According to the National Consumer Law Center (NCLC), about 480,000 reverse mortgages are currently outstanding throughout the country, and that number is only expected to rise as Baby Boomers grow old in the same place.
The report titled “Unmet Promises: Reverse Mortgage Servicing Challenges and Preserving Housing Stability for Older Adults” concludes that reverse mortgages, which are financial products that allow borrowers over the age of 62 to borrow against the equity of their home without paying additional monthly payments, often result in the borrower going into foreclosure. Further, the Federal Housing Administration insures a large proportion of these loans.
The primary author of the report Sarah Bolling Mancini, Staff Attorney at the National Consumer Law Center, said that, as evidenced by data, the most popular user of reverse mortgages are people of color and thus the most likely to go into foreclosure. As well as addressing the racial wealth gap and homeownership gaps, this crisis of preventable reverse mortgage foreclosures is important.
According to Odette Williamson, Director of NCLC’s Racial Justice Initiative, in order to increase racial equity in homeownership, it is imperative to preserve homes as well as open the door to new homebuyers of color. According to this report, one crucial step in that process is to prevent reverse mortgage foreclosures.
The report also identifies the most common reasons for default, including poor communication between parties, problems with services, and red tape around getting a repayment plan, and suggests ways to mitigate losses that both the Federal Housing Administration (FHA) and the Consumer Financial Protection Bureau (CPFB).
Mancini suggests allowing flexibility in the FHA’s property charge mitigation policies and requiring loss mitigation reviews.
According to the author, the CFPB should consider three policy changes: incorporate reverse mortgages in the mortgage servicing tools in the Real Estate Settlement Procedures Act (RESPA), work with the FHA on plain language communication standards with borrowers, and prioritize supervision and enforcement of reverse mortgage servicers.
