Consumers Union, the policy and advocacy division of Consumer Reports, is calling for stricter oversight of reverse mortgages just as the lending industry launches a public relations campaign to repair its image.
“Reverse mortgages should only be used as a last resort because they can carry huge costs that can quickly drain a home owner’s equity,” said Norma Garcia, senior attorney and manager of Consumers Union’s financial services program. “The reverse mortgage industry insists that it can police itself but it’s clear we need common sense oversight by the CFPB to protect seniors.”
Reverse mortgages enable borrowers who are 62 or older to obtain income through cash payment or lines of credit by tapping the equity in their home. The reverse mortgage loan becomes due when the borrower dies, leaves the home for 12 consecutive months or more, or fails to maintain the property or pay home owners insurance or property taxes. Borrowers must pay a loan origination fee, closing costs, and compounding interests on the loan principal, which can be significant.
Consumers Union’s December 2010 report on reverse mortgages documented a number of concerns that underscore the need for stronger oversight by the CFPB.
The consumer advocate says:
- Counseling provided by the Department of Housing and Urban Development isn’t thorough enough
- Seniors are sometimes targeted with aggressive cross promotion of other financial products like long-term care insurance or annuities that may not be suitable for them
- An increasing number of borrowers are losing their homes because they are unable to pay their property taxes or home owner insurance premiums
Consumers Union called on the CFPB to take a number of steps to protect seniors, including:
- Ensure loans are suitable for borrowers: Lenders should have to consider whether a loan puts you at risk of losing your home, whether you understand the complex nature of the contract, and if there are better options available to you.
- Establish a fiduciary responsibility for the loan: Lenders should have to act in your best interests and should be punished if they don’t.
- Outlaw deceptive marketing: All reverse mortgages should have to include information to help you figure out if the loan is right for you.
- Adopt stronger prohibitions on cross promotions: Prohibitions against cross promotions of other financial products by lenders and brokers should extend to non-HECM loans. Insurance agents and brokers should be held liable for selling an annuity when it is purchased with reverse mortgage funds.
- Strengthen the quality and content of counseling: HUD counselors should be required to do in-person counseling. The counselor should deny a counseling certificate to the borrower if the loan is not in the best interest of the senior.
- Protect non-borrowing spouses and tenants: Spouses and tenants whose names are not on the reverse mortgage loan should be notified about their limited rights to remain in the home after the borrower dies or permanently moves out of the home.
Source: Consumers Union