JUNE 28, 2012

Reverse Mortgages 

Report to Congress 
2 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Table of Contents

EXECUTIVE SUMMARY ..................................................................................... 5

E.1 Key Findings ........................................................................................ 7

E.2 The CFPB’s Role ............................................................................... 10

E.3 About this Report............................................................................. 12

1 . INTRODUCTION.........................................................................................13

2 . PRODUCT....................................................................................................16

2.1 Reverse Mortgage Product Development..................................... 17

2.2 The HECM Program.......................................................................... 18

2.3 HECM Program Requirements & Consumer Protections ............ 20

2.4 Key Product Decisions for the Prospective Borrower .................. 23

2.5 Special-purpose HECM loans.......................................................... 31

2.6 Costs and Fees .................................................................................. 33

2.7 Alternatives to Reverse Mortgages................................................. 35

3 . CONSUMERS ..............................................................................................41

3.1 Consumer Awareness, Attitudes, & Motivations........................... 42

3.2 Borrower Demographics ................................................................. 48

3.3 Borrower Behavior Differs by Segment ......................................... 57

3.4 Shifts in Borrower Usage Patterns................................................... 61

3.5 New Risks to Consumers.................................................................. 67
3 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

4 . MARKET .......................................................................................................70

4.1 Size of the Market.............................................................................. 71

4.2 A Complex Market............................................................................ 73

4.3 The HECM Market Today................................................................. 76

4.4 The Evolution of the HECM Secondary Market............................. 82

4.5 Continued Dominance of the Fixed-Rate, Lump-Sum Product and 

New Approaches to Pricing ................................................................... 90

5 . REGULATORY STRUCTURE.....................................................................100

5.1 Federal Consumer Protection Regulation ...................................101

5.2 FHA Regulation of Reverse Mortgages Through the HECM 

Program ..................................................................................................105

5.3 State-level Regulation & Oversight...............................................106

5.4 Prudential Regulator Guidance.....................................................108

5.5 Federal Reserve Board’s Proposal................................................108

6 . CONSUMER PROTECTION CONCERNS...............................................110

6.1 Reverse Mortgages are Complex Products that are Difficult for 

Consumers to Understand ...................................................................111

6.2 Advertising.......................................................................................113

6.3 Cross-selling ....................................................................................118

6.4 Counseling.......................................................................................122

6.5 Costs & Fees ....................................................................................127

6.6 Tax and Insurance Defaults............................................................129

6.7 Non-Borrower Protections .............................................................133

6.8 Fraud.................................................................................................136

6.9 Emerging Concerns........................................................................141

7 . CONCLUSION...........................................................................................146

7.1 Key Findings ....................................................................................148

7.2 The CFPB’s Role ..............................................................................150

7.3 Areas for Further Research ............................................................152

APPENDIX I: THE PROPRIETARY MARKET .................................................153

A.1 Proprietary Reverse Mortgage Products ....................................153

A.2 Product Features ...........................................................................155

A.3 Product Risks ..................................................................................156
4 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

A.4 Secondary Market..........................................................................157

APPENDIX II: DISCLOSURE FORMS............................................................158

APPENDIX III: METHODOLOGY ..................................................................175

APPENDIX IV: REVERSE MORTGAGE CONSUMER GUIDE .....................177

NOTES.............................................................................................................182
5 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Executive Summary

A reverse mortgage is a special type of home loan for older homeowners that requires 

no monthly mortgage payments. Borrowers are still responsible for property taxes and 

homeowner’s insurance. Reverse mortgages allow seniors to access the equity they 

have built up in their homes now, and defer payment of the loan until they die, sell, or 

move out of the home. Because there are no required mortgage payments on a reverse 

mortgage, the interest is added to the loan balance each month. The rising loan balance 

can eventually grow to exceed the value of the home, particularly in times of declining 

home values or if the borrower continues to live in the home for many years. 

However, the borrower (or the borrower’s estate) is generally not required to repay any 

additional loan balance in excess of the value of the home.

