Loan servicing problems are contributing to “rampant” consumer confusion about reverse mortgages, and federal overseers are monitoring how the industry addresses these issues, officials with the Consumer Financial Protection Bureau said Tuesday.
A certain amount of consumer confusion is to be expected with complex products like reverse mortgages, but this confusion has been significantly worsened by poor loan servicing, said Stacy Canan, deputy assistant director of the CFPB Office for Older Americans, at the American Society on Aging’s annual conference in Chicago.
The CFPB collects consumer complaints about a variety of financial products. The agency recently issued a report on the complaints it has received specifically about reverse mortgages, and Canan delved into what patterns those complaints have taken — noting that loan servicing was one of the primary problems cited.
“We heard from many consumers who complained about lack of responses [from servicers],” she said. “They wrote letters, they called, they asked for callbacks and received either delayed responses or no responses. There were a lot of complaints about poor record-keeping, where documents were lost or borrowers and family members were asked to supply documentation repeatedly.”
These issues “exacerbated” the consumer confusion that was “rampant” in the complaints that the agency received, she added.
However, Canan said the CFPB and the Department of Housing and Urban Development both are taking steps to educate consumers, tighten lending standards and crack down on bad actors.
For instance, the CFPB issued consumer resources along with its report and has taken enforcement actions against lenders for false advertising, she told RMD. And HUD has undertaken a variety of reforms, including the forthcoming Financial Assessment, intended to better screen potential borrowers and reduce their exposure to risk.
Still, federal agencies have not yet leveraged all their options for exerting influence on the reverse mortgage market; the CFPB also has rulemaking authority that it has not chosen to exercise, Canan said. And even under the Financial Assessment, lenders still retain a significant amount of flexibility in determining who is a qualified borrower.
With this being the case, the reverse mortgage industry itself may be wise to proactively step up efforts to address the complaints that consumers are lodging. The CFPB sees that lenders are sensitive to this issue, Canan said.
“Loan servicing quality [complaints], that we anticipate seeing until the industry changes, cleaning up that situation,” she said. “Consumer confusion, again, is an inherent problem with a complex product and I think many of the lenders and the Bureau are continuing to look at how we can help consumers better understand the product.”
Written by Tim Mullaney