The Consumer Financial Protection Bureau (CFPB) recently released a report highlighting top complaints with regards to reverse mortgages.
The top complaints include: frustration with loan terms, foreclosure problems, and receiving the runaround from servicers. Due to these complaints, the CFPB has issued an advisory with tips on how to plan ahead to protect loved ones from financial hardships brought on by a reverse mortgage.
Consumer complaints are rolling in
CFPB Director, Richard Corday stated, “consumer complaints tell us that the complex terms of reverse mortgages continue to be misunderstood.”
“As more baby boomers choose reverse mortgages to tap into their home equity,” he added, “they need to understand the unique terms and features of this product. Our advisory can help those who have already chosen reverse mortgages to plan ahead for loved ones.”
Reverse mortgages are likely to increase
The report cites that reverse mortgages only account for approximately one percent of the mortgage marketplace with approximately 628,000 outstanding loans. However, the number of reverse mortgages is likely to increase in upcoming years as the baby boomers approach retirement.
Studies have estimated that “among Americans 55 to 64 years old, 41 percent have no retirement savings account, but around 74 percent own their own home and have accrued good equity.” For these homeowners, several options are available to access this equity: refinancing their original mortgage, taking out a home equity loan or line of credit, selling or downsizing their home, or obtaining a reverse mortgage.
Clearing up some common misconceptions
For those owners in need of the latter option, the CFPB report covers 1,200 reverse mortgage complaints received from December 1, 2011 to December 31, 2014. Many complaints seem to stem from misunderstandings between the consumers expectations and the way the reverse mortgage actually functions.
In lieu of these misunderstandings, here are a few things yourself, or your family members should be aware of: reverse mortgages prohibit spouses, heirs, and dependents from taking over the loan. This can be an issue if a family member wants to keep the home. Many family members complained to the CFPB as they were not able to be added to the loan and save the home. Reverse mortgage loan amounts are partly calculated using a borrower’s age and the loan repayment is initiated when the last borrower passes away or moves out. Given the age of most reverse mortgage applicants, it behooves the mortgage companies not to allow any subsequent applicants, so they can begin collecting payment.
When the borrower does pass away, heirs should be able to sell the home, repay the loan balance, or pay 95 percent of the property’s assessed value; however, consumers complained that loan servicers do not provide a clear process to allow them to settle the debt. There were also complaints regarding appraisal delays, improperly performed appraisals, and inflated home values. Also, complaints were made against loan servicers including unanswered calls and a lack of response to written requests.
Another surprising fact
Another surprising fact: 10 percent of reverse mortgage borrowers are at risk of foreclosure because they failed to pay property taxes and homeowner’s insurance. While reverse mortgages require no monthly payment, the borrower is still responsible for the aforementioned payments. Complaints to the CFPB described unsuccessful attempts to halt foreclosure by paying overdue taxes, servicers incorrectly filing overdue taxes when they were current, and overall keeping of inaccurate records.
Stay safe, protect yourself
To protect yourself and your loved ones, you can do several different things. First, verify who is on the loan and make sure all records are accurate. If the reverse mortgage is only in one spouse’s name, check with the loan servicer to see if the non-borrowing spouse qualifies for a repayment deferral. Plans should be in place in the event the borrowing spouse passes away first. If the loan was created after August 4, 2014, changes to the HECM (Home Equity Conversion Mortgage) program will allow the non-borrowing spouse to remain in the home, provided they meet certain conditions. Also, make sure any surviving family members or children living in the home know what to expect and who to contact when the reverse mortgage is due. For the rest of the CFPB’s guidelines regarding reverse mortgages, their advisory is here.