SPRINGFIELD - Governor Rod R. Blagojevich today signed House Bill 5197, legislation designed to protect senior citizens from lenders that offer reverse mortgages who are acting in bad faith. Reverse mortgages have recently become popular with senior citizens because they allow homeowners to convert equity into cash.
“For many seniors living on fixed incomes, a reverse mortgage helps them maximize their resources to pay their monthly obligations. But, we must protect seniors from unscrupulous lenders who may use deception and fraud to strip seniors of nearly a lifetime’s worth of equity,” said Gov. Blagojevich.
Taking out reverse mortgages is a popular practice among senior citizens because they often own their homes but can’t afford their monthly bills - making them “home rich” but “cash poor.” Reverse mortgages allow them to borrow against the equity in their home without having to repay the mortgage until after the sell their home or permanently leave their home, or after their death.
The bill, sponsored by Rep. Michael Smith (D-Canton) and Sen. George P. Shadid (D-Edwards), takes the principles developed in last year’s Illinois High Risk Home Loan Act related to good faith dealings and fraudulent practices and applies them to reverse mortgage lenders. The new law specifically says that no reverse mortgage licensee may employ fraudulent or deceptive practices including marketing and sales efforts.
After receiving numerous complaints from Illinois senior citizens, the American Association of Retired People (AARP) became a driving force behind this legislation. The AARP reports that some lenders market reverse mortgages to seniors as “easy money” or solutions to their high monthly bills, for example, their prescription drug costs. AARP also found lenders were not always properly explaining to Illinois seniors that reverse mortgages may not be their best option. This law provides another layer of protection for seniors and helps them make informed financial decisions.
The law is effective immediately.