The Consumer Financial Bureau released a report highlighting the most common consumer complaints about reverse mortgages. A reverse mortgage allows a borrower, 62 years or older, to access the equity they have built up in their homes and defer payment of the loan until they pass away, sell or move out. The report details the approximately 1,200 reverse mortgage complaints the CFPB received between December 2011 and December 2014.
The most frequent complaint involved older consumers and their families demonstrating confusion about the terms and requirements of reverse mortgage loans. Many complaints showed a disconnect between consumer expectations and the way a reverse mortgage actually works.
For example, many consumers are frustrated when they are unable to refinance their loans because there is insufficient remaining equity in their homes. The CFPB reports these complaints suggest that some homeowners may not understand that the loan proceeds as well as the accrued interest on the loan overtime will substantially decrease the amount of available equity. Another complaint was over struggles with foreclosure due to issues with property taxes and homeowners’ insurance. Even though reverse mortgages require no monthly payments, borrowers are still responsible for property taxes and homeowners’ insurance. The CFPB reports the most frequent complaint involved consumers trying to add additional borrowers to the loan in order to extend the term of the loan.
To ensure that potential reverse mortgage borrowers and their families are prepared for the unexpected, the CFPB has the following advice for borrowers:
- Verify who is on the loan: If two borrowers took out a reverse mortgage, they should verify with the reverse mortgage company’s loan records to ensure accuracy.
- Plan ahead for the non-borrowing spouse: For those who took out a HECM reverse mortgage in the name of only one spouse before Aug. 4, 2014, they should contact their loan servicer to find out if the non-borrowing spouse can qualify for a payment deferral. If the answer is no, they should make an immediate plan in the event the borrowing spouse passes away first. If the reverse mortgage was taken out after Aug. 4, 2014, new changes to the HECM program allow the non-borrowing spouse to remain in the home, if certain conditions are met.
- Plan ahead for other family members. Consumers should make sure that any children or family members living in the home know what to expect when the reverse mortgage comes due. When a borrower dies, heirs can sell the home, repay the loan balance or pay 95 percent of the property’s assessed value. If those members want to keep the home, the borrower should contact their reverse mortgage company to have them explain all of their options in greater detail.
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http://consumerist.com/2015/02/09/reverse-mortgage-complaints-show-consumers-confused-by-loan-terms/
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Related Resources:
http://realtime.blog.palmbeachpost.com/2015/02/09/officials-fear-baby-boomers-banking-on-confusing-mortgage-plan/