A recent study released by the Consumer Finance Protection Bureau (CFPB) regarding reverse mortgages suggests the CFPB is looking closely at the industry and the study may well be an omen of enhanced future enforcement activities. For consumers, the CFPB’s study cautions retirement-age individuals to review carefully as much information as they need to ensure that a reverse mortgage is the right choice for them.
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Today’s mortgage marketplace provides consumers with numerous products tailor-made for each consumer’s state of life. A traditional 15- or 30-year mortgage may be appropriate for consumers looking to start a family, but not suitable for consumers nearing or at retirement age. For those individuals, a reverse mortgage may present a unique opportunity to convert the equity in their house into a more liquid income stream, thus providing greater financial security while also assuring stable housing. Currently, the size of the reverse mortgage market is approximately 628,000 loans or 1 percent the size of the traditional mortgage market; however, as Baby Boomers retire in record numbers and more elderly homeowners seek to supplement their retirement incomes, this number is expected to increase significantly.
While offering many benefits to consumers when used correctly, reverse mortgages are not without risk, particularly for consumers who do not fully understand them. According to the CFPB’s study, many homeowners do not understand the complex details of reverse mortgages, and they can find themselves in jeopardy of losing their homes. For example, some consumers did not realize that a reverse mortgage is not a government benefit, but instead a loan that must be repaid. The CFPB reports that many advertisements fail to disclose interest rates, repayment terms, and other loan fees and charges.
The CFPB is not taking direct action against specific reverse mortgage lenders for misleading advertising at this time. However, by warning consumers to be on the lookout for potentially misleading advertisements, the CFPB may be implicitly acknowledging that it too is looking closely at reverse mortgage marketing practices. Companies in the business of marketing and originating reverse mortgages should consult the CFPB’s fact sheet, Spotlighting Risk in the Reverse Mortgage Market, as a blueprint for ensuring their practices meet CFPB expectations.