[Updated] CFPB Report Reveals Top Reverse Mortgage Complaints

The Consumer Financial Protection Bureau (CFPB) today issued a report highlighting consumers’ top complaints for reverse mortgages.

Frustrations with loan terms, servicer turnarounds and foreclosure problems topped the list of complaints, according to the report titled Snapshot of Reverse Mortgage Complaints December 2011-2014.

To help consumers who already have a reverse mortgage, the CFPB is issued an advisory with tips on how to plan ahead to protect loved ones from financial hardships brought on by a reverse mortgage.

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“Consumer complaints tell us that the complex terms of reverse mortgages continue to be misunderstood,” said CFPB Director Richard Cordray. “As more baby boomers choose reverse mortgages to tap into their home equity, they need to understand the unique terms and features of this product. Our advisory can help those who have already chosen reverse mortgages to plan ahead for loved ones.”

Breaking down the total complaints into subcategories, 38% of consumer grievances stemmed from problems when unable to pay with respect to loan modification, collection or foreclosure, while 32% of complaints were directed at making payments, including loan servicing fees and escrow accounts.

Complaints when applying for the loan represented 18%, while complaints related to signing the agreement (settlement process and costs) and receiving a credit offer (credit decisions and underwriting) garnered 10% and 3%.

Many complaints show a mismatch between consumer expectations and the way the product functions. For example, many consumers cited in the report struggle with understanding how quickly their loan balance will go up and their home equity will fall.

“Many older consumers and their family members who submit complaints demonstrate confusion about the terms and requirements of reverse mortgage loans,” CFPB states in the report. “These complaints suggest that some homeowners may not understand that the loan proceeds as well as the accrued interest on the loan overtime will substantially decrease the amount of available equity.”

As of December 2014, one of the most common reverse mortgage complaints concerns denials for changing terms of the loan. Some consumers complained that lenders refuse to lower their loan’s interest rates, thus making them feel they’re being overcharged, while others complain that the variable interest rate on their loan increased too quickly.

Distress about the inability to add new borrowers to an existing loan was another top complaint among consumers, who complained to the CFPB about not being able to be added to the loan so they could keep their home in the event of the borrowing spouse’s death.

Consumers also complained that loan servicers do not provide a clear process to allow them to settle the debt. Others complained about appraisal delays, improperly performed appraisals, while some consumers complained about a lack of response from loan servicers, including unanswered phone calls and a lack of response to written requests.

“Some consumers describe multiple requests from servicers for the same documents when attempting to remedy defaults,” CFPB said in the report. “In some cases, consumers try to prevent foreclosure by paying the reverse mortgage loan balance in full, but do not receive timely responses from servicers.”

The Snapshot provides an overview of consumer complaints submitted to the agency involving reverse mortgages from December 2011 through December 2014, a period during which the agency handled approximately 1,200 complaints regarding reverse mortgages.

In total, reverse mortgage complaints comprise about 1 percent of all mortgage complaints, regardless of age, submitted to the CFPB.

Since the CFPB began accepting consumer complaints on reverse mortgages in December 2011, the Department of Housing and Urban Development has issued more than 10 policy changes to the Home Equity Conversion Mortgage program.

Continued challenges and complaints, however, may still arise in the future for borrowers who have obtained HECMs prior to August 4, 2014—before Mortgagee Letter 2014-07 allowed for non-borrowing spouses to defer payment of the loan’s due and payable status following the death of the borrowing spouse for new HECM case numbers assigned on or after Aug. 4.

“Notwithstanding the program changes, borrowers and their non-borrowing spouses who obtained reverse mortgages prior to August 4, 2014 may likely encounter difficulties in upcoming years similar to those described in this Snapshot, i.e., non-borrowing spouses seeking to retain ownership of their homes after the borrowing spouse dies,” the CFPB stated.

As a result, the CFPB suggests that many of these consumers may need “notification of and assistance in averting impending possible displacement” should the non-borrowing spouse outlive his or her borrowing spouse.

The Snapshot provides an overview of consumer complaints submitted to the agency involving reverse mortgages from December 2011 through December 2014, a period during which the agency handled approximately 1,200 complaints regarding reverse mortgages.

In total, reverse mortgage complaints comprise about 1 percent of all mortgage complaints, regardless of age, submitted to the CFPB.

The CFPB has not returned a request for comment as of press time.

View the CFPB report.

Written by Jason Oliva

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  • I can understand the frustrations seniors are having with a reverse mortgage and understanding them. In fact, the consumer is not the only one having these frustrations. We that are in the industry share the same frustrations of understanding the new reverse mortgage of today.

    With all the new rules and regulations and the constant change with these regulations being perpetrated by HUD and the CFPB on the consumer and those operating within the industry, who would not be confused and frustrated.

    As far as many seniors not understanding the product and how it affected them can be attributed to loan officers and other personnel within companies that sold them the product in the beginning!

    The amount of complaints were a very small percentage of all mortgages made, only 1%. However, the reverse mortgage is a small percentage of the market place as it is!

    John A. Smaldone

  • If there were but 1,200 unique (assumed) complaints with over 600,000 active HECMs, that is a complaint rate of less than 0.2%. That means that out of the 51,000 HECMs endorsed last year, there should be about 102 complaints registered with the CFPB over time.

    Some of the complaints come from the unknown. Yes, equity could be far smaller or bigger than estimated on the amortization schedule we provide borrowers at closing.

    What changes are needed? Better handling of calls by servicers.

  • Like I and others have said countless times we have allowed this program to become so complicated and burdened with layer upon layer of rules and regulations that it defies explanation to anyone, a borrower or even an attorney, cpa, or financial advisor……We have to be proud of our willingness to stand back with our hands in our pockets and watch this happen to an otherwise useful and beneficial product.
    I have always thought that adding another person to the mortgage if they were the same age or older would pose no additional risk to FHA and that even some modification in terms in cases where the proposed added borrower is younger.
    Regardless whether such logical program changes ever occur we will continue to be in the position of trying to explain the unexplainable until such time as we exert some pressure on regulators and FHA to consolidate and simplify the program and cooperate with us in the industry to make practical changes.

  • I agree about the future confusion for non-borrowing spouses when the related HECM received its case number before August 4, 2014. Mortgagee Letter 2015-03 only made matters worse. What is strange is that the CFPB seems to have had absolutely no idea that Mortgagee Letter 2015-03 was about to be released when it posted the report.

  • To simply list summarized categories of complaints is to give credence to the complaints. If the CFPB is trying to help consumers understand real concerns about reverse mortgages then the CFPB should have also compiled the information by category of resolution. It seems the CFPB is more interested in spreading unverified problems than bringing real help to seniors in their decision making about reverse mortgages.

    The CFPB is not a place to go to find out unbiased information because it is little more than a rumor mill when it comes to reverse mortgages.

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