A new report from consumer advocate groups calls for increased oversight of the reverse mortgage market and new protections for borrowers.
Published by the Consumers Union along with California Advocates for Nursing Home Reform and the Council on Aging Silicon Valley, the report asks federal regulators to establish a suitability standard that promotes long-range solutions and strong consumer remedies for violating that standard.
“Reverse mortgages are a very risky deal for borrowers who don’t understand the complicated terms of the loan and how quickly fees and interest charges can add up,” said Norma Garcia, senior staff attorney for Consumers Union, the nonprofit publisher of Consumer Reports.
The group wants regulators to require lenders and brokers establish a fiduciary responsibility to the potential borrower, outlaw deceptive marketing, and adopt stronger prohibitions on cross selling.
“Lenders are aggressively marketing reverse mortgages while assuming almost no responsibility for whether the loans are suitable for borrowers,” said Prescott Cole, senior attorney for California Advocates for Nursing Home Reform. “Now that reverse mortgages are becoming more widespread, it’s time for some common sense oversight to protect consumers and taxpayers.”
Additionally, as a matter of public policy, reverse mortgage should be considered suitable only when a senior has no other viable option says the report.
“Reverse mortgages should be considered the loan of last resort due to their high cost, potential for exposing senior borrowers to fraud, misrepresentation and financial abuse, and the risk of displacement of non-borrowers who may share the dwelling.”
The groups hope the Consumer Financial Protection Agency will consider the report’s findings and use the recommendations to develop strong and comprehensive policies to protect the public against abuses in the reverse mortgage marketplace.
“Seniors who take out reverse mortgages are at risk of using up all of their equity to cover unexpected costs later in life or even losing their home,” said Shawna Reeves, program coordinator for the Council on Aging Silicon Valley. “The Consumer Financial Protection Bureau should act to rein in reverse mortgage abuses and make sure that seniors get the protections they need.”
To view a copy of the report, see here.