On June 25, the Consumer Financial Protection Bureau began to publish the narratives that people send in when they file a complaint. The CFPB is the agency we owe to Elizabeth Warren. Republicans have been fighting to weaken it ever since the Dodd-Frank financial reforms created the organization in 2010. Until June, citizens haven’t been able to see the actual complaints filed with the CFPB, but that is starting to change.
Most of the complaints now online appear to have been filed in April and May 2015, and many have to do with mortgages. I’ve taken a look at the ones dealing with reverse mortgages. We don’t know how accurate the complaints are, but they are clearly not frivolous. The complainants are all very upset.
Bearing in mind that we may not have all the facts, it’s possible to draw at least three conclusions.
First, a senior who takes out a reverse mortgage may well be creating a big headache for the executor of the estate, who is often an adult child. This person may have been dealing with the senior’s final illness, followed by death, grieving, funeral arrangements, and disposing of the contents of the house. But at death, the six month clock starts ticking on paying off the reverse mortgage. The estate must sell the house or come up with the money to settle the debt. Two ninety day extensions are available, but the estate must show that it is actively trying to sell the house or pay off the mortgage — and judging by the complaints, these extensions are often not granted.
Meanwhile, the executor is left to deal with the mortgage company, and if it’s a big company, we can all imagine what the phone tree will be like. Documents can be misplaced and calls not returned. The person the executor has been talking with may suddenly be “no longer with the company.” Some complain that properties have been put into foreclosure by the lender despite their best efforts to communicate and make arrangements for settling.
A second problem is that heirs and executors are sometimes shocked to learn that the senior even had a reverse mortgage and don’t believe that person was mentally competent to have made such a decision in the first place. Some want the mortgages nullified. If they pursue this objective, I expect they will be in for a long legal battle. I only wish that these families could have had “the talk” years before and avoided such a nasty surprise.
Third, some borrowers get themselves into serious trouble over the requirement that they keep up with the taxes, home insurance, and repairs. This might not have seemed a problem when they first took out the loan, but at the end of life they may be experiencing falls, loss of memory, and repeated hospitalizations. Keeping up with the bills, or even opening the mail, may become too big a challenge, and suddenly, the home is in foreclosure. This is a problem that might have been avoided if the senior had given some trusted person a power of attorney years before, or at least have arranged for that person to be a signatory on her checking account — something that requires a simple trip to the bank.
Here’s one more problem not specifically related to complaints I’ve been looking at. The CFPB is very concerned about the large numbers of borrowers who are taking out reverse mortgage lump sums at relatively young ages in order to pay off their existing conventional mortgages. This relieves the borrower of monthly mortgage payments, but every single month, the interest on their reverse mortgage debt compounds, nibbling away at the amount they might be able to raise by selling the house in an emergency, such as a sudden need to go into assisted living.
Eventually, that compounding interest could cause the mortgage debt to exceed the value of the house. If the senior actually dies while still living in the house, as so many wish to do, we might say that he made a killing, because the lender is not permitted to call in a reverse mortgage simply because the house is underwater. But life plays tricks on us. A nursing home, assisted living, or a move closer to the kids may well lie in any of our futures. It would be a shame to come to that time of life only to find that our nest egg is gone due to a reverse mortgage.