CFPB Reports on Reverse Mortgages

29 Jun

As required by the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) has issued its report to Congress on Reverse Mortgages.  It was not far from what industry experts might have expected:  it highlighted the number of defaulted loans, talked about transparency and disclosure, and stressed the vulnerability of seniors as possible victims of scams.

The key findings reported that (1) reverse mortgages may be difficult to understand, (2)borrowers are using reverse mortgage products in different ways than they used to, starting at a younger age, (3) some product features are “risky”, (4) counseling should be improved, and (4) lastly that further regulation may be required as well as continuing supervision and enforcement of current regulation.

There was note of the increased use of reverse mortgages as a means to refinance traditional mortgages:  not surprising in the wake of the bad mortgages issued in the past decade.  Also the fact that a majority of borrowers tend to choose fixed rate products; again, not surprising considering their suspicion regarding variable rate products due to past experience.  The CFPB seems to believe that choosing the fixed rate product makes borrowers more susceptible to scams.

As a result, the CFPB will likely rewrite some important loan disclosure documents to better inform consumers.  They may also impose further regulation where they see necessary.

The report contains detailed information about the HECM product and its development, information about borrowers and their motivations for choosing a reverse mortgage, market and pricing, and current and proposed regulation.  You can see the entire report here:

http://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf

It is worth taking a look at.

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