WSJ: Consumer Protection Agency Starts Looking Into Reverse Mortgages

The Wall Street Journal is reporting on the back and forth between the Consumer Union’s report and reverse mortgage trade groups from last week.

According to the article, advocates worry that if more isn’t done to help consumers understand the risks associated with reverse mortgages, the market could melt down just like the subprime mortgage market did ahead of the financial crisis.

Peter Bell, president of the National Reverse Mortgage Lenders Association told the WSJ, “I think they’re rattling the cages here without having much concrete to offer or any evidence to back up their allegations that there are widespread problems.”

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“We understand that the demographics are in our favor. The market will grow and the need will grow because people need to fund longevity, but it will only grow if consumers feel the products are fair and the people who offer them are trustworthy,” said Bell. “If the regulatory regime helps get us there, that’s great.”

One of the biggest nuggets of news in the article comes from an unnamed source at the consumer financial protection bureau.  The individual told the WSJ it’s beginning to look into reverse mortgages and plans to build on the Federal Reserve and GAO’s efforts to improve disclosures and prevent misleading advertising.

As part of the Dodd-Frank reform bill, the agency is required to conduct a study on reverse mortgages to identify deceptive practices and figure out whether suitability standards are necessary.  The agency also has the authority to issue regulations, orders, or guidance that apply to reverse mortgages prior to the completion of the study.

Barbara Stucki, VP at the National Council on Aging told the WSJ she expects reverse mortgages to become more popular sources of income for retirees.

“Today’s retirement realities are daunting and when you combine that with the economic challenges, people are going to be tapping the equity in their homes,” she said. “We want to make sure that options like reverse mortgages are viable and properly regulated.”

Read the rest of the article at the link below.

Reverse Mortgages Debate Heats Up As US Consumer Bureau Zeros In

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  • It is good to see NRMLA so deeply involved in this debate. It is odd that the MBA has not joined in to support the industry in fending off this attack. It would display their alleged support of the industry. Anyone who has accused NRMLA of not adequately defending the industry in the past needs to re-evaluate that position and support the NRMLA efforts.

    It is deeply disappointing, however, to read the quotes of someone who claims to be an authority on reverse mortgages describing the cash flow attributes of reverse mortgages as “income” in arguably the most widely read U.S. financial publication. The proceeds provided by reverse mortgages must be repaid if the value of the property securing the debt is sufficient to repay any portion or all of the debt. Further if the homeowner wants to retain the property the most popular form of reverse mortgage mandates that when the debt becomes due and payable, the mortgagor MUST repay the debt in full. Reverse mortgages are and are intended to be debt. The cash they provide are debt proceeds not “income” and are a source of cash flow, not “additional income” or “a source of additional income.”

    The use of the word “income” is deceitful and misleading. It should be attacked as false whenever and wherever it is used in marketing and advertising efforts. Using such terminology in public forums where the product is under siege is little more than fanning the flames of opposition. When this is not a rare use of that term by a leader in the counseling industry it reflects negatively on us all.

    Lenders and our trade group generally responded in a correct manner when this term was shown to be wrong. It is time that those who are and desire to be so heavily involved in counseling and the defense of reverse mortgages do the same.

  • It is good to see NRMLA so deeply involved in this debate. It is odd that the MBA has not joined in to support the industry in fending off this attack. It would display their alleged support of the industry. Anyone who has accused NRMLA of not adequately defending the industry in the past needs to re-evaluate that position and support the NRMLA efforts.

    It is deeply disappointing, however, to read the quotes of someone who claims to be an authority on reverse mortgages describing the cash flow attributes of reverse mortgages as “income” in arguably the most widely read U.S. financial publication. The proceeds provided by reverse mortgages must be repaid if the value of the property securing the debt is sufficient to repay any portion or all of the debt. Further if the homeowner wants to retain the property the most popular form of reverse mortgage mandates that when the debt becomes due and payable, the mortgagor MUST repay the debt in full. Reverse mortgages are and are intended to be debt. The cash they provide are debt proceeds not “income” and are a source of cash flow, not “additional income” or “a source of additional income.”

    The use of the word “income” is deceitful and misleading. It should be attacked as false whenever and wherever it is used in marketing and advertising efforts. Using such terminology in public forums where the product is under siege is little more than fanning the flames of opposition. When this is not a rare use of that term by a leader in the counseling industry it reflects negatively on us all.

    Lenders and our trade group generally responded in a correct manner when this term was shown to be wrong. It is time that those who are and desire to be so heavily involved in counseling and the defense of reverse mortgages do the same.

  • It’s a shame one word can screw up the proper understanding of a great planning tool. I suppose death proceeds from an insurance policy could also be called “income”.

  • It’s a shame one word can screw up the proper understanding of a great planning tool. I suppose death proceeds from an insurance policy could also be called “income”.

  • Perhaps contributing to this mis-use of the word, “income”, is the listing of under “PURPOSE OF LOAN” on page 1 of the FNMA form 1009 (2/10)application for a HECM which lists as the first choice: “Additional Income”

  • Perhaps contributing to this mis-use of the word, “income”, is the listing of under “PURPOSE OF LOAN” on page 1 of the FNMA form 1009 (2/10)application for a HECM which lists as the first choice: “Additional Income”

  • Here we go again,

    The Consumer Financial Protection Bureau, my favorite subject. They call this part of the Dodd-Frank-Reform bill. Lets call it what it is”The Financial Regulatory Reform Bill” the worst bill past yet.

    We knew the CFPB was targeting the reverse mortgage industry, it is one of their priorities. As Peter Bell stated, ” There is not any evidence to back up their allegations that there are widespread problems.”!

    To try and justify to the seniors the Federal Government is doing what ever they can to protect them from us, the big bad wolf’s is criminal.

    Their injustice to the senior citizen is painted to be a protective measure for the poor little senior by the big and kind loving Federal Government!

    The risk to our seniors are what the Federal Government is perpetrating on them. Seniors read all about what the CFPB is doing to protect them against the risk of a reverse mortgage is only creating more mistrust in us by the senior. We in the industry that is trying to help our seniors are getting a bad rap and it is effecting the job we are trying to do.

    What is so sad about all of this is the senior is going to be hurt the worst because of a bunch of bureaucrats that have only their agenda in mind. Peter, you did a good job fighting for us and our seniors!

    Have a good day,

    John A. Smaldone

  • Here we go again,

    The Consumer Financial Protection Bureau, my favorite subject. They call this part of the Dodd-Frank-Reform bill. Lets call it what it is”The Financial Regulatory Reform Bill” the worst bill past yet.

    We knew the CFPB was targeting the reverse mortgage industry, it is one of their priorities. As Peter Bell stated, ” There is not any evidence to back up their allegations that there are widespread problems.”!

    To try and justify to the seniors the Federal Government is doing what ever they can to protect them from us, the big bad wolf’s is criminal.

    Their injustice to the senior citizen is painted to be a protective measure for the poor little senior by the big and kind loving Federal Government!

    The risk to our seniors are what the Federal Government is perpetrating on them. Seniors read all about what the CFPB is doing to protect them against the risk of a reverse mortgage is only creating more mistrust in us by the senior. We in the industry that is trying to help our seniors are getting a bad rap and it is effecting the job we are trying to do.

    What is so sad about all of this is the senior is going to be hurt the worst because of a bunch of bureaucrats that have only their agenda in mind. Peter, you did a good job fighting for us and our seniors!

    Have a good day,

    John A. Smaldone

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