REVERSE MORTGAGES

Product Complexity and Consumer Protection Issues Underscore Need for Improved Controls over Counseling for Borrowers What GAO Found: HECMs can provide borrowers with multiple benefits, but they also have substantial costs and are relatively complex. HECMs allow seniors to convert their home equity into flexible cash advances while living in their homes. Additionally, the borrowers or their heirs can fully pay off the HECM by selling the home, even if the amount owed exceeds the current home value. However, HECMs also have large insurance and origination costs. Furthermore, the long-term financial implications of a HECM can be difficult to assess because the borrower’s remaining home equity depends on the amount of cash advances and interest rate and house price trends. Various federal agencies have responsibilities for protecting consumers from the misleading marketing of mortgages. Although these agencies have reported few HECM marketing complaints, GAO’s limited review of selected marketing materials for reverse mortgages found some examples of claims that were potentially misleading because they were inaccurate, incomplete, or employed questionable sales tactics. Federal agency officials indicated that some of these claims raised concerns. For example, the claim of “lifetime income” is potentially misleading because there are a number of circumstances in which the borrower would no longer receive cash advances. GAO Recommends To enhance consumer protection from potentially misleading marketing, we recommend that the Secretary of the Department of Housing and Urban Development; Chairman of the Federal Trade Commission; Chairman of the Federal Deposit Insurance Corporation; Chairman of the Board of Governors of the Federal Reserve System; Comptroller of the Currency, Office of the Comptroller of the Currency; and Director of the Office of Thrift Supervision, take steps, as appropriate, to strengthen oversight and enhance industry and consumer awareness of the types of marketing claims that we discuss in this report. These steps might include developing guidance, potentially through the Federal Financial Institutions Examination Council, to help bank examiners identify these types of claims; incorporating discussion of these claims in consumer education materials; and reviewing each advertisement we identified and referred to the appropriate agency and taking the appropriate follow-up actions. To improve HUD’s oversight of HECM counseling, we recommend that the Secretary of HUD improve the effectiveness of the agency’s internal controls so that they provide reasonable assurance of compliance with HECM counseling requirements. In doing so, HUD should take the following steps: • implement methods to verify the content and length of HECM counseling sessions; • issue detailed guidance for HECM counseling providers about how to record the amount of counseling time on the counseling certificate; • issue detailed procedures for HECM counseling providers on how to assess prospective counselees’ ability to pay for HECM counseling; and • implement internal controls to ensure that HECM providers comply with counselor referral requirements.