CFPB: Consumers Aware of Reverse Mortgages, Few Understand

The Consumer Financial Protection Bureau released a 231-page report for Congress Thursday devoted specifically to its findings on the reverse mortgage industry.

In its research, the agency says it found confusion in the reverse mortgage market, but CFPB officials stated the products are a good option for the right borrower.

“Reverse mortgages are complex and have the potential to become a much more pervasive product in the coming years as the baby boomer generation enters retirement,” said CFPB Director Richard Cordray. “With one in ten reverse mortgages already in default, it is important that consumers understand what they are signing up for and that it is the right product for them.”


The study was conducted as a requirement of the Dodd-Frank Act and was completed in advance of its July 21 deadline.

The report on the study, which the CFPB based on market research as well as interviews with reverse mortgage counselors and seniors, details all aspects of the business from the high proportion of fixed rate loans today to the to the role of the secondary market for Home Equity Conversion Mortgage (HECM) loans insured by the Federal Housing Administration.

The agency outlined concerns in the report including consumer education, advertising for reverse mortgages, cross-selling, counseling, costs and fees and tax and insurance defaults, non-borrower protection and fraud.

Overall, the CFPB found reverse mortgages can be difficult for consumers to understand and that they are using the loans for different purposes than in the past.

One area of concern was HECM counseling, which the bureau says is in need of adequate funding and further examination for its effectiveness.

While the agency is a regulatory force rather than a legislative one, it stated its commitment to working with the Department of Housing and Urban Development to improve upon the program, as well as to use its complaint collection, monitoring and regulatory powers to that end.

“In order to protect people against the misuse of reverse mortgages, we need to educate and inform not only older Americans but also the caretaker generation – people like me with an elderly parent,” Cordray said. “My father is 94. Those of us in the next generation need to learn about these financial products, and others, to help them make the best decisions possible.”

In response to the report’s findings, the National Reverse Mortgage Lenders Association stated its commitment to working with the bureau on its reverse mortgage initiatives.

“All of us want seniors and their children to have a better and more in-depth understanding of reverse mortgages,” said NRMLA President and CEO Peter Bell. “That is the intent of our Borrow with Confidence consumer education outreach, a comprehensive effort to provide tools that will create the utmost transparency and clear understanding of the reverse mortgage process.”

View the report.

Written by Elizabeth Ecker

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  • Here we go again, the CFPB! The article in itself is good on many fronts. However, a great deal of confusion has been created by the federal government and committees like the CFPB.

    I agree, our seniors need to be educated. I think our originators need more education so they can educate the senior better than they are. Many of the changes we have seen over the
    past 3 years have not necessarily been good for our seniors. In fact, some of the changes have created an environment for increased fraud. More regulations are not going to help that!

    The Cynic is right about the report to congress. The facts in many cases are wrong. Does this mean that just maybe, the CFPB committee are also the one’s need a lot of educating on what reverses mortgages are and how they work?

    John A. Smaldone

  • Ray,

    What you will find is that the percentages are based on a denominator in constant flux since it is the number of HECMs outstanding as of the date on which a new total of defaults is computed. Your question about which defaults are included and which are not is well taken but they no doubt include both nonpayment of taxes and insurance. The report does not say if it includes HECMs which are due and payable and were not paid off in the first thirty days from first being due and payable, those in default because they have not paid homeowners’ association dues or assessments, or those which are in default .

    But since the rate of cure is much smaller than the rate of existing HECMs going into default, expect the percentage of defaults to increase for a significant time into the future. For a problem which no one was ready to admit was even 2% a little over 24 months ago, what a mess today.

    Will it grow??? You bet.

    So for a counseling system which was allegedly improving the situation when it was just 6%, how is it doing today? I doubt if the good reports regarding positive results have panned out nearly as well as counseling painted it. That is not an attack on counseling but simply a recognition of the desperate times most in which seniors find themselves.

    The bad thing is the realization of significant numbers of seniors being forced out of their homes, reputation risk becoming a reality, and contingent liabilities of lenders turning into actual amounts due to servicers is in our not too distant future. Will more lenders fall out of the industry and others become more reluctant to enter in? Let us say that is the most likely result.

  • The last sentence in the third paragraph of page 29 is incorrect. Initial monthly advance calculations have nothing to do with creditline growth. If a modification is requested at some point in the future, the Expected Rate still rules monthly advances, but the ‘grown’ Principal Limit is considered. And since May 1, 1997, things have been most interesting. Someone at the CFPB can contact me for details.

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