A new report from consumer advocates is calling for stricter oversight of the reverse mortgage market and new consumer protections for borrowers. The report was released by Consumers Union (the nonprofit publisher of Consumer Reports), California Advocates for Nursing Home Reform and the Council on Aging Silicon Valley.
‘Reverse mortgages are a very risky deal for borrowers who don't understand the complicated terms of the loan and how quickly fees and interest charges can add up,’ says Norma Garcia, senior staff attorney for Consumers Union. ‘Reverse mortgages should only be a last resort for seniors who want to stay in their homes and have no other alternatives to supplement their income.’
The groups issued their report as the newly authorized Consumer Financial Protection Bureau (CFPB) examines the reverse mortgage industry. The Federal Reserve Board is also considering a set of proposed regulations on reverse mortgages.
In their examination of reverse mortgages, the consumer groups documented a number of concerns that they say underscore the need for stronger oversight by the CFPB. These concerns include misleading market claims and the cross-promotion of unsuitable financial products.
Seniors are particularly vulnerable to misleading marketing, the groups say, citing research by the University of Iowa that concluded that 35% to 40% of the elderly population studied had impaired decision-making abilities.
Another cause for concern is the rise in reverse mortgage loan bailouts. A Consumer Reports investigation found that the annual sum of reverse mortgages taken over by a federal insurance fund more than quadrupled in four years, from $81.3 million in 2004 to $381.3 million in 2008.Â
‘Lenders are aggressively marketing reverse mortgages while assuming almost no responsibility for whether the loans are suitable for borrowers,’ says Prescott Cole, senior attorney for California Advocates for Nursing Home Reform. ‘Now that reverse mortgages are becoming more widespread, it's time for some commonsense oversight to protect consumers and taxpayers.’
The groups, which argue that lenders and brokers should be required to consider whether the loans put borrowers at risk of losing their homes and if there are other more viable alternatives available to the borrower, recommend a number of reforms.
For example, the groups are pushing for regulators to extend prohibitions on cross-promotions to non-home equity conversion mortgage loans. Insurance agents and brokers should be held liable for selling an annuity when it is purchased with reverse mortgage funds, the groups say.
SOURCE: Consumer Reports