CFPB says Reverse Mortgages Confuse Seniors, But Fails to Talk to Borrowers

A reverse mortgage study released by the Consumer Financial Protection Bureau last week concluded that seniors were confused by the products.

“Our study finds that reverse mortgages are complex products that are difficult for consumers to understand,” writes Megan Thibos, an author of a recent Consumer Financial Protection Bureau study on reverse mortgages, on the agency’s blog. A strong statement from a government agency, but troubling considering the CFPB failed to speak with any consumers as part of its research prior to publishing the 200-plus page report.

“We did not conduct a direct to consumer survey,” said a CFPB official during an industry stakeholder conference call, which was recorded and later obtained by RMD. “[The report] was a very large undertaking as it was, to add a direct to consumer survey would’ve added months to the process.”

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After the report was published, media outlets ran with headlines such as More Red Flags on Reverse Mortgages and Gov’t Watchdog: Reverse Mortgages Confuse Elderly, reporting on the conclusion that the agency had found borrower confusion in its study.

The implications of such headlines are far reaching as consumers pick up their morning paper or log in to read about the confusion reverse mortgages are causing.

For an industry that has been continuously battling misinformed reports, to have such reports based on a government study that failed to speak with consumers directly is disappointing to the say the least.

As a journalist who covers reverse mortgages every day, I tip my hat for the research that was conducted and the depth of the report, which presents thorough look into the market.

The Bureau did speak with 30 individuals from 15 companies during its research including lenders, brokers, Ginnie Mae issuers, servicers, consultants and capital market traders, according to the report.

It also looked to consumer submissions to the CFPB as well as complaints submitted to the Federal Trade Commission and consumer narratives, which it used to gain insight into seniors’ understanding.

To its credit, the agency is now requesting detailed information from the public on the factors that influence reverse mortgage consumers’ decision-making and how the product is used.

The Bureau hopes consumers will participate and provide both positive and negative personal experiences, but I can’t imagine all that many will participate, given the complexity of the comment process, which involves visiting the CFPB’s website regularly enough to know about the requests or checking out the Federal register.

Maybe I’m wrong, but unless consumers are reading the CFPB’s website on a daily basis—like we are—it’s highly unlikely it will generate many comments from the people who actually use the product.

We also have to wonder why the CFPB didn’t seek more information from the studies out there that are available. A recent National Reverse Mortgage Lenders Association commissioned study found that 74% of those reverse mortgage borrowers surveyed described their reverse mortgage experience as positive.

It’s fair to be skeptical considering the NRMLA study comes from an industry association, but consumer advocates have also found consumers to be satisfied with their reverse mortgage.

A study published by AARP in 2007 found that 93% of borrowers surveyed said the loan had a mostly positive effect on their lives.

No one will argue with the CFPB’s mission: to protect consumers and in this case, older Americans. It’s something that the industry supports, everyone wants seniors to be well educated on the product.

But when the CFPB fails to speak with the consumers they’re looking to protect, it’s disappointing to me both as a journalist and an American.

Written by Elizabeth Ecker

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  • Elizabeth,

    The CFPB did exactly what it was designed to do and that is represent the opinions of consumers.  The problem is how one defines “the opinions of consumers.”

    In a prior comment, an attorney who is also a counselor discussed hearing Professor Warner speak about consumer protections under the auspices of some of our biggest detractors.  At one of those meetings Ms. Warner was asked what she thought of reverse mortgages.  Her reply made it clear she did not care for them.  

    Several of those consumer advocate organizations also openly supported the naming of Ms. Warner as Director of the CFPB taking out full page ads in several major newspapers advocating her appointment to that job.

    When CFPB sent out requests for input on reverse mortgages you correctly reported that our detractors responded.  Their responses had much of the same old discredited stories about reverse mortgages and some, which are absolutely true but all of which were in one way or another negative.  The CFPB really did NOT care if they got a balanced view.  They are centered on curing negative inquiries.

    Like our detractors, they are not interested in seeing HECMs going away just being “improved” by more and more government regulation including the addition of suitability standards and more and more disclosures with less paperwork and more clarity.  Are they conflicted?  You bet.

    Just my opinion. 

  • As someone who was on the call, all I can say is it was shocking to hear some of the antiquated views on our product and our industry. What’s even scarier is the lack of first hand knowledge most of these advocates seem to have about the product and its use. It seems as though all everyone wants to do is regulate more as if that will solve all the problems in this country. We are going to regulate ourselves into another recession if we aren’t careful. Just as an aside, no matter how much you regulate something, there will always be cheaters and people who shortcut the rules for personal gain.
    .that will never change. Bad guys will exist as long as there is money to be made.

  • I found the research on facts in the report rather extensive, but at the same time, many of the references were rather dated. Surveys done prior to the housing and financial meltdown have little significance in drawing conclusions in today’s world.

    What I find deeply disturbing is the CFPB represented opinions, feelings, and beliefs as facts and these comments are now the fodder for countless negative articles on our industry.

    The CFPB should issue a clarification immediately, as well as an apology for misrepresenting the truth.

  • I am sure we will hear negatives about Reverse Mortgage for the next 50 years.When you borrow money and do not make payments for 5,10, 20 years and use that money to better your lifestyle what do you think is going to happen to your value. They can`t have it both ways.93% were happy in the last report.Maybe they should take a long look at requiring Taxes,Insurance and Repairs like an HOA
    taken out of their checks like a Medicare plan B or requiring them to escrow every month from checking acct..and DONT TELL ME IT CANT BE DONE

    • Thomas,

      When 72% of all Standard originations today are fixed rate and so few adjustable rate borrowers have monthly or tenure payouts, how can your idea work?  Where there is an unused line of credit, servicers can draw it down to pay such costs.

