifications or designations.

2. How effective are the existing sources at maintaining the legitimacy, value, and authenticity of credentials held by senior financial advisors and planners?

3. How effectively do existing accountability controls deter the misuse of senior advisor credentials? Examples of accountability controls include revoking credentials, public notices of disapproval, or other disciplinary actions.

Providing Financial Advice and Planning Information

4. What resources are available to explain the subject matter expertise presented or implied by specific certifications and designations?   

• How effective are the publicly available sources at disseminating thorough, up-to-date information?
  • How effectively are seniors able to use the available resources to select a financial advisor with appropriate knowledge to address their specific financial needs?

Senior Certification and Designation Information Sources

5. What sources of information on the fraudulent or misleading uses of senior certifications and designations are available?

• Comments could include, among other things, references to publicly available research or data sets, suggestions for other potentially available research or data, or other information on enforcement, civil, administrative, or criminal cases.
  

Disclosure Integration, High Cost, and Counseling

On July 9, 2012, the CFPB issued its proposed integration of RESPA and TILA disclosures into the "integrated" forms, entitled "Loan Estimate" and "Closing Disclosure". These new forms are derived from the Good Faith Estimate (GFE), the Truth-in-Lending (TIL) Disclosure, and the HUD-1/1A Settlement Statement. This assemblage has been duly dubbed with the euphemism "integration".

Excluded from the forthcoming integration are reverse mortgages, home equity lines of credit (HELOCs), chattel dwelling loans, and de minimis originations consisting of loans made by creditors who make five or fewer otherwise covered loans per year.

I have covered the process of constructing these forms in several newsletters and articles, including HERE, and HERE.*

The CFPB is not expecting to finalize the integration before the end of this year. Comments are due November 6, 2012.

However, there is a comment deadline of September 7, 2012 - which will lead to rulemaking before January 2013 - regarding the extent to which the rule applies to loans previously exempted from RESPA or TILA and the further redefining of the term “finance charge” to include most costs associated with residential mortgage loans.

By its own admission, the CFPB has stated that the proposal to "broaden" the definition of a "finance charge" by adopting certain adjustments or accommodations in its HOEPA implementing regulations under Regulation Z, would "cause more loans to exceed the APR and points and fees triggers and be classified as high-cost mortgages under HOEPA."

The CFPB has also set forth proposed rules to implement Dodd-Frank amendments regarding high-cost mortgages and also to provide homeownership counseling provisions that would affect mortgage lending generally (with no exclusion for HELOCs).

The implications of these rules, taken together, are far reaching. I would suggest that you visit our Library for further information.

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IN THIS ARTICLE

“Loan Estimate” and “Closing Disclosure”

Integration

High-Cost Mortgages

Homeownership Counseling

Library

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“Loan Estimate” and “Closing Disclosure”

• The Loan Estimate replaces the GFE and early TIL, while the Closing Disclosure replaces the HUD-1/1A and final TIL.

• HUD's Special Information Booklet will still be required.

• The CFPB's proposal would combine five pages (seven if typical appraisal and servicing disclosures were to be counted) of TILA/RESPA data into a three-page Loan Estimate, not counting the written list of available providers that must be separately provided if the creditor allows a consumer to shop for a settlement service.

• The Closing Disclosure is five pages.

Integration

The integration not only provides an entirely new format but also reconciles certain existing differences between Regulation X, the implementing regulation of RESPA and Regulation Z, the implementing regulation of TILA.

Highlights

• Redefines the term “application” by deleting the 7th component from the definition adopted by HUD, as outlined in its New RESPA Rule FAQs, as “any other information deemed necessary by the loan originator.”

• Alters the coverage of the disclosure requirements so they would apply to home loans, except for the aforementioned exemptions.

• Changes the timing and responsibility rules for providing closing disclosures.

• Prohibits the collection of any fees other than a credit report fee, until the Loan Estimate has been received, as provided by Regulation X, instead of the broader parameter of the “credit history” fee set forth in Regulation Z.

• Prohibits the collection of any fees other than a credit report fee, until the consumer has indicated “an intent to proceed with the loan,” as specified by the Regulation X amendments of January 2010.

• Requires the credit report fee to be accurately described as a credit report fee, not as an “application fee.”

• Allows preliminary estimates only if they are clearly labeled as not the Loan Estimate.

• Continues requiring the Regulation X Special Information Booklet, and possibly incorporating material from the Regulation Z's ARM (CHARM) booklet.

• Prohibits a creditor from requiring a consumer to verify any information the consumer provided with the application (per Regulation X).

• Incorporates the disclosure tolerances of Regulation X, modified to extend the zero tolerance to fees paid to affiliate providers and providers for whom a consumer cannot shop.

• Adjusts Regulation X limitations on revising Loan Estimates, including the definition of “changed circumstances.”

• Allows a waiver of waiting periods in the event of bona fide personal emergencies.

• Permits price averaging.

• Requires providing certain Closing Disclosures to the seller, if a seller is a party to the transaction.

• Requires close communication and cooperation between mortgage brokers and settlement agents who may provide disclosures, in order to ensure accurate disclosure.

