CFPB Tells Congress Reverse Mortgages Filling Unexpected Needs
The CFPB submitted a Notice and Request for Information to gather public input on follow-up questions about reverse mortgages. In particular, the Bureau is seeking feedback on the factors most important to consumers when they are considering a reverse mortgage, the way consumers use reverse mortgage proceeds, the longer-term outcomes of reverse mortgage borrowers, and certain practices that may differ depending on the type of business that is offering the reverse mortgage.
A reverse mortgage allows older homeowners to access equity they have built up in their homes now, and defer payment of the loan until they pass away, sell, or move out of the home. Reverse mortgages require no monthly mortgage payments, but borrowers are still responsible for property taxes and homeowner’s insurance.
The original purpose envisioned for reverse mortgages was to convert home equity into cash that borrowers could use to help meet expenses in retirement. It was anticipated that most, though not all, borrowers would use their loans to age in place, living in their current homes for the rest of their lives or at least until they needed skilled care.
However, the CFPB’s report revealed that most reverse mortgage borrowers do not use their loans to convert home equity into an income stream, and also do not typically live in their current homes until the end of their lives.
Instead, borrowers are increasingly taking the full amount for which they qualify upfront as a lump sum, and in many cases, using that money to refinance an existing mortgage or other debt early in their retirement or even before reaching retirement.
Nearly half of recent reverse mortgage borrowers were in their 60s, and nearly 3 out of 4 took all of their money upfront in a lump sum. The CFPB said it is concerned borrowers will have fewer resources to pay for everyday and major expenses later in life.
Deceptive marketing is a long-standing problem in this market, the CFPB said, with many older Americans receiving solicitations implying that a reverse mortgage is a government benefit rather than a loan.
The CFPB’s Office of Older Americans released a 4-page consumer guide to reverse mortgages, and a new and improved set of answers to common reverse mortgages questions on Ask CFPB. The Bureau also taking complaints on reverse mortgages through its complaint system.