The regulator in charge of overseeing the nation’s financial services has released a report highlighting borrowers’ frustration with reverse mortgages and issued an order against a reverse lender.
In Snapshot of Reverse Mortgage Complaints December 2011 – December 2014, the Consumer Financial Protection Bureau outlined borrower frustration with understanding the terms of their loans.
The report noted that there are currently 628,000 reverse mortgages outstanding, and the number is likely to balloon in the coming years as baby boomers — many who have no retirement savings — enter retirement.
The report covers 1,200 complaints about reverse mortgage that the bureau received between Dec. 1, 2011, and the end of last year. The reverse mortgage complaints accounted for around 1 percent of all complaints received by the regulator.
“Many complaints show a mismatch between consumer expectations and the way the product functions,” the CFPB said in Monday’s statement. “Many consumers, for example, struggle with understanding how quickly their loan balance will go up and their home equity will fall.”
Among the top reverse mortgage complaints are the inability to add new borrowers to an existing loan, difficulty in obtaining information from servicers on paying off a reverse mortgage
when the borrower dies, and foreclosures arising from unpaid property taxes and homeowners insurance.
A day after releasing the report, the CFPB announced that it
issued a consent order against NewDay Financial LLC.
Fulton, Md.-based firm allegedly deceived consumers about an endorsement it received from a veterans’ organization.
In addition, NewDay allegedly participated in a scheme that paid kickbacks for referrals — in violation of the Real Estate Settlement Procedures Act.
The referral arrangement was set up through a brokering firm in 2010. NewDay paid a
$15,000 monthly licensing fee to the broker, while it also paid lead generation fees to the veterans’ organization and the broker.
In return, NewDay was named the exclusive lender for the organization.
Marketing material indicated that NewDay achieved the endorsement through high service standards and excellent value. But, according to the CFPB, the material didn’t mention the financial arrangement. This violated the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The order requires NewDay to pay a
$2 million civil money penalty.
It also requires an end to the deceptive marketing, third-party endorsements and kickback payments.
NewDay, which specializes in loans that are guaranteed by the Department of Veterans Affairs, got out of the reverse mortgage business in 2013. It handled the loans through subsidiary NewDay USA.