The Consumer Financial Protection Bureau (CFPB) has regulatory enforcement authority over the reverse mortgage industry at the national level, but does not use that authority sufficiently enough to guide consumers through the process of getting a reverse mortgage loan.
This is according to Jack Guttentag, aka the “Mortgage Professor,” in a new Forbes column. Guttentag specifies the CFPB should do more to educate the public about Federal Housing Administration (FHA)-insured Home Equity Conversion Mortgages (HECMs).
“What the CFPB does now is to explain how HECMs work, with a special emphasis on their very complex legal structure,” Guttentag says. “This is important and the CFPB does it well. What the CFPB doesn’t do well, or at all, is to guide consumers in navigating the market to avoid overpaying and to select the most advantageous options.”
Guttentag illustrated his point by listing a series of questions that borrowers may have about shopping for reverse mortgages.
These include details on how consumers can shop for HECMs, identifying lenders with the best terms and which lenders offer the largest cash draws or the largest prepayment options.
“The CFPB’s automated response to these questions was the same for every one of them: ‘No results found,’” Guttentag wrote. “Yet all the questions are answerable in a manner consistent with the role of a Federal agency dedicated to the welfare of consumers, yet fair to lenders.”
Guttentag goes on to make four recommendations about bolstering the CFPB’s role in educating borrowers about the details of a reverse mortgage transaction, including the collection of required pricing information from participating lenders, as well as the collection of required consumer information such as the ages of consumer and spouse, property value and mortgage balance.
CFPB also has the power to provide certain information to consumers that they currently do not, including comparisons between lenders regarding an initial interest rate, origination fee, initial credit line, estimated credit line in 10 years and estimated HECM debt in 10 years.
“Because HECM prices include both initial interest rates and origination fees, the objectives shown above might be overridden by differences in future debt under different options,” Guttentag wrote. “Consumers comparing payment options from different lenders should have access to the estimated future HECM debt on each option.”
Recently, the CFPB detailed the top 10 reverse mortgage lenders in the industry during 2022 based on Home Mortgage Disclosure Act (HMDA) data.