Consumers Union Says “Yes” to Proposed Reverse Mortgage Change, Seeks More

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.”

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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.”

View the letter here

Written by Elizabeth Ecker

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  • Fixed rate HECMs are both a blessing and a curse.  We would have been much better off with a hybrid product.

    While many claim seniors wanted fixed rate products many rejected them simply because they had no idea what to do with the cash.  

  • Is there any thought to requiring reverse mortgage originators to have a special license or certification in order to originate loans to a specifically protected class?  Is it a good idea for all mortgage loan originators to be able to talk to seniors about a product that can have a major impact, positive or negative, on a seniors life, no matter their expertise?  A reverse mortgage is a mortgage loan but has more ramifications than forward mortgages.  I have been saddened by the “information” that some seniors tell me they have received from an ill-informed loan officer.  I do not believe it is always with intent, although sometimes is may be; it is often ignorance by the loan officer.  Shouldn’t we expect more than that and would that help calm some of the concerns of the Consumers Union. 

  • “Using up all their equity” is not a reason for a homeowner to lose his home.  The FHA MIP takes care of that. If the homeowner can no longer pay his real estate taxes and insurance, then there could be a problem.  Establishing an escrow account might alleviate that problem but simply having a house go “underwater” does not cause a homeowner to lose his home.  This is purely a scare tactic to bring about certain un-needed changes in the program.  Some changes are probably needed as noted above.  The FHA should be careful what they decide to do doesn’t destroy the program.

    Jonathan Messeloff
    Senior Loan Officer
    Nationwide Equitites
    212-288-4670
    jmesseloff@nwecorp.com

    • Jonathan,

      FHA MIP does not take care of “using up all their equity.”  What does FHA MIP have to do with that?  Not all reverse mortgages are insured by FHA; yet what reverse mortgage which is not insured by FHA terminates when all equity is used up?  Even those which are FHA insured, the issue has nothing to do with FHA.

      It is the agreement between the lender and the borrower which has anything to do with when a loan terminates.  On the reverse mortgages FHA insures, it might step in if the agreement violates what it deems reasonable but that is rare since few lenders use anything other than FHA approved loan documents.

    • Michael,

      As to your first statement, we also heard that less than 1% of outstanding HECMs were in default for taxes and insurance.  Then it suddenly was 2%,  Then a few months later it was 4%.  Now it is 9.8%.  Which numbers were right when is an open debate although at some point no doubt all of them have been true.  With a $2.8 billion deficit, over $2.2 billion transferred out of other FHA programs, AND taxpayers potentially at risk for everything greater than those numbers, what American should not be involved in this decision?  Congress is the elective representatives of all US citizens.  This kind of arrogance towards our insurer (American taxpayers) does not reflect well on our industry.There are many agenda items on every side of the issue.  Among ours are revenues and paychecks.  Why shouldn’t they have the right to speak out?  If we cannot combat what they are saying, then we have the problem.  

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