Reverse mortgages are only available to consumers aged 62 and above – typically, these would be consumers from the Baby Boomer demographic preparing for retirement or already retired. Even with that niche market in mind, these products still get an inordinate amount of complaints, based on data from the Consumer Financial Protection Bureau. Last week, the CFPB released a report discussing the most prevalent consumer complaints regarding reverse mortgages, and it was not surprising to see confusing terms contributing to the common complaints mentioned.
As a backgrounder, reverse mortgages are called as such because they allow borrowers to transform the equity in their property into lump sums or monthly payments. And it was the confusing terms and poor expectation setting that brought on a lot of the complaints. The most common complaint was, just as stated, confusing terms and requirements, particularly when a consumer tries to refinance their mortgage but does not have enough equity to do so.
According to the CFPB, this may be because some consumers are not cognizant about the fact that loan proceeds and accrued interest will reduce the amount of equity over the life of the loan.
A lot of consumers also complained about not being able to change the terms of their reverse mortgage – for example, a borrower would ask their lender to reduce their interest rate, thus making them feel as they were overcharged. Variable interest rates were another bone for these older consumers to pick, as they complained to the CFPB that said rate would move up too quickly.
Still, the most common complaint with regards to changing the terms of the loan was the inability for consumers to add more borrowers to effectively extend the life of loan. Some of these complainants included adult children of the borrowers, who said that lenders had denied their parents the chance to add them to the loan, or denied the children the chance to “assume” the reverse mortgage for a parent who is either elderly or deceased.
Another frequent complaint was how lenders do not keep sufficient records and make repayment quite the chore. As a result, reverse mortgage borrowers unexpectedly face foreclosure as they were not able to pay property taxes or insurance, or are not able to forestall a foreclosure before it happens.
The CFPB also gave some advice to would-be reverse mortgage consumers and their families, listing three ways to avoid the pitfalls associated with these products. The first piece of advice was to verify the identity of the person(s) on the loan by checking with the lender if the loan records are accurate. Planning ahead for a spouse who is not a borrower was also mentioned, as the CFPB advised potential borrowers to contact their loan servicer to see if a non-borrowing spouse is eligible for a repayment deferral, or to plan ahead in case the borrowing spouse dies first if such an option is not available.
The second tip applies only to HECM reverse mortgages originated before August 4, 2014 and in the name of only one spouse. Lastly, the CFPB said consumers should plan ahead for other members of the family still in the house, and educate them on what to do should a reverse mortgage become due.