Consumer Group to CFPB: Reverse Mortgages Need New Application Process

The process by which seniors obtain reverse mortgages needs to change according to the Center for Responsible Lending (CRL).

The consumer group submitted a range of comments to the Consumer Financial Protection Bureau (CFPB) in response to the agency’s request for information related to senior financial exploitation. CRL said it’s concerned about products that contribute to asset depletion, saying that reverse mortgages need to be taken out with caution.

The group suggests that the reverse mortgage application process could be improved if potential borrowers first sought product information from a third party resources, rather than beginning the process through interaction with a lender.

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“For most seniors, their home is their greatest asset, and tapping into the equity of that asset should not be done without careful consideration,” the comments state.

Borrowers first should access unbiased information from groups such as AARP, the National Council on Aging, or even the CFPB said the group.

“This information should advise seniors to also consider other options, such as cutting back on expenses, selling their house and downsizing, applying for public benefits that may be available to them, or taking out a home equity line of credit,” said CRL in the comments.

After reviewing the information, borrowers should then receive counseling in person if possible. Only after counseling should borrowers contact lenders and move forward with the loan origination process.

“Unfortunately, often the process is very different, with seniors often learning about reverse mortgages from late-night television ads that urge them to call lenders directly.”

Additionally, CRL points to counseling, product choice, foreclosure risk, and taking a homeowner off home title as areas of concern regarding reverse mortgages. It cites several of these concerns as evidenced in findings by a recent report on the reverse mortgage industry conducted by the CFPB.

Read the full comments.

Written by Elizabeth Ecker

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  • Clearly, it is government that needs more regulation. Leave grandma use her own money to survive retirement. She’s doing just fine — ask her — she’ll tell you the truth about how her reverse mortgage helped her stay independent.

    • Warren,

      In some ways you are right but is that the acid test?  

      Cash flow is extremely important but so is the overall financial situation of Grandma.  If there are other feasible ways to accomplish the same goal at less cost, then, no, I do not agree with you.

      If government was not involved in reverse mortgages, what reverse mortgages would you be offering today?  I offer HECMs which is government insured and to date HUD has had to bolster with a few billion dollars from other HUD MMI fund related programs.

      Besides I know many grandmas who suffer in great dignity and would never tell you or me what was really going on.

  • Too bad this industry does not have the money or the political clout that the conventional mortgage, annuity, securities, and other financial industries enjoy. If those industries had the threat of these type of regulations they would be squashed like a bug………..I fear the future of this industry will reside with the words…….Rest in Peace, you served many people well, too bad more didn’t get to know you.

    • Bob, I am a cynic but you are one gloomy pessimistic dude.  Your fear is way over the top right now.

      We do not need to cower.  CRL is a very biased organization which is so far anti-business that most people know better than to rely on their recommendations.

      NRMLA and counseling agencies need to rise up and refute the recommendations.  

  •  
    Looking at the guidance, I think the
    article misses the bigger point.

    • After reviewing this
    information, borrowers who believe that reverse mortgages may meet
    their

    needs should receive counseling,
    ideally in person, to evaluate their needs and options.

    Implementing this “change” (adding
    more information about other options) would not be a big deal. There
    is already a requirement that clients receive a NCOA booklet prior to
    counseling. It does not particularly push other options, but offers
    some practical advice about other resources.

    Also, I would be very surprised if CRL
    believed that by covering other options in the pre-counseling
    education, it should be bypassed in counseling; so really we are
    just talking about providing options information earlier.

    However, the second bullet is more
    interesting/alarming

    • After reviewing this
    information, borrowers who believe that reverse mortgages may meet
    their needs should receive counseling,
    ideally in person, to evaluate their needs and options.

    when viewed with the comment made later
    on:

    “In addition, counselors are
    prohibited by HUD from offering their own assessment of what options
    may make sense given a particular borrower’s situation, which can
    make it more difficult for borrowers who do want counseling to
    evaluate their choices.”

    This suggests to
    me that CRL believes counselors should be taking on the role of
    specifically recommending or discouraging clients from proceeding
    with a reverse mortgage at all.

    The language is
    vague enough to allow for a weaker interpretation of “ evaluate
    their needs and options” but if my interpretation is right,
    this would be a radical change.

    Today, the
    counseling industry tries to provide objective factual guidance to
    seniors, always working to help the client make their own independent
    decision. The implications of a change on this area should raise a
    lot of concerns for everyone concerned.

  • One of my favorite parts of all the investigation is that this loan was established by an act of congress, not created in some dark back room of the sub-prime mortgage industry. Congressmen and women now rail at the loan as if we are evil for selling a loan they came up with.

