The numbers coming out of the Consumer Financial Protection Bureau were striking: Disputes over reverse mortgages spiked by 172% from 2012, the first full year that the CFPB opened its virtual doors to such complaints, to 2016. Over that same period, the CFPB saw a 102% increase in all Federal Housing Administration-related loans, while Americans aged 62 and older represent a disproportionally high amount of overall CFPB mortgage complaints.
But the story is slightly more complicated than the data depicts without context. According to Reid Herlihy, a partner at the Washington, D.C. law firm of Ballard Spahr, the rise in mortgage-related complaints has more to do with general awareness of the CFPB’s role and reporting functions, and not necessarily with a decline in mortgage-servicing quality over the five years for which data was available.
“I would put that to the general awareness of the CFPB,” Herlihy told RMD of the rise in complaints over time.
Herlihy pointed out that after a substantial spike between 2011 and 2012 — entirely due to the fact that the agency only began accepting complaints in December 2011 — the overall number of gripes has remained relatively stable between 38,000 to 42,000 per year, with a jump to 49,408 in 2013 representing the only outlier. He also posited that any significant gains in categorical complaints were the result of the CFPB gradually expanding the product classes for which it accepts consumer disputes.
Still, the data does illustrate some interesting issues relevant to the Home Equity Conversion Mortgage space. As the real-estate data firm Trulia noted on its blog this week, borrowers aged 62 and older account for an “outsized” share of all complaints, claiming just about 10% of the total.
“That’s a high rate given that just 35% of seniors who own a home have a mortgage,” the Trulia blog points out.
Reverse mortgage complaints have also steadily increased since the initial full-year total of 206 in 2012, hitting 562 last year. Through April 10 of this year, consumers have lodged a total of 138 issues with the CFPB — on pace for a total of about 504 in 2017. Between 2012 and 2016, disputes over VA mortgages rose from 495 to 1,421, while all FHA-related mortgage complaints climbed from 2,707 to 5,478.
“High dispute rates for these types of loans aren’t surprising,” the Trulia blog notes. “VA and FHA loans and reverse mortgages are most often [taken out by] at-risk [people who] could benefit from an intermediary: veterans, low-income and older borrowers.”
“These loans are also specialized products that many lenders and servicers don’t have the expertise to handle, according to Erin Lantz, Trulla’s Vice President for mortgages,” the post continues.
This data analysis came in the same week that the CFPB’s very existence, in its current form at least, faces one of its most serious threats. Under new legislation formally unveiled last week by House Financial Services Committee Rep. Jeb Hensarling, a Texas Republican, the CFPB’s power would be largely stripped as part of the GOP’s overhaul of the Dodd-Frank financial reform laws. Should the so-called Financial CHOICE Act pass, the CFPB would be rebranded as the “Consumer Law Enforcement Agency” and fall under stricter Congressional oversight; currently, the CFPB operates as an independent agency.
The new agency would also exist only to enforce consumer financial laws already on the books, and the consumer complaint database would disappear entirely, according to a summary of the law posted by HousingWire.
The brainchild of now-Sen. Elizabeth Warren, Democrat of Massachusetts, the CFPB has been hailed by the left as an important safeguard of consumers’ rights against the big banks and other financial institutions, and derided from the right as an unfair government albatross around the neck of innovation and the free marketplace.
The database itself has been a particular sticking point for the financial industry, with critics claiming that it legitimizes unverified complaints by placing the name of a government agency on a list of gripes that institutions have yet to investigate.
For instance, back in 2015, the Mortgage Bankers Association released a scathing letter to the CFPB asking for key reforms in the way it collects and reports complaint data.
“In MBA’s view, because more than 80 percent of complaints do not require action behind an explanation, posting these unsubstantiated complaint narratives will only mislead the consumers the CFPB is charged with protecting,” the letter said.
“It is not clear that posting substantiated complaints is an effective use of the CFPB’s time or resources,” the association continued, noting that consumers can easily turn to user-generated reviews and complaints on sites such as Yelp, Angie’s List, and Twitter.
Under Hensarling, the House Financial Services Committee has been openly hostile to the CFPB and its authority, frequently deeming it “unconstitutional” and calling for the ouster of its director, Richard Cordray.
However, like many of the plans unveiled by the GOP and the Trump administration, it’s important to note that Hensarling’s bill remains simply that — a plan. As Reuters points out, any large-scale overhaul of Dodd-Frank would require passage of both houses, and in order to clear the Senate, such legislation would need the backing of at least eight Democrats.
“Instead, the Senate is expected to take a slower, piecemeal approach to revisiting financial rules, with a focus on changes that could garner bipartisan support,” Reuters noted.
As RMD reported back in early March, financial industry watchers seem to think that substantially rolling back laws and regulations ostensibly designed to help average consumers might be too politically harmful for more middle-of-the-road politicians.
“The experience of the subprime mortgage crisis is still fresh in everybody’s mind, and the Great Recession is still fresh in everybody’s mind,” attorney Christopher Willis, who leads the Ballard Spahr firm’s Consumer Financial Services Litigation Group, told RMD at the time. “And I don’t think that the Republicans can safely do away with the agency given the perceived value it has to the electorate.”
Written by Alex Spanko