Two consumer advocacy groups today stated their support of proposed reverse mortgage program modifications in a letter to the Department of Housing and Urban Development—but they’re still seeking more change. Applauding the agency for proposing steps to strengthen the program, the Consumers Union and California Advocates for Nursing Home Reform also urged the agency to consider a “more comprehensive package of protections” to ensure the loans are safe for senior borrowers.
Consumers Union, the policy and advocacy arm of Consumer Reports, noted the high percentage of fixed rate loans in the market—one of the issues HUD has stated it will address through program changes coming in 2013.
“More and more reverse mortgage borrowers are opting to take a lump sum payment at increasingly younger ages,” said Norma Garcia, senior attorney and manager of the financial services program of Consumers Union. “These borrowers are at higher risk of prematurely using up all their equity and losing their homes. FHA should be applauded for recognizing a serious problem and proposing steps to remedy it. But we need comprehensive reforms to ensure that borrowers are truly protected.”
The organizations have previously expressed a need for additional reverse mortgage protections including establishing fiduciary duty on the part of lenders, more anti-cross selling protections for borrowers and more regulation in place for reverse mortgage marketing.
“Consumers Union has long supported requiring lenders and brokers to perform a suitability assessment that evaluates whether the loans put borrowers at risk of losing their homes, if the borrower understands the complex nature of the contract, and if there are more cost effective alternatives available to the borrower,” the organizations said in a statement.
While the proposals are seen as benefiting consumers, there is still work to be done, the organizations said.
“The FHA’s proposals are a positive step that will help ensure borrowers don’t wind up with a reverse mortgage that may not be suitable for them,” said Prescott Cole, Senior Attorney with the California Advocates for Nursing Home Reform. “But more must be done to protect seniors and their families. Too many seniors are falling through a fiscal trap door while trying to unlock their home equity with a reverse mortgage.”
Written by Elizabeth Ecker