    The people that write these reports have never sat across the table from seniors. They don’t know that most are intelligent and quite savvy in their understanding of loans and debt. This report gives reverse mortgages faint praise when it states that it is  “certainly a better way to pay for day-to-day necessities than payday or overdraft loans.” wow one step above those quality products. After that rousing endorsement the next statement is that they can be abusive. Then they use more ancedotal non sense about pressuring seniors into taking out deferred annuities.

    How do they know more seniors are facing foreclosure because they ran out of equity and cannot afford their taxes? I would love for a study to be done on foreclosures to find out how many are fueled by this…. Glib statements about selling the home sound great but then what? There is no discussion about where the senior will live or how much it costs to sell and move both finanically and emotionally.

    Since when is AARP a non-biased organization. The only reason they won’t endorse reverse mortgages is no one is willing to offer them the amount of money they want to endorse them. They endorse insurance plans that give them a kick back.  CFPB has not shown itself to be experts in this field why should they be the ones to educate.

    The industry does not need more anecodtal “experts” telling us of the evils of the reverse mortgage industry. Especially when they use some subprime idiot who defined his “perfect client” as if all of us in the industry think like him.

  • Most of the seniors whom I
    work with are very financially responsible as evidenced by the fact that they
    have accumulated substantial equity in their homes. What is so abhorrent about
    letting these folks tap into their equity so they can pay their bills and preserve
    and prolong the life of other earning assets? To me this is being “smart”.
     

  • Can we not do anything against all these regulations?    I have helped many seniors during these past years.    It is insulting to the senior to suggest that they have no clue as to the importance of their decision to go with a reverse mortgage.    Can we sign a petition?   So frustrating.  

  • here is the question I submitted to CRL.
    did CRL have any communication with NRMLA (national reverse mortgages lenders association) or any representatives of the reverse mortgage industry during the course of their review and determination of the need for more advance counseling for reverse mortgage borrowers?

    • hecmvet,

      This is not a question of more advance counseling but rather receiving all information on reverse mortgages upfront from parties who are independent.   The position also advocates a different function for counseling.

      As to a different function for counseling, I agree with CRL but we do not agree as to what that function should be.  CRL believes counselors should provide financial planning advice which is utterly ridiculous.  

      I suggest that counseling take on a stronger consumer protection role which means that their function would be one of review and validating that the product selected (in other words, counseling would only follow application unless the prospect chooses otherwise) seems reasonable (not perfect) based on needs and desires of the counselee, and that each counselee who will be a borrower understands product basics and seems competent to contract.  BCU would be completed with the originator before counseling but the counselor would verify the information and review the results of BCU with the counselor.  I also believe ML 2011-09 be rescinded.

  • This thread is full of opinion, hearsay, anecdote, and personal experience.  What it lacks are cold, hard facts.  After 22 years, our industry should should be choked by them.

    In this time almost 770K HECMs have been endorsed and over 180K  of those have terminated.  There is little information or analysis available to the public on the 180K.  How many of those terminated because the last surviving borrower resident passed away?  How many of those terminated in foreclosure, deed in lieu of foreclosure, short sale, outright sale, payoff, short payoff, etc.?  How many of those terminations were for default based on nonpayment of taxes or insurance?  The categories and related information could fill the average size novel with facts.As to the other almost 690,000 active HECMs, how many are currently in assignment?  How many are in default and in what categories?  We should have a vast amount of information on defaults by now analyzing these loans from many different points of view.The information would in part establish accountability.  It would also help many originators understand how HECMs actually work as even some “old timers” have no idea that in many cases death of the last borrower can ultimately terminate in foreclosure even when there have been no other events triggering termination.Accountability should be a major theme in our industry.  We might find that by gathering this data, some of the arguments we make over and over would be resolved.  Historical data can provide very meaningful results.

    But then by having so much information to refute some of the claims of our detractors, some of the satisfaction from debating, ranting, and getting worked up would be lost. Perhaps that trade off is much too great!!

  • Where is NRMLA’s response?  And the counseling agencies?  It would be nice to see/hear their immediate feedback on obviously ridiculous comments.

  • Bill,

    A few things.  Overall I agree with you.

    Too many in the industry confuse independence and ethics.  They are not the same.  Seniors need an independent source of information who has no stake in the outcome of the transaction.  With the issuance of ML 2011-09 counseling agencies are no longer a guaranteed independent party to the transaction.

    Second the article is about the CRL not the CFL.

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