Consumer advocacy group Consumers Union today issued a statement in conjunction with California Advocates for Nursing Home Reform urging more reverse mortgage protections implemented by the Consumer Financial Protection Bureau. Included in the recommendations: make changes to reverse mortgage counseling, require originators and lead generators to register with the CFPB, and establish new standards for those obtaining and originating the loans.
The recommendation, made in response to a request for comments from the CFPB following its recent reverse mortgage study, comes after a separate, but similar, statement issued in June that also urges the CFPB toward greater oversight of the reverse mortgage market. This time, CU stresses inadequate counseling as well as a push toward both a fiduciary responsibility of reverse mortgage originators and a suitability standard for borrowers.
“The CFPB should establish a suitability standard that promotes long-range solutions and includes strong consumer protections for violating that standard,” the comments state. “As a matter of public policy, a reverse mortgage should be considered suitable only when a senior has no other viable option.”
With regard to reverse mortgage counseling, CU says there are “holes in the counseling safety net.” One of the concerns is that borrowers may have already made the decision to obtain a reverse mortgage before attending counseling. To bolster the process, face to face counseling should be required, CU writes, and when not available, should be provided via video technology. Additionally, it should be broken into two segments and borrowers should go through a required pre-counseling questionnaire.
“Seniors can be an easy target for unscrupulous reverse mortgage lenders who prey on borrowers who may not fully understand the complex nature of these loans,” said Norma Garcia, senior attorney and manager of Consumer Union’s financial services program. “It’s time to strengthen oversight of the reverse mortgage industry to rein in abuses and protect seniors from losing their most valuable asset—their homes.”
Reverse mortgages may be appropriate for some low-income, healthy seniors who lack other retirement assets and do not qualify for other options, Consumers Union states, but should be considered as a last resort.
Other points of issue noted by CU are lenders and brokers adherence to a fiduciary responsibility, the outlaw of deceptive marketing, stronger prohibitions on cross-selling, and the protection of non-borrowing spouses and tenants.
“We are concerned about seniors who have taken out reverse mortgages without fully understanding what they were getting themselves into,” said Prescott Cole, senior attorney for California Advocates for Nursing Home Reform. “Reverse mortgages may be an appropriate option for some seniors, but for borrowers who deplete their equity prematurely or who can’t keep up with the terms of the loan, the consequences can be devastating.”
Upon the release of a similar statement in June, RMD spoke with CU’s Garcia, who said the market has shown some improvement, but that self-regulation is still needed on the part of the reverse mortgage industry.
Written by Elizabeth Ecker
