You’d be hard pressed to do an online search for reverse mortgage information today without coming across an article about a recent landmark government report on the product and the lenders who offer it.
The CFPB reverse mortgage report spans more than 200 pages of research recently conducted by the Consumer Financial Protection Bureau and highlights several key areas that the Bureau presented to Congress. Here are three of those highlights noted by the CFPB and questions you can ask yourself to make sure you have all the necessary information before taking out this type of loan.
Finding: Spouses of reverse mortgage borrowers who are not themselves named as co-borrowers are often unaware that they are at risk of losing their homes.
The amount of reverse mortgage proceeds you can receive will depend on the amount of home equity you have and the age of the youngest borrower. For a married couple, both spouses must meet the minimum age requirement of 62.
If one of the spouses is removed from the home title, that spouse can not be named as a borrower, and therefore, does not assume home ownership if the borrowing spouse passes away or leaves the home. It is important to understand the implications of removing a spouse from the home title before making this decision.
Finding: Reverse mortgage borrowers are using the loans in different ways than in the past.
The CFPB finds the average borrower age has fallen, with more than half of borrowers in 2011 falling under the age of 70. While borrowers have the option to take the loan as a lump sum, in term or tenure payments or as a credit line, the CFPB found borrowers are most often taking the fixed rate, lump sum option.
Your lender should provide all options to you, and can walk you through the differences so that you can make an informed decision about which option is best. While the CFPB points to the younger borrower average as a concern, several recent studies have found borrowers who take the reverse mortgage as a credit line as early as possible can actually extend their retirement savings the longest.
Finding: Reverse mortgage counseling needs improvement.
The CFPB found that counseling, while designed to help consumers understand the risks associated with reverse mortgages, needs work.
Counseling is a requirement of anyone who submits an application for a reverse mortgage. Independent counseling agencies around the country receive government funding and donations in order to offer their services.
Among the CFPB’s concerns is the way counseling is funded. Typically, agencies receive their funds on an annual basis. Because the funds differ from year to year and sometimes month to month, there can be variations in cost borrowers face. Your lender is required to provide a list of agencies that offer counseling and you are welcome to shop around to find the counseling agency that is best fitting to you.
If you have questions about any of these topics or would like more information on how a reverse mortgage might work for you, contact us. We’re happy to help.