A recent report from the Consumer Finance Protection Bureau that takes a look at consumer complaints in the reverse mortgage arena over a three-year period has identified seven main complaints about the process.
Most of the complaints boil down to consumer confusion over the terms of a loan. The most common complaint is that borrowers are unable to refinance. Related, many consumers dislike that they cannot change the terms of the loan. The most frequent complaint concerning requested loan changes "involves consumers wishing to add additional borrowers to the loan in order to extend the term of the loan," the report states. "Reverse mortgages prohibit loan assumptions since actuarial tables are used when a reverse mortgage is issued to determine how much to lend to the borrower."
Perhaps the most serious complaint comes from surviving, non-borrowing spouses. When the borrower spouse dies, surviving spouses suddenly face foreclosure, despite the fact that "some consumers report that their loan originator falsely assured them they would be able to add the other spouse to the loan at a later date," the report states. Similarly, others complained that the loans are often difficult to repay and that lenders often throw obstacles in the way when consumers take steps to avoid foreclosure.
It should not be construed, however, that complaints run rampant in the reverse mortgage world. From December 2011 through December 2014, the CFPB received 1,200 complaints regarding reverse mortgages. In 2012, the CFPB stated in its Report to Congress that there are an average 70,000 reverse mortgage loans written every year. Reverse mortgages make up about 1 percent of all mortgages, and complaints about reverse mortgages make up about 1 percent of all mortgage complaints.
The types of complaints the CFPB reported, however, are not news to the industry itself. Matt Neumeier, president of Premier Reverse Mortgage in Atlanta, said the industry has long heard the woes of non-borrowing spouses and complaints about the inability to add to or alter loan terms. And while Neumeier said the report is a good snapshot of the consumer mind, he found the fact that it does not identify exactly who the complainants are to be a major shortcoming .
"My question is, how many complaints stemmed from adult children of a borrower after the parents passed away?" Neumeier said. Usually, borrowers themselves are happy with the loan process and complaints typically come from adult children who were not part of the lending process to begin with ‒‒ and were excluded specifically by borrowers wanting to keep their children out of the process, he said.
One bright spot for non-borrowing spouses, however, is the changes the Department of Housing and Urban Development has implemented to give non-borrowing spouses greater leeway to defer loan payments after the borrowing spouse’s death. Mortgagees can start complying with new non-borrowing spouse requirements for case numbers assigned as of Jan. 12, and full compliance is mandatory as of March 9.