Consumers Union Asking Federal Bureau to Make Reverse Mortgage Reforms
Consumer group says lenders mounting PR campaign for CFPB hearing this week
June 25, 2012 - Consumers Union, the policy and advocacy division of Consumer Reports, called on the Consumer Financial
Protection Bureau (CFPB) today to protect vulnerable seniors from reverse mortgage abuses. The consumer group is renewing its call for
stricter oversight of reverse mortgages just as the industry launches a public relations campaign to repair its image and the CFPB prepares to
hold a field hearing on the topic on Wednesday, June 27, in Tampa.
"Reverse mortgages should only be used as a last resort because they can carry huge costs that can quickly drain a
homeowners equity," said Norma Garcia, senior attorney and manager of Consumers Union's financial services
"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 homeowners insurance or property taxes. Borrowers must pay a loan origination fee, closing
costs, and compounding interests on the loan principal, which can be significant.
You Are Invited to CFPB Hearing
The field hearing will take place on
Wednesday, June 27, 2012, at 11:00 am in the Ballroom of the
Tampa Convention Center, 333 South Franklin Street, Tampa, Florida.
The field hearing will feature remarks from
Richard Cordray, CFPB Director as well as testimony from consumer and civil rights groups, industry representatives,
and members of the public.
This event is open to the public and requires an RSVP. To RSVP, email your full name and your
organizational affiliation (if any) to
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 report was co-authored by California Advocates for Nursing Home reform and the Council On Aging Silicon Valley.
The report highlighted how borrowers can be duped by misleading marketing claims and that required counseling provided by
the Department of Housing and Urban Development (HUD) was inadequate.
It also noted that 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.
Finally, the report cited recent HUD statistics finding that an increasing number of borrowers had defaulted because they
were unable to pay their property taxes or homeowner insurance premiums as required.
Consumers Union Wants These Actions
Consumers Union called on the CFPB to take a number of steps to protect seniors, including:
● Ensure loans are suitable for borrowers: Lenders and brokers should be required to consider whether the loans
put borrowers at risk of losing their homes, if the borrower understands the complex nature of the contract, and if there are more viable
alternatives available to the borrower.
● Establish a fiduciary responsibility for the loan: Lenders and brokers must be required to act in the best
interests of the borrower and should be held liable for violating this fiduciary duty.
● Outlaw deceptive marketing: All reverse mortgages should be required to include information to help borrowers
determine whether the loans are suitable for them.
● 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 hold an in-person
session with prospective borrowers to determine whether a reverse mortgage is suitable for the borrower. 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.