For most Americans, their home is the single largest asset they own. In 2009, half of 

homeowners age 62 and older had at least 55 percent of their net worth tied up in 

home equity.1 Home equity is accumulated over a lifetime of mortgage payments and 

house-price appreciation, but generally cannot be accessed without selling the home or 

taking out a loan. Reverse mortgages enable older homeowners to use that home 

equity to enjoy a more comfortable retirement without selling their home. 

Reverse mortgages are not the only option for accessing home equity without selling 

the home, however. Traditional home equity loans and home equity lines of credit 

(HELOCs) are possibilities. Reverse mortgages offer a different set of benefits, costs, 

and risks to the borrower than home equity loans or HELOCs. Reverse mortgages 

generally are easier to qualify for than home equity loans or HELOCs, which require 

adequate income and credit scores. Reverse mortgages do not require monthly 

mortgage payments and offer several important financial protections, but they have 

higher costs. Home equity loans and HELOCs have required monthly payments and 

offer fewer financial protections for the borrower, but they have lower costs.

Today, the market for reverse mortgages is very small. Only about 2 percent to 3

percent of eligible homeowners currently have a reverse mortgage, and only about 

70,000 new reverse mortgages are originated each year.2 But reverse mortgages have 

the potential to become a much more prominent part of the financial landscape in the 

coming decades. In 2008, the first baby boomers became eligible for reverse 
6 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

mortgages. The baby boom generation (48- to 66-year-olds in 2012) includes more 

than 43 million households, of which about 32 million are homeowners.3 As of 2009, 

the median home equity for baby boomer households was $108,000.4

Nearly all reverse mortgages today are insured by the Federal Housing Administration 

(FHA)a through its Home Equity Conversion Mortgage (HECM) program. The 

insurance guarantees that borrowers will be able to access their authorized loan funds 

in the future, subject to the terms of the loan, even if the loan balance exceeds the 

value of the home or if the lender experiences financial difficulty. Lenders are 

guaranteed that they will be repaid in full when the home is sold, regardless of the loan 

balance or home value at repayment. Borrowers or their estates are not liable for loan 

balances that exceed the value of the home at repayment – FHA insurance covers this 

risk.

The original purpose envisioned for reverse mortgages was to convert home equity 

into cash that borrowers could use to help meet expenses in retirement. Borrowers 

could choose between an income stream for everyday expenses, a line of credit for 

major expenses (such as home repairs and medical expenses), or a combination of the 

two. It was anticipated that most, though not all, borrowers would use their loans to 

age in place, living in their current homes for the rest of their lives or at least until they 

needed skilled care. Upon the borrower’s death, or upon leaving the home, the 

borrower or the estate would sell the home to repay the loan and would receive any 

remaining home equity.

Yet most of today’s reverse mortgage borrowers do not use their loans to convert 

home equity into an income stream or a line of credit. Borrowers also do not typically 

live in their current homes until the end of their lives. Borrowers today are increasingly 

taking the full amount for which they qualify upfront as a lump sum. In many cases, 

borrowers are using that money to refinance an existing mortgage or other debt early 

in their retirement or even before reaching retirement. By refinancing with a reverse 

mortgage, these borrowers eliminate their monthly mortgage or debt payments, but the 

interest on the loan will chip away at their remaining home equity over time. In other 

cases, borrowers may be saving or investing the lump-sum proceeds, and may be 

earning less than they are paying in interest. 

The range of products offered, the structure of the reverse mortgage market, and the 

consumers who use reverse mortgages have all changed dramatically in recent years. In 

 

a The FHA is a part of the U.S. Department of Housing and Urban Development (HUD). 
7 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

the past, government investigations and consumer advocacy groups raised significant 

consumer protection concerns about the business practices of reverse mortgage

lenders and other companies in the reverse mortgage industry. The new products in 

the market and the new ways that consumers are using reverse mortgages today add to 

the risks facing consumers. 

