Consumers Union Calls on CFPB for Stricter Reverse Mortgage Protections

Consumers Union today called on the Consumer Financial Protection Bureau to promote stricter oversight of reverse mortgages, timed with a public reverse mortgage hearing scheduled by the CFPB for June 27, as well as a national public education campaign launched by the industry last week. 

“Reverse mortgages should only be used as a last resort because they can carry huge costs that can quickly drain a homeowners equity,” said Norma Garcia, senior attorney and manager of Consumers Union’s financial services program. “The reverse mortgage industry insists that it can police itself but it’s clear we need common sense oversight by the CFPB to protect seniors.”

The organization cites a report it conducted in December 2010 on reverse mortgages as driving the need for stronger oversight by the consumer protection agency. 


Among the specific protections Consumers Union calls for: Ensure loans are suitable for borrowers; establish a fiduciary responsibility for the loan; outlaw deceptive marketing; adopt stronger prohibitions on cross promotions; strengthen the quality and content of counseling; and protect non-borrowing spouses and tenants. 

Consumers Union is the policy and action arm affiliated with Consumer Reports. 

Written by Elizabeth Ecker

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  • This Norma Garcia is quite concerning because she is the absolute worst possible commentator on the state of our industry. She is misinformed and yet, her voice carries a lot of weight.

    She should be ashamed for ignoring all the good that reverse mortgages have done for our seniors but instead, her organization is demanding even more regulations that would only result in less seniors having access to the equity in their homes.

    If she was allowed to be honest and candid about her feelings about us, rather than listing her additional “protections”, she probably would have said. “I want to destroy the reverse mortgage industry”.

    I sure hope this

    • reversemaniac,

      Did you want to finish your last paragraph?

      My view of Ms. Garcia, Dr. Elizabeth Warren, and other senior/consumer advocates including some counseling executives is they are poorly educated in financial matters even though some have doctorates in jurisprudence or some social science discipline. They may be smart enough not to say it but they believe reverse mortgages should be limited to those who are below 200% of the poverty level or have limited assets. They are always either describing HECMs as loans of last resort or intelligently avoiding that tag to describe their best and highest use (I know, I know a real estate term but after all I am a real estate broker) in terminology which paints that picture. They are not to destroy the industry as much as hamstring it.

      People like Ms. Garcia reject the idea that reverse mortgages should or can be used to effectively extend cash flow deeper into retirement so that the borrower can effectively fend off the biggest financial risk of longevity, running out of the money needed to live comfortably in retirement. As recently demonstrated by the Sacks brothers, one of whom is a very successful tax attorney, early employment of a HECM Saver in retirement has the potential of extending cash resources much longer than waiting until near death and then getting a HECM.

      Like anthropologists they seem stuck in the past trying to apply their findings to modern society. Yet in terms of longevity, we are in a different era with different financial circumstances. In Cleopatra’s day, not even the very wealthy had life expectancies at 65 which we see today.

      Yet the best they can do is say they see how reverse mortgage proceeds can help 62-70 year olds earn delayed retirement Social Security credits. Because the name Social Security benefits has the name Social Security tied to them, they fail to see the real financial structure is that of using current benefits to buy higher deferred annuity type payments later. If this had the name State Farm Insurance on it rather than Social Security; oh, then they would yell and scream.

      Enough for now. Take care.

      • I wish she would visit a brokerage and talk to some of their clients. Right now I am working with a retired doctor and another homeowner who was the head of an aviation company. They have plenty of means and education. Although they are not the majority, it bears shedding light on these types of situations.
        Even the lesser educated or those with lesser means are more careful these days. We get a lot of business from referrals — they see how well it worked for their friends or relatives and sometimes hearing from people the individual trusts like that is better than talking with any counselor.

  • CU has always promoted the idea that reverse mortgages should be relegated to loans of last resort ONLY. That concept is ridiculous. Like many counseling execs, they have little to no knowledge about financial products.

    When properly employed, they can dramatically decrease the financial risk and strain of longevity. In other cases by simply using them as standby lines of credit seniors can avoid temporary losses and other temporary potential setbacks. Savers in particular can put the cash normally set aside as emergency cash reserves by the more affluent to work in low risk earning investments, thus increasing monthly cash income in many cases without accessing the Saver at all. The ROI on such strategies are very impressive.

    Consumer Union is right to one degree, one could always put his/her money in a safe deposit box.

    Landlords should be restricted in mortgage choices because of tenants, really??? As to a fiduciary standard on use of funds, how about the senior being advised to seek the counsel of a competent financial planner, preferably a CPA or CFP who charge by the hour and do not sell financial or insurance products.

    As to counseling, it needs improvements but not so much in education as in the area of financial assessment. “FIT, FIT it must go. Decouple BCU now.”

