An effort to protect consumers from unscrupulous players in the reverse mortgage industry is under way by the federal Consumer Financial Protection Bureau. Just add that to the long list of valuable efforts it has initiated in little more than a year of operation. Congressional Republicans opposed this new consumer watchdog and tried to block the appointment of a director. Republican nominee Mitt Romney wants to repeal the Dodd-Frank financial reforms that created the bureau. But the bureau is providing essential oversight, reining in an industry that too often takes advantage of consumers.
The bureau's efforts to make reverse mortgages more transparent and bring lenders under tighter supervision is similar to its approach toward reforming other kinds of mortgages. Under "Know Before You Owe," the bureau has proposed disclosure changes that would give borrowers clear notice of the costs and risks of a mortgage. Had borrowers better understood the loans they were signing and had the worst predatory practices been outlawed, the housing bubble and resulting financial collapse might have been less severe.
The bureau recognizes that reverse mortgages have helped some seniors remain in their homes and ease retirement while borrowing against accumulated equity in probably their biggest asset. But it has also found rampant abuses, particularly by some of the smaller reverse mortgage firms that have flooded the marketplace. Sellers of reverse mortgages receive bigger fees if the borrower receives payment in a lump sum, but borrowers are more likely to lose their homes this way, unable to keep up with taxes and insurance payments. The bureau found that about 70 percent of reverse mortgages are taken as a lump sum, up from 3 percent in 2008. Reverse mortgage brokers also make more money if the loan is listed in the older spouse's name alone, but that has led to the younger spouse losing the home after the older spouse dies — a scenario that isn't made clear.
The bureau is already handling tens of thousands of financial industry-related consumer complaints even as it compiles reports on unfair industry practices that could lead to more rulemaking. It recently helped millions of credit cardholders get refunds from Discover Financial Services for allegedly deceptive telemarketing and sales practices. The company denied that it was forcing customers to pay for services it marketed as free, but it agreed to pay $200 million in refunds to more than 3.5 million cardholders plus $14 million in civil fines to regulators.
Last year, as congressional Republicans were blocking the appointment of a bureau director, they sent a letter to President Barack Obama that warned that the bureau would adversely impact every American household by "limiting their choices when purchasing financial products." Instead, the bureau has proved an invaluable defender of American families, protecting them from businesses that care more about profits than ethics.