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CFPB Issues Reverse Mortgages Report and Advisory
Wednesday, February 11, 2015 6:35 AM

The Consumer Financial Protection Bureau released a report highlighting the top complaints for reverse mortgages. According to the report, consumers are frustrated with their loan terms, servicer runarounds, and foreclosure problems.

Also, to help consumers who already have a reverse mortgage, the CFPB is issuing an advisory with tips on how to plan ahead to protect loved ones from financial hardship brought on by a reverse mortgage.

The CFPB Report

The CFPB report covers 1,200 reverse mortgage complaints it received between December 1, 2011, and December 31, 2014. Reverse mortgage complaints comprised about 1 percent of all mortgage complaints, by all ages, during this timeframe.

Many 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. The top complaints about reverse mortgages included:

  • Distress about the inability to add new borrowers to an existing loan.
    Reverse mortgages prohibit spouses, heirs, and dependents from taking over the loan. This is because loan amounts are, in part, calculated using a borrower’s age and the loan repayment is triggered when the last borrower moves out or dies. This can be a problem for surviving spouses and children. Family members complained about not being able to be added to the loan so they could keep the home.
  • Frustration with runarounds when trying to pay off the debt.
    When the borrower dies, heirs can sell the home, repay the loan balance, or pay 95 percent of the property’s assessed value. Consumers complained that loan servicers do not provide a clear process to allow them to settle the debt. Consumers also complained about appraisal delays, improperly performed appraisals, and inflated home values so they would have to pay more. Others complained about a lack of response from loan servicers, including unanswered calls and a lack of response to written requests.
  • Foreclosure due to property tax and homeowners’ insurance issues.
    Reverse mortgages require no monthly mortgage payments, but borrowers are still responsible for property taxes and homeowner’s insurance. A previous CFPB report found that nearly 10 percent of reverse mortgage borrowers are at risk of foreclosure because they have failed to pay these expenses.

Review the CFPB report.

The CBPB Advisory

Many consumers don't understand the long-term financial impact of reverse mortgages. The CFPB issued an advisory to help, highlighting three ways consumers who are the borrowers on the loan can plan so that their surviving heirs are not harmed:

  • Verify who is on the loan.
    If two borrowers took out the reverse mortgage, they should check with the reverse mortgage company to make sure its loan records are accurate.
  • Plan ahead for the non-borrowing spouse.
    Consumers who took out a HECM reverse mortgage in the name of only one spouse before Aug. 4, 2014, should contact their loan servicer to find out if the non-borrowing spouse may qualify for a repayment deferral. If not, they should make a plan in the event the borrowing spouse passes away first.

    Couples with enough remaining equity could consider taking out a new reverse mortgage, though they will incur new loan fees. Some surviving spouses may also be able to pay off the reverse mortgage, or take out a traditional mortgage, perhaps with another family member. Many will need to plan for where they will live after the home is sold to repay the loan.

    If the loan was originated after Aug. 4, 2014, new changes to the HECM program will allow the non-borrowing spouse, meeting certain conditions, to remain in the home. 
  • Plan ahead for other family members living in the home.
    Consumers should make sure any children or other family members living in the home know what to expect when the reverse mortgage is due. If those members want to keep the home, the borrower should contact their reverse mortgage company to have them explain their options. They can also contact a HUD-approved housing counselor to explore their options.

Review the CFPB advisory.

The CFPB has questions and answers about reverse mortgages at Ask CFPB. They also developed a consumer guide for older Americans with key facts on reverse mortgages.

Find more information for older Americans and caregivers about making financial decisions, protecting assets, preventing financial exploitation, and planning for long-term financial security.