  • What about all those seniors who either don’t have children or their children are well off? They should sit on all their equity instead of using it to buy a vacation home, a boat, a RV, take a trip to Italy? Those are not last resort things. This program is a retirement option, which means different things to different people. There are A LOT of cases where a Reverse Mortgage worked out fantastically without it being a last resort. Saying it should be a last resort doesn’t educate the public, it reinforces fear of the program. It’s not just for “poor” people, although it has saved a whole lot of low-income seniors.
    I’m really surprised an attorney would make such massive, uninformed generalizations — did she talk to anyone about the Saver program or the no-cost Standard fixed-rate options available? Does she know you can make payments?If she knew ANYTHING about RMs she would know how severely regulated the program has become in just the last few years.
    All of the things she’s calling for are pretty much in place already. In California, we have to be real estate agents and are answerable to the DRE for “deceptive” marketing. Non-borrowing spouses are counseled and have to agree to deed off…and what’s with protecting tenants – is that about adult children living with their parents? She should crack down on adult children exploiting their parents instead, which I see A LOT of.

  • The reverse mortgage elephant in the room is what
    happens to the multi-generational co-dwellers when the borrower dies? They
    face eviction. Who are the
    multi-generationals? According to the U.S. Census, in the
    United States there are 7.1 million grandchildren living with their
    grandparents and more than 82% of these grandchildren are under the age of 18. In
    addition to grandchildren living with senior householders, there are more than
    3,800,000 relatives or renters who are aged 65 or older. Also, 10% of Americans who are between the
    ages of 18 to 64 have disabilities. Many
    million disabled Americans are either currently living with, or in the future will
    live with, senior householders. Who is giving any thought
    to what will become of all of these kinds of people if the householder dies
    with a reverse mortgage debt? Who’s
    thinking about what kind
    of impact this will have on social services?
    The grandchildren will face foster care institutionalization if they
    can’t move in with another relative. The
    adults with disabilities, depending on their level of need, will face
    placements in either assisted living or nursing facilities. And it’s anybody’s guess what’s to become of
    the senior renters. We need to ensure that taxpayers aren’t going to end up having
    to take care of the future dispossessed grandchildren, adults with
    disabilities, and seniors who would otherwise have a roof over their heads when
    a senior householder passes away. These
    are some of the reasons why reverse mortgages need to be more closely

    • Precottcole,
      Are we to believe that you think the Reverse Mortgage industry needs to be more closely regulated because of displaced children, grandchildren and everyone else that may be living in the home? What is going to happen to them when the senior homeowner dies as it is? So they do not have a reverse mortgage ok, what if they have a regular mortgage? The bank is going to want paid, and the loan will become due since the person on title and the mortgage has passed away. I seriously doubt that if these the people living in the home would be able to qualify for a new mortgage so they would be moving out anyway. And the renters, well they will have to find a new place to rent. And even if there is no mortgage, who is going to pay the taxes and insurance? Chances are in all of these cases the senior would be getting a reverse mortgage to be able to continue to provide for their children and grandchildren. Although all of these may be considerations on whether doing a reverse mortgage would be the right thing or not they certainly are not reasons for more regulation.

      • Thank you for your thoughtful comments. I should have been more direct in expressing
        my concerns about product suitability when it comes to multi-generational
        dwellers and the impact unsuitable loans will have on taxpayers. While reverse
        mortgages are valuable lifelines for those who need ready money, many of these
        loans are being offered as “life style choices”. I do think that there needs to be government
        regulations to prevent unsuitable transactions that lead to taxpayer “rescues”. My concern, and again I apologize for not
        being more explicit, is that the industry needs to be mindful of the impact
        these products when multi-generational dwellers are involved.

    • I find your comment ridiculous. What you are saying is that a reverse mortgage lender should have property rights lower than that of a renter or a tenant of a borrower. Would that right be established before or after the origination of a reverse mortgage? And what about a forward mortgage, should those lenders have greater rights than reverse mortgage lenders?

      Are you saying that underage grandchildren whose grandparents are their sole guardians be allowed to live on their own in the home of the grandparent with no guardian? What nonsense is that?

      Property ownership in our state is established by title and from there generally by inheritance. It seems you believe that renters should have rights exceeding those of property owners. That is fine as long as that is contractually known at the time of the mortgage. But what happens if the borrower rents out a room after the contract goes into force? With no caveats, you are advocating that renters should be allowed to overrule all property rights just because they are renters.

      If a senior or disabled person wants lifetime occupancy rights, let them buy a life tenancy interest at market value. Why should they gain that right through paying one month’s rent?

      I am not a Socialist and am not responsible for the obligations that society accepts except to the extent that I must participate in those obligations by law. Forgive me but I find your admonitions silly.

  • It is alarming that someone in such an influential position could possess so little understanding of such an important subject. Fortunately, over the years, there have been MANY in positions of power and influence in related industries and government agencies that have slowly come to accept and understand the benefits of this program but not before contributing to the confusion and misinformation that is so similar to this woman’s faulty grasp of the facts and misguided perception of solutions.

  • Correction and my apologies,
    Norma Garcia’s email address is:
    She is in the California office of Consumers Union.
    I encourage you to send her your comments and articles of interest as well as information regarding HECMs for her edification and elucidation.

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