The Consumer Financial Protection Bureau (CFPB) on Tuesday announced the publication of a newly-updated resource guide for consumers about the reverse mortgage product category. The guide, titled “You have a reverse mortgage: Know your rights and responsibilities,” goes into detail on typical Home Equity Conversion Mortgage (HECM) loan obligations.
It also discusses how the loan can be paid off; what happens to the home when the borrower moves out or passes away and how that affects the loan; what defaulting on a reverse mortgage means and how to find help if it occurs; and common components that should be known by a borrower’s heirs.
Details of loan obligations
The guide aims to provide consumers with relevant information concerning the obligations that must be fulfilled if they close a HECM loan, and specifies that some specific requirements may be different if the borrower engages instead in a non-agency proprietary reverse mortgage product offered by a lender, such as Finance of America Reverse’s (FAR’s) “HomeSafe” or Longbridge Financial’s “Platinum.”
The guide goes into significant detail on major loan obligations: first, that the residence secured by the reverse mortgage must be the borrower’s primary residence, while also going over different scenarios that may play out depending on the amount of time a person may be away from their home. It also details how some seniors may find an occupancy verification concerning or confusing, while explaining the necessity of answering such a request in a timely manner.
The second major obligation the guide details is the need to pay any property charges on time. These can include property taxes; homeowner’s insurance; flood insurance; homeowners association (HOA) fees; ground units, condominium or planned unit development fees; and any additional special assessments.
It also details the differences in property charge requirements for loans made before and after April 2015. For loans from before that point a borrower could have requested to have property charges paid out of the loan’s proceeds, while afterward lenders assess a borrower’s ability to pay these fees and may require a set aside specifically for property taxes and homeowners insurance. A warning also specifies that these set asides do not cover condo, HOA or other charges.
The final main obligation the guide covers is keeping the home in good condition, detailing the 60-day requirement to make repairs if notified of the necessity by the lender or servicer. If someone can’t afford to make repairs, the CFPB points people in that situation to their local Area Agency on Aging (AAA) to find assistance programs that could be of assistance.
Difficulty meeting loan requirements, paying the HECM back
For people who have difficulty meeting the loan’s requirements, the CFPB guide advises such borrowers to immediately contact their loan servicer in the event of receiving a default or foreclosure notice. An attorney or a HUD-approved default housing counseling agency might be able to render assistance, and can explain options available in light of being presented with a notice of foreclosure or default.
The Bureau also points borrowers to a previously-published guide about what to do if a reverse mortgage borrower has been affected by a natural disaster. This guide was published in September 2019, and uses straightforward language in an effort to instruct older homeowners how to meet the requirements of their reverse mortgage loan while simultaneously recovering from the effects of a natural disaster.
The guide also features details on what happens to the loan after the borrower’s death, and includes a newly-overhauled section about non-borrowing spouses and options available to such people if they have a case number assigned either before or after August 4, 2014.
Industry response, history
When reached about the creation of this new guide by the CFPB, National Reverse Mortgage Lenders Association (NRMLA) President Steve Irwin related encouragement at the availability of another resource designed to assist consumers with making the important choices necessary in the decision about getting a reverse mortgage.
“As is the case with any mortgage product, or equity extraction product, the reverse mortgage borrower has certain obligations,” Irwin told RMD in an email. “The CFPB has offered an updated guide on the FHA-insured reverse mortgage, which explains the reverse mortgage borrowers’ obligations and rights. I would encourage borrowers and applicants to familiarize themselves with this valuable resource so as to help ensure the reverse mortgage is the right option for their retirement plan.”
This is the latest revision to a reverse mortgage resource guide that the Bureau has published about the product category, but some in the industry have previously taken issue with the way industry-relevant information is presented by the Bureau.
In 2017, the CFPB issued a report which came with a warning, saying that taking out a reverse mortgage could be an “expensive way to maximize Social Security benefits.” That warning received criticism from both reverse mortgage industry participants and the National Reverse Mortgage Lenders Association (NRMLA). That guide was re-issued with a Spanish language translation in mid-2019.
Read the newly-published guide at the CFPB website, where it can also be ordered in physical form.