February 10, 2015
Risky Reverse Mortgages
The Consumer Financial Protection Bureau released a report, Snapshot of Reverse Mortgage Complaints: December 2011-December 2014. By way of background,
Reverse mortgages differ from other types of home loans in a few important ways. First, unlike traditional “forward” mortgages, reverse mortgages do not require borrower(s) to make monthly mortgage payments (though they must continue paying property taxes and homeowners’ insurance). Prospective reverse mortgage borrowers are required to undergo mandatory housing counseling before they sign for the loan. The loan proceeds are generally provided to the borrowers as lump-sum payouts, annuity-like monthly payments, or as lines of credit. The interest and fees on the mortgage are added to the loan balance each month. The total loan balance becomes due upon the death of the borrower(s), the sale of the home, or if the borrower(s) permanently move from the home. In addition, a payment deferral period may be available to some non-borrowing spouses following the borrowing spouse’s death. (3, footnotes omitted)
The CFPB concludes that
borrowers and their non-borrowing spouses who obtained reverse mortgages prior to August 4, 2014 may likely encounter difficulties in upcoming years similar to those described in this Snapshot, i.e., non-borrowing spouses seeking to retain ownership of their homes after the borrowing spouse dies. As a result, many of these consumers may need notification of and assistance in averting impending possible displacement should the non-borrowing spouse outlive his or her borrowing spouse.