• Prohibits providing disclosures of both estimated and actual costs at the same time (viz., as revised Loan Estimate and a Closing Disclosure).

• Requires the retention of evidence of compliance (i.e., permitting electronic file retention) for three years for Loan Estimates and five years for Closing Disclosures.

• Requires states with existing exemptions from TILA (i.e., Maine, Connecticut, Massachusetts, Oklahoma, and Wyoming) to conform their laws if they wish to retain their exemptions.

High-Cost Mortgages

• Balloon payments would largely be banned, and creditors would be prohibited from charging prepayment penalties and financing points and fees.

• Late fees would be restricted to four percent of the payment that is past due, fees for providing payoff statements would be restricted, and fees for loan modification or loan deferral would be banned.
  

Next Up, Reverse Mortgages!

In a June 28, 2012 Report to Congress, the Consumer Financial Protection Bureau (the CFPB or the Bureau) published its study of reverse mortgage transactions. This study was required by Section 1076 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

The Report surmised that reverse mortgages are not being used as Congress originally intended, because, rather than provide income for borrowers during retirement, reverse mortgages are being provided to consumers at younger ages, thereby increasing the risk that these borrowers will go broke later in life. The study found that almost half of reverse mortgage borrowers in fiscal year 2011 were younger than 70 years of age.

Furthermore, the Report concluded that 70% of reverse mortgage borrowers withdrew all the available funds at once in lump-sum payments, which the CFPB claims can be squandered quickly, leaving borrowers with the potential to face foreclosure due to the reduced ability to pay property taxes. According to the study, nearly 10% of reverse mortgagors (as of February 2012) were at risk of foreclosure.

In its 231 page Report, the CFPB stated the following "emerging concerns":

1. Reverse mortgages are complex products and difficult for consumers to understand.

2. Reverse mortgage borrowers are using the loans in different ways than in the past, which increase risks to consumers.

3. Product features, market dynamics, and industry practices also create risks for consumers.

4. Counseling, while designed to help consumers understand the risks associated with reverse mortgages, needs improvement in order to be able to meet these challenges.

5. Some risks to consumers appear to have been adequately addressed by regulation, but remain a matter for supervision and enforcement, while other risks still require regulatory attention.

The study identified four major topics "where additional research would help determine if additional consumer education or regulatory action is needed."

Those topics are:

(a) Factors influencing consumer decisions;
(b) consumer use of reverse mortgage proceeds;
(c) the longer-term outcomes of reverse mortgages; and
(d) the differences in market dynamics and business practices among the broker, correspondent, and retail channels.

On July 2, 2012, the CFPB began the process of investigating the consumer use of reverse mortgages. This procedure begins with a Notice and Request for Information. In effect, that CFPB now seeks comment and information from the public on the aforementioned topics.

In this review of reverse mortgages, the CFPB will undertake, among other things, to identify any practice as unfair, deceptive, or abusive, and may provide for an integrated disclosure standard and model disclosures. Additionally, it will seek detailed information from the public on the factors that influence reverse mortgage consumers' decision-making, consumers' use of reverse mortgage loan proceeds, longer-term consumer outcomes of a decision to obtain a reverse mortgage, and differences in market dynamics and business practices among the broker, correspondent, and retail channels for reverse mortgages.

In this article, I will outline the scope of information that the CFPB is seeking from the public, including consumers, housing counselors, financial institutions, and others, regarding consumer use of reverse mortgages and consumer experiences during the reverse mortgage shopping process.*

Factors Influencing Consumer Decisions

The CFPB asks the following questions regarding the factors that influence consumer decisions:

1. What factors are most important to consumers in deciding whether to get a reverse mortgage?

2. What factors are most important to consumers in choosing among products? Among other things, comments could address the choice between fixed-rate, lump-sum reverse mortgages and adjustable-rate, line-of-credit or monthly disbursement reverse mortgages.

3. What factors are most important to consumers in choosing among potential lenders?

Consumer Use of Reverse Mortgage Proceeds

4. Nearly 75% of recent reverse mortgage consumers took out all of their available funds upfront in a lump sum.
   

a. What do consumers do with these funds?
b. Where do consumers place loan money that they do not use immediately? (i.e., in a savings account, an investment account, a certificate of deposit (CD), et cetera).

5. Some reverse mortgage consumers use reverse mortgage loan funds to refinance a traditional mortgage or home equity loan/line of credit.
   

a. What proportion of consumers are using reverse mortgage loan funds to refinance a traditional mortgage or home equity loan/line of credit?
b. What proportion of the loan funds are typically spent on paying off an existing mortgage?
c. Do consumers using a reverse mortgage to refinance an existing mortgage typically consider other options first (e.g. moving to a different home or a traditional refinancing)? If not, why not? If so, what factors lead them to choose a reverse mortgage instead?
   

6. Some reverse mortgage consumers use reverse mortgage loan funds to consolidate non-housing debts.
   

a. What proportion of borrowers use reverse mortgage loan funds to
consolidate non-housing debts?
b. What proportion of the loan funds are typically spent on consolidating non-housing debts?
c. What types of non-housing debts are typically consolidated (i.e., credit card, auto, medical-related debt, et cetera)?