Reverse mortgages are a bit of a niche financial product, as they are only accessible to senior citizens. The loans can provide some funding for retirement, but the Consumer Financial Protection Bureau is looking to the products to see if any extra regulation may be warranted. Article source: discover additional in personalmoneynetwork.
Reverse mortgage concerns
The Federal Trade Commission explained that the reverse mortgages are really just loans against the value of the property for people ages 62 or older. Typically, they are paid in a lump sum “checking advances,” cash advances against future deposits, for so many years as long as the person still lives in the home. Soon-to-be retirees can start to take advantage of the equity in their home this way.
The Consumer Financial Protection Bureau is starting to get concerned with reverse mortgages though since there is a higher default rate. It can be affecting senior citizens negatively. To be able to talk about the issue, Director Richard Cordray is presenting a study to Congress.
Default a serious risk
There are a lot of rules surrounding the reverse mortgage, according to the Wall Street Journal. This is why the Consumer Financial Protection Bureau is so concerned about the 10 percent of reverse mortgage consumers that might default. Consumers have to use their homes as primary residences during the reverse mortgage or they have to make payments back. Borrowers also have to maintain the home, pay property taxes and pay insurance. The borrower can effortlessly default with all these rules.
In 2008 and 2009, there were about 100,000 brand new reverse mortgages a year. That decreased in 2010 and 2011 when there were about 70,000 reverse mortgages per year. The number of reverse mortgages is starting to increase though, according to the Huffington Post, despite the fact that they seemed to disappear a bit for a while.
Overall, according to the Wall Street Journal, less than 3 percent of eligible homeowners take out the loans, though it is still a $90 billion industry. The CFPB is also concerned that “Baby Boomers” are starting to retire, meaning more are likely to be taken out in future years.
The nice and the bad
The Federal Trade Commission explained that borrowers have to get counseling before they are allowed to do a reverse mortgage, and they will get the money as a lump sum, monthly payment or line of credit to use whenever they want. About 70 percent of consumers are willing to take a lump sum, according to the Wall Street Journal, and the loan is more than the home is worth in a lot of situations now. The loans do not have to be paid back unless there is some unusual circumstance, although the borrower does have to pay if they over out or sell the house.
Fox Business explained that some lenders do not explained that the wife of a consumer and surviving kids have to buy the house at the appraised value if the person dies, and lenders do not always tell people their rights. These troubles have caused a lot of suits by the AARP against Fannie Mae, the Department of Housing, Urban Development and Wells Fargo.
Sources:
Wall Street Journal
Huffington Post
Federal Trade Commis-sion