WASHINGTON (6/29/12)--Reverse mortgages are the latest financial product to see Consumer Financial Protection Bureau (CFPB) scrutiny, and the agency may create new regulations addressing those products, the Credit Union National Association (CUNA) said.
The CFPB on Thursday asked for public comment on reverse mortgages, which allow homeowners over age 62 to cash out a portion of their home equity. While these products are not widely available at credit unions, CUNA will soon ask credit unions if they have comments or concerns that should be passed on to the CFPB.
Specifically, the agency requested comments from consumers and other financial industry participants on which factors influence reverse mortgage consumers' decisionmaking, and how reverse mortgage loan proceeds are used by consumers. The CFPB also asked for information on how the decision to enter a reverse mortgage transaction can impact consumers' long-term finances, and any differences in market dynamics and business practices among the broker, correspondent, and retail channels for reverse mortgages.
CUNA Senior Assistant General Counsel Jared Ihrig said the agency has the authority to regulate reverse mortgages, and the agency expects to undertake a project to integrate reverse mortgage Truth in Lending (TILA) and Real Estate Settlement Procedures Act (RESPA) disclosure requirements. This project would be separate from the agency's current TILA/RESPA integration project, which addresses the forms that are provided before a home is purchased.
As mandated by the Dodd-Frank Act, the agency this week submitted a 231-page report to the U.S. Congress on reverse mortgage products. In the report, the CFPB called reverse mortgages "inherently complicated products that are not easy for the average consumer to understand."
The rising-balance, falling-equity nature of reverse mortgages and the increased complexity of some reverse mortgage loan products are among the factors that create issues for consumers, the CFPB added. Further, federal disclosures and other tools provided to consumers "are insufficient to ensure that consumers are making good tradeoffs and decisions" when they take out reverse mortgages on their homes, the CFPB said.
Although fewer than 3% of eligible homeowners have reverse mortgages on their homes, and 70,000 new reverse mortgages are originated each year, according to CFPB numbers. However, the increasing age of many Americans could lead to an increase in the number of reverse mortgages in the marketplace, the agency reported.
The CFPB noted that borrowers are taking out reverse mortgage loans at younger ages, and taking out funds from their reverse mortgages sooner, two changes that increase some of the financial risks associated with reverse mortgage products. Some homeowners are also taking out reverse mortgages on their homes as a way to refinance traditional mortgages, and borrowers that take this step "may simply be prolonging an unsustainable financial situation," the CFPB added. Nearly 10% of reverse mortgage borrowers were at risk for foreclosure, according to the CFPB.
For the CFPB report, use the resource link.