We reported earlier this month that the Federal Housing Authority recently provided an option for reverse-mortgage lenders to allow eligible surviving non-borrowing spouses to remain in their homes after the death of their borrowing spouses. According to a report recently released by the Consumer Financial Protection Bureau, it appears that this option became necessary due to borrowers’ general lack of understanding of the special terms and requirements of reverse mortgage loans.
The CFPB’s report summarized the most common complaints it has received since it began accepting consumer complaints in December 2011. Highest on the list are complaints that consumers are not permitted to make certain changes to their loans. For instance, many borrowers complain that they are not permitted to add additional borrowers, such as their children, to their reverse mortgages in order to extend the terms of the loans. This frustration often results from a lack of understanding that actuarial tables, based on the age of the borrowers at origination, help to determine the terms of the loan.
Consumers also complain that loan servicers are ineffective in servicing the loans, especially when borrowers’ heirs try to repay loans that have become due and payable. Many borrowers (or their heirs) have complained that servicers do not provide clear processes for repaying reverse mortgage debt. Specifically, lengthy notice delays, improperly performed appraisals, and failure to keep accurate records top the list of servicing complaints.
As the “baby boom” generation approaches retirement – at the astonishing rate of 10,000 per day – the CFPB predicts that the number of reverse mortgages will significantly increase because, although many baby boomers do not have sufficient retirement savings or pensions, 74 percent of baby boomers are homeowners, many of whom have accumulated significant equity in their homes that can help to finance retirement.
In preparation for the upcoming “retirement boom,” the Department of Housing and Urban Development has made several policy changes to the FHA’s reverse mortgage program. Lenders can help avoid future complaints by fully explaining the terms and conditions of reverse mortgages at origination, including the rights and responsibilities of families when borrowers’ loans become due and payable after their death. Likewise, servicers should take a close look at their recordkeeping and communication procedures, streamlining their repayment procedures, and adjusting all inefficient processes where possible.