Reverse mortgages are in the headlines again — and again, sometimes for the wrong reasons.
The attention being paid to the loan product, which lets seniors 62 and older borrow against the equity in their homes, points to its anticipated popularity, especially given the demographics of baby boomers. Some 41 percent of Americans ages 55 to 64 have no retirement savings account, and many do not have pensions. What they do have are homes; almost three-quarters of this group are homeowners, according to government figures.
A report issued earlier this month by the Consumer Financial Protection Bureau looked at 1,200 complaints on reverse mortgages submitted to the agency in a three-year span. Topping the list were complaints related to a borrower's inability to make payments, refinance the loans or change the loan terms. There also were issues regarding communication.
One concern noted in the report, that surviving spouses may lose the homes after a borrower's death, may ease going forward. In a policy shift, spouses not named on the most common reverse mortgage, a federally insured Home Equity Conversion Mortgage, made after Aug. 4, 2014, may be eligible to stay in a house after the death of a spouse who was the official borrower.
The bureau's report was followed by the agency filing a lawsuit against reverse mortgage provider All Financial Services, based in Maryland, for allegedly falsely advertising its product as linked to the federal government and advertising that no monthly payments were required "whatsoever" so long as the consumer and spouse live in the house. In fact, borrowers still need to pay property taxes and insurance. Interest and fees on the loan accrue, and the total balance is due when the borrower dies, sells the home or permanently moves from it.
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