* People borrowing younger, withdrawing all funds at once
* Agency to educate consumers, prevent false advertising
June 28 The U.S. consumer watchdog will boost
oversight of the reverse mortgage market as borrowers with
limited information take out complex loans earlier in life,
according to a report released on Thursday from the Consumer
Financial Protection Bureau.
The market for reverse mortgages, in which people age 62 and
older borrow against the value of their homes without having to
make payments while they live in the home, remains small. Only 2
to 3 percent of eligible homeowners have a reverse mortgage.
But the consumer agency said the loans could grow in
popularity as more baby-boomers retire, and changing trends in
borrowers' use of the loans are making them riskier.
Since the 1990s, the proportion of borrowers in their
sixties has more than doubled to 47 percent.
"Because reverse mortgages can help older homeowners ease
the strain of retirement, this product can be beneficial if
seniors choose it based on a solid understanding of how it
works," said Richard Cordray, the consumer agency's director.
"But in some situations, the product can be misused in ways
that harm borrowers," he said.
Congress directed the Consumer Financial Protection Bureau
to study the reverse mortgage market as part of the 2010
Dodd-Frank financial oversight law that also established the
still-controversial watchdog agency.
The study could eventually lead to new federal regulations
for the reverse mortgage market.
The loans can provide a source of income to help older
people remain in their homes, Cordray said. Borrowers are
responsible for property taxes and homeowners insurance but can
defer loan payments while they still live in the house.
But the report found that almost half of reverse mortgage
borrowers in fiscal year 2011 were younger than 70 and that more
than 70 percent of people withdrew all the available funds at
once rather than receive regular payments or use the funds as a
line of credit.
These trends boost the likelihood that borrowers will run
out of money or face foreclosure later in life, the agency said.
Almost 10 percent of reverse mortgage borrowers as of
February 2012 were at risk of losing their homes to foreclosure.
Misleading advertising about the products and inadequate
counseling for potential borrowers also could lead people to
unknowingly enter into risky loans, the agency said.
"In order to protect people against the misuse of reverse
mortgages, we need to educate and inform not only older
Americans but also the caretaker generation," Cordray said.
The agency has established an interactive tool on its
website to answer questions about financial products including
reverse mortgages, and it will look into further regulations and
enforcement actions to prevent false advertising and other
problems, the report said.
The Federal Reserve in 2010 proposed rules that would have
regulated advertising and improved disclosures consumers receive
for reverse mortgages. The Dodd-Frank law shifted responsibility
for regulating reverse mortgages to the CFPB as of July 2011.