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