Reverse Mortgage-Consumer Financial Protection Bureau seeks Stronger Disclosures
The Consumer Financial Protection Bureau is planning stronger disclosure requirements for reverse mortgages as more evidence emerges that senior citizens are using the product without fully understanding its main features and risks.
As part of a Dodd-Frank Act requirement, the agency was set to release a study showing that signs reverse mortgages are not being used as intended, with increasingly younger borrowers taking out larger pots of money rather than gradual income streams to help finance their later years.
The bureau, which is required to study the reverse mortgage sector and identify potential consumer protection concerns, found that 73% of borrowers last year accessed nearly all or almost all of their home equity available in the reverse mortgage — an increase of 30 percentage points since 2008 — leaving few funds available later in life.
Nearly half of borrowers were younger than 70, and taking out a loan at the earliest eligibility (typically age 62) has become more common. The study found the biggest players in selling reverse mortgages currently are nonbanks, and the sector is “increasingly dominated by small originators.” The two largest providers, Wells Fargo and Bank of America, left the market last year and MetLife left it in April.
“It can be hard to tell a reverse mortgage is better than downsizing, refinancing or using a traditional home equity loan,” CFPB Director Richard Cordray said. “Even when a homeowner makes a careful decision to take out a reverse mortgage, it can be a challenge to select the right product and determine the appropriate amount to borrow initially.”
Consumers need to better understand reverse mortgage loans. Additionally, consumers need to understand that this is an expensive product which is only recommended as a last resort.
If you need legal advice for reviewing a reverse mortgage, Medicaid planning, VA planning, tax planning, estate planning or trust and probate administration please contact our office for an initial consultation at (941) 906-1231.