It is within this context that Congress directed the Consumer Financial Protection 

Bureau (CFPB) to conduct a study on reverse mortgages as part of the Dodd-Frank 

Wall Street Reform and Consumer Protection Act.5 In designing the study, the CFPB’s 

objectives were to (1) provide an authoritative resource on reverse mortgage products, 

consumers, and markets; (2) identify and assess consumer protection concerns; and (3) 

explore critical unanswered questions and update the public body of knowledge to 

reflect new market realities. This report presents the findings from that study. 

This report examines the changes that have taken place in the marketplace and in the 

consumers who use reverse mortgages. The report places these changes within the 

broader context of the factors affecting consumer decision-making in a market poised 

to grow in reach and impact.

This report also examines consumer protection concerns that have been raised in the 

past and identifies emerging concerns. 

E.1 KEY FINDINGS

1. Reverse mortgages are complex products and difficult for consumers to 

understand.

• Lessons learned from the traditional mortgage market do not always 

serve consumers well in the reverse mortgage market. The rising 

balance, falling equity nature of reverse mortgages is particularly 

difficult for consumers to grasp. 

• Recent innovation and policy changes have created more choices for 

consumers, including options with lower upfront costs. However, 

these changes have also increased the complexity of the choices and 

tradeoffs consumers have to make.

• The tools – including federally required disclosures – available to 

consumers to help them understand prices and risks are insufficient to 

ensure that consumers are making good tradeoffs and decisions.

2. Reverse mortgage borrowers are using the loans in different ways than 

in the past, which increase risks to consumers. 
8 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

• Reverse mortgage borrowers are taking out loans at younger ages than 

in the past. In FY2011, nearly half of borrowers were under age 70. 

Taking out a reverse mortgage early in retirement, or even before 

reaching retirement, increases risks to consumers. By tapping their 

home equity early, these borrowers may find themselves without the 

financial resources to finance a future move – whether due to health 

or other reasons.

• Reverse mortgage borrowers are withdrawing more of their money 

upfront than in the past. In FY2011, 73 percent of borrowers took all 

or almost all of their available funds upfront at closing. This 

proportion has increased by 30 percentage points since 2008. 

Borrowers who withdraw all of their available home equity upfront 

will have fewer resources to draw upon to pay for everyday and major 

expenses later in life. Borrowers who take all of their money upfront 

are also at greater risk of becoming delinquent on taxes and/or 

insurance and ultimately losing their homes to foreclosure.

• Fixed-rate, lump-sum loans now account for about 70 percent of the 

market. The availability of this product may encourage some 

borrowers to take out all of their funds upfront even though they do 

not have an immediate need for the funds. In addition to having 

fewer resources to draw upon later in life, these borrowers face other 

increased risks. Borrowers who save or invest the proceeds may be 

earning less on the savings than they are paying in interest on the 

loan, or they may be exposing their savings to risky investment 

choices. These borrowers also face increased risks of being targeted 

for fraud or other scams.

• Reverse mortgage borrowers appear to be increasingly using their 

loans as a method of refinancing traditional mortgages rather than as a 

way to pay for everyday or major expenses. Some borrowers may 

simply be prolonging an unsustainable financial situation. 

3. Product features, market dynamics, and industry practices also create 

risks for consumers.

• A surprisingly large proportion of reverse mortgage borrowers (9.4

percent as of February 2012) are at risk of foreclosure due to 

nonpayment of taxes and insurance. This proportion is continuing to 

increase.

• Misleading advertising remains a problem in the industry and 

increases risks to consumers. This advertising contributes to 

consumer misperceptions about reverse mortgages, increasing the 

likelihood of poor consumer decision-making.

• Spouses of reverse mortgage borrowers who are not themselves 

named as co-borrowers are often unaware that they are at risk of 

losing their homes. If the borrowing spouse dies or needs to move, 
9 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

the non-borrowing spouse must sell the home or otherwise pay off 

the reverse mortgage at that time. Other family members (children, 

grandchildren, etc.) who live with reverse mortgage