The smiling actor in the commercial suggests a reverse mortgage may be the answer to all your financial concerns.
However, the Consumer Financial Protection Bureau, or CFPB, says many have been confused and frustrated by the rules that govern this unique type of borrowing. In a reverse mortgage, a home’s equity is used as a line of credit; instead of making payments, the borrower receives a monthly payment that draws down that equity.
One problem is that reverse mortgages cannot be taken over by a family member when the borrower dies. Many family members have complained to the CFPB about their inability to be added to the loan so they can keep the family home.
Another problem is the confusing process confronting many borrowers when they try to pay off their loans. When the borrower dies, heirs have three choices: sell the home, repay the balance of the loan or pay 95 percent of the assessed value.
Some people have faced delays in getting appraisals, had appraisals done improperly or seen home values inflated so they’ve had to pay more. Many also have reported problems getting responses to questions and concerns about the loans from the parties that service them.
A third problem involves property taxes and homeowners’ insurance. These are the borrower’s responsibility, and the CFPB found some time ago that nearly 10 percent of reverse mortgage holders are at risk of foreclosure for nonpayment of those overdue costs.
Some consumers reported problems stopping the foreclosure process when they tried to pay overdue taxes. Some said their loan servicers incorrectly stated that taxes were overdue.
Most reverse mortgages are insured through the Federal Housing Administration’s Home Equity Conversion Mortgage, or HECM, program. Changes apply to terms of HECM loans made after Aug. 4, 2014, so nonborrowing spouses may remain in their homes after the borrowing spouse dies.
That change is not retroactive, so the CFPB urges everyone with a reverse mortgage to do three things:
— Verify who is on the loan. Ask your reverse mortgage servicer what names are listed on the loan, and make sure the records are accurate. They may help over the phone, but we prefer consumers send a letter — and keep a copy — so there’s a written record of the inquiry.
— If only one name is on the loan, make a plan for the nonborrowing spouse. After the death of a spouse, the survivor may qualify for a repayment deferral. That would allow the surviving spouse to live in the home. If not, make a plan for other living arrangements. If you or your spouse is not on the loan but think you or he or she should be, seek legal advice right away.
— Talk to your children and heirs, and make plans for any nonborrower family members who live in the home. Make sure family members know what to expect when the reverse mortgage comes due. The mortgage servicer should be able to supply written information about options. Talk these over with your family and ask questions about anything you don’t understand.
To read more in the CFPB’s guide to reverse mortgages, visit http://files.consumerfinance.gov/f/201409_cfpb_guide_reverse_mortgage.pdf.
Maine’s Bureau of Consumer Credit Protection issues a guide called “Finding, Buying and Keeping Your Maine Home.” It’s available online at maine.gov/pfr/consumercredit/documents/MortgageGuide_RevisedOnline.pdf.
Consumers can receive a printed copy by writing to 35 State House Station, Augusta, ME 04333-0035 or calling 1-800-DEFederBT-LAW (1-800-332-8529).
Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s all-volunteer, nonprofit consumer organization. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer, ME 04412, visit https://necontact.wordpress.com or email firstname.lastname@example.org.