Reverse Mortgage Servicing Problems Put Homeowners At Risk

February 6, 2023 — Press Release

Advocates Call On Federal Housing Agency (FHA) and the Consumer Financial Protection Bureau (CFPB) to Prevent Additional Home Losses

WASHINGTON – There are roughly 480,000 reverse mortgages currently outstanding in the United States and this number is expected to grow as baby boomers age. But a new report, Unmet Promises: Reverse Mortgage Servicing Challenges and How to Preserve Housing Stability for Older Adults, finds that reverse mortgages end in foreclosure much more often than they should.

Reverse mortgage loans, available to borrowers over age 62, are meant to make it easier for older homeowners to age in place by allowing them to borrow against the equity in the home without any required monthly loan payment. The vast majority of reverse mortgage loans are insured by the Federal Housing Administration (FHA).

“The FHA reverse mortgage program has not lived up to its full potential,” said Sarah Bolling Mancini, staff attorney at the National Consumer Law Center and primary author of the report. “Based on the information uncovered in this report, it is imperative that the FHA and the CFPB act quickly to prevent any additional home losses in vulnerable populations.”

The crisis of preventable reverse mortgage foreclosures does not impact all communities equally. Historically, people of color have been more likely to take out reverse mortgages, due to the legacy of discrimination and policies that limited their wealth-building opportunities, and they are also more likely to end up in reverse mortgage foreclosure. When it comes to addressing the racial wealth gap and racial homeownership gap, reducing the number of preventable reverse mortgage foreclosures is an important and necessary step.

“The goal of increasing racial equity in homeownership demands attention to home preservation in addition to opening the door to new homebuyers of color,” said Odette Williamson, Director of NCLC’s Racial Justice Initiative. “Preventing reverse mortgage foreclosures is one crucial step in that process, as this report shows.”

Through in-depth, qualitative interviews with advocates—legal services attorneys and housing counselors who represent reverse mortgage borrowers facing the risk of foreclosure— the report identifies the most common reasons for default, including communications issues with servicers and barriers to obtaining repayment plans. The authors provide recommendations for changes by the Federal Housing Administration (FHA), including:

Allow flexibility in property charge loss mitigation policies
Require a loss mitigation review

The Consumer Financial Protection Bureau (CFPB) also has a role to play in maximizing the success of the reverse mortgage program and preventing unnecessary foreclosures. Our recommendations to the CFPB include the following policy changes:

Include reverse mortgages in the Real Estate Settlement Procedures Act (RESPA) mortgage servicing rules, to provide key protections for loss mitigation
Work with FHA on standards for effective, plain language communications with reverse mortgage borrowers
Prioritize reverse mortgage servicer supervision and enforcement

“Reverse mortgage loans fill an important gap in the social safety net, allowing older homeowners to remain in their homes, promoting their health and wellbeing, with minimal burden to taxpayers,” added Mancini. “But with an ever-increasing number of baby boomers entering retirement in greater financial insecurity than past generations, the time to address problems with FHA’s reverse mortgage program is now. Without change, reverse mortgages won’t not live up to their significant promise.”

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