June 28, 2012
WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) issued a report today detailing a number of concerns about reverse mortgages that can put seniors at risk. The financial watchdog announced plans to collect input from the public as it considers whether to adopt new rules to rein in reverse mortgage abuses. A notice requesting public comment will be published in the Federal Register soon.
“Reverse mortgages are very complex and can be easily misunderstood by homeowners looking for a way to tap into their equity,” said Norma Garcia, manager of Consumers Union’s financial services program. “Unfortunately some reverse mortgage lenders engage in deceptive marketing and other unfair practices that can undermine the financial security of homeowners heading into retirement. The CFPB should take action to protect seniors who are vulnerable to scam artists peddling abusive reverse mortgages.”
Reverse mortgages enable borrowers who are 62 or older to obtain income through cash payment or lines of credit by tapping the equity in their home. The reverse mortgage loan becomes due when the borrower dies, leaves the home for 12 consecutive months or more, or fails to maintain the property or pay homeowners insurance or property taxes. Borrowers must pay a loan origination fee, closing costs, and compounding interests on the loan principal, which can be significant.
According to the CFPB’s report, an increasing number of homeowners are taking out reverse mortgages at a younger age, putting them at risk of using up the funds prematurely. The report notes that nearly half of reverse mortgage borrowers are in their 60s and that 73 percent of all borrowers took all or almost all of their available funds up front at closing in FY 2011. Almost 10 percent of all reverse mortgage borrowers are at risk of foreclosure and non-borrowing spouses are especially vulnerable.
The CFPB found that required counseling for reverse mortgages needs improvement and is not good enough to counter misleading industry advertisements and help borrowers understand whether a reverse mortgage is suitable for them. According to the CFPB, federally required reverse mortgage disclosures are insufficient to ensure consumers are making good decisions.
Consumers Union detailed many of the same concerns in its own report on reverse mortgages. The consumer group has called on the financial watchdog to adopt a number of reforms to protect seniors from reverse mortgage rip-offs, including new rules to curb deceptive marketing, make sure loans are suitable for borrowers, improve disclosures, and strengthen the counseling offered by HUD.
The CFPB is currently accepting reverse mortgage complaints through the web at www.consumerfinance.gov, phone at 1-855-411-CFPB, and mail.
Contact: Michael McCauley, mmccauley@consumer.org, 415-431-6747, ext 126 (office) or 415-902-9537 (cell)