Monday, February 9, 2015

CFPB Issues Report on Reverse Mortgages

The CFPB has issued a report and a consumer advisory concerning reverse mortgage products.  The report, entitled “Snapshot of Reverse Mortgage Complaints,” can be found here:  While reverse mortgage complaints comprise only a minute part of the mortgage complaints received by the CFPB (1%), the CFPB has identified this as an area of growing concern and there is no doubt that this product is on the CFPB’s radar.  While many of the CFPB’s reports note abuses by the consumer finance industry, this report is notable because majority of the complaints arise not out of the bad actions of the consumer finance industry but rather, out of consumer misunderstandings as to the terms of the loan.  The CFPB noted that “[m]any complaints show a mismatch between consumer expectations and the way the product functions.  Many consumers, for example, struggle with understanding how quickly their loan balance will go up and their home equity will fall.” “Many older consumers and their family members who submit complaints demonstrate confusion about the terms and requirements of reverse mortgage loans.”

Accordingly, the CFPB has also issued a consumer advisory which warns consumers having reverse mortgages to:

(a)   Develop an understanding of who is on the loan.  Consumers should be aware that in a large majority of reverse mortgages, the death of the obligor spouse will trigger repayment obligations.

(b)   Plan ahead for the non-borrowing spouse.  For loans originated prior to August 4, 2015 in which the loan was taken out in the name of only one spouse, opportunities to defer repayments may be limited.  The CFPB recommends planning ahead and exploring options now.

(c)    Make family members living in the home aware of the terms of the reverse mortgage.

While the CFPB report did not uncover wide spread abuse, it is likely that this is an area which will receive further attention as the baby boomer generation reaches retirement age and reverse mortgage loan products becomes more prevalent.  Product providers can expect to see increasing policy changes from HUD (as have already been seen in the past few years) and further assessment as to the disclosure requirements for the product.  As noted by the CFPB, “it is essential that the terms, conditions and servicing of reverse mortgages be fair and transparent so that consumers can make informed decisions regarding their options.”  Product providers can therefore anticipate further disclosure requirements in the future.

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