The release of the 231-page reverse mortgage report by the Consumer Financial Protection Bureau (CFPB) reminded me one of those memorable spider man quotes: “with great power comes great responsibility”.
Don’t get me wrong, I will not be talking about Peter Parker here. This article is about the forecasted prominence of reverse mortgage, which prized the industry with some good dose of scrutiny.
According to the CFPB’s report, reverse mortgage, popularly known as Home Equity Conversion Mortgage (HECM), has yet to reach the vast market of eligible senior homeowners. In 2010, only around 3 percent of the 24 million qualified senior homeowners availed the program averaging about 70 thousand newly originated reverse mortgages a year.
Some developments are, however, expected to change the trend.
Firstly, reverse mortgage-qualified baby boomers are growing in numbers. From the estimated 24 million in 2010, it is up to 32 million in 2012. That’s a 33 percent increase or additional 8 million qualified senior homeowners in two years.
Secondly, the report released by the Office of the Chief Actuary in May regarding the possibility that the Social Security Administration may not be able to live up to its promised benefits brought some chilling effect. Seniors, financial planners and even organizations into retirement research started looking for ways to prepare for the coming of this anxiety-causing event.
The third development is tied with the second one. After Social Security, home equity is the largest asset of a typical senior in the country. With the hope of addressing the Social Security’s pending deficit, a growing number of financial and retirement planners started looking at reverse mortgage closely and acknowledged its potential to boost retirement preparedness.
With attentions from the media and investment professionals, consumer protection concerns arise. It is from this phase that the CFPB’s report was conceived.
CFPB’s findings revealed some reverse mortgage market realities: actions are to be made to create a fair playing field within the industry. In the section for key findings, the report pointed out that reverse mortgage products are too complex for seniors to understand and counseling is not enough to offset the effects of misleading advertisements and aggressive sales tactics. The basis of the said key findings were interviews with HECM counselors across the country, not assessments from borrowers themselves.
While I believe that cases of misleading advertisements and aggressive sales tactics should be dealt accordingly, it is not something unique to reverse mortgage. For every industry and every business, which engages in advertising, the possibility to be accused of using misleading advertisements or aggressive sales tactics is always there. Moreover, whereas I hope that CFPB conducted and written the report with objectivity, the high satisfaction reported by recent reverse mortgage borrowers did not make it to the key findings. The report dismissed the survey results, which revealed that four out of five reverse mortgage borrowers reported satisfaction, due to the reason below:
“The borrower satisfaction surveys conducted thus far have contacted borrowers whose loans are only a few years old. Reverse mortgages may well have different impacts, and borrowers may have different opinions of them, five to ten years into the loan” (Report to Congress on Reverse Mortgages, June 2012 p. 48).
For a study to arrive at the aforementioned key findings, the objective approach, I believe, is to specify how many among the senior-borrower respondents said they did not understand the reverse mortgage products they availed and claimed to have been misled or coerced into buying them. Another approach would be to determine the ratio and proportion between seniors who have experienced positive, ethical dealings over those who reported experiencing negative, deceptive practices.
Though the said approaches were not explored, the CFPB’s report provided valuable reverse mortgage information that could be used to better the services and practices in the industry. At the least, key players should engage in information dissemination and ethical practices campaign to actualize the industry’s potentials and serve its market better. It is but appropriate that with the reverse mortgage’s newfound power comes a fair deal of responsibility among its players.
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