      So I have no idea why you believe your idea is the cure.  Please go into detail.

      • Thomas,

        Are you in the industry?  What you wrote impacts less than 20% of all HECMs endorsed currently.

        Many seniors get no checks.  In some cases, all of the funds go to pay off existing liens on the home.  In other cases after all required lien payoffs there is little left.  These are where the problems normally arise, not from those who get monthly payouts.

        So I still have no idea what you are saying!!!  

        “If the loan ain’t got nothi’ left available to the borrower from the line of credit, where is the check gonna come from???”  —  A farmer form northwest Missouri.

      • I think what The Critic means is that you’d either have to give the fixed rate product an overhaul so that it had a monthly payment or line of credit, which isn’t going to happen, or you’d have to do away with it and have only an adjustable rate option. Some people only qualify with fixed rates because some companies can offer $0 costs with it or what if they owe too much to have funds to draw from?

        You’d be cutting a lot of seniors out, severely limiting the options of the remaining seniors and mutating the program even more with the regulation that would be required. Again, I don’t speak for The Critic, but I think he was looking to understand how your suggestion could realistically be put into motion. I think we’re all for anything that would make the program better.

  • What’s so difficult to understand?  It’s a simple product actually!  The CFPB is apparently underestimating basic human intelligence.

  • Elizabeth —

    I couldn’t agree more with your last sentence. For a report the CFPB intends to be “authoritative,” it is methodologically inexcusable, given the federal resources at their disposal.

  • Pfiore2002, you are absolutely correct. When we talk about this issue with our clients, we often use the phrase, “There’s a bad apple in every bunch.”

    Thomas, I couldn’t have said it better. It hardly ever gets reported on how many times the program has saved homes or how a couple lived it up in the retirement, bought an RV and traveled, as opposed to sitting home watching Judge Judy and Wheel of Fortune.

    Most of the people who dislike the program are heirs and not many journalists stop and think about why that perspective should or shouldn’t be as relevant as they make it. I honestly would encourage my own father to get a Reverse Mortgage. I’d much rather see him happy than make a few bucks when he passes.

    • Olivia,

      To understand our predicament one must have a grasp on who they are.  For years, attorneys, Realtors, CPAs, senior consumer advocates, homes for the aged, and financial planners along with other financial experts have been naysayers.  Yes, some within these professions have come full circle but we have a long, long way to go.

  • Elisabeth,

    Your article was good for many reason’s. I felt you tried to convey the message that it is not such a complex program as depicted by the CFPB. You also point out about the CFPB website that it may be ineffective for getting readings from the public sector. I can fully understand why.

    I feel the more I hear, see and read what has been coming from the bureau on how confused and vulnerable the consumer is about reverse mortgages, the more I feel it is the CFPB that is the one that is confused.

    If the CFPB wants feed back and wants to truly understand how the reverse mortgage works, they will take the initiative to learn. I will be delighted to take a day and answer all their questions and hang ups they may have about our products. I mean what I say, if they take me up on my offer, I will be more than happy to accommodate them.

    The reverse mortgage is not that complicated as depicted by the news media and certain government agencies and the CFPB. Seniors need only to have those in the industry to be patient with them and take the time to explain it properly.

    Our seniors deserve it from our government and we as an industry deserve it from our government. We deserve a bureau such as the CFPB to be well versed in any subject they have the power to rule on!

    Mr. Cordray, I am at your disposal if you want to call on me.I can be reached by contacting this publication, Mr. John Yedinak has all my contact information, he has my permission to give it to you or to arrange a session between us or look below at my website.

    Thank you,

    John A. Smaldone
    http://www.hanover-financial.com

  • The so called watch dog agency was incorrect in so many ways as to basically take a goveernment regulated program of the past 23 years  and say outdated and untrue comments –inappropriately saying things like those in their 60’s should be very cautious because they will run out of money later and forget that the FHA has raised limits and the clients get older (more $$) and right now may begin to see appreciation in their homes for the first time in years. They also failed to mention sometimes its either lose your home or do the reverse. The reverse buys time and time is an extremely valuable commodity among seniors. It also protects their home against foreclosure unless they can’t pay for their taxes and insurance or keep up the home. I agree we need to be sure that they can afford to pay those things down the road but the truth is —no longer having a mortgage payment– for life— frees up money– for life –even if they don’t get a cent upfront and just pay off their mortgage. Time for retractions not speak to the reactions of the detractors who are often uninformed and negative.

  • The AARP report cited in the article was complied back in
    2007, well before there were 46,000 HECM defaults.  Since presumably all of the HECM borrowers
    were counseled, one could assume that CFPB was correct to say that reverse
    mortgages confuse seniors.   Also, citing the RMLA study’s 74% “satisfied  stat” overlooks the significance of the 26%
    who weren’t.  CFPB needs to conduct a
    study of consumers to get a true picture of how the product is working for
    them.      

  • Olivia (indeed you are smart),

    You have taken your one step further than I was headed.  HOWEVER, I agree with your points.

    My point was as the industry is now structured, it cannot work for the vast majority of HECMs, period.  I really do not believe Thomas knows how HECMs work.  Most of his ideas seem to come from our older marketing and outdated government websites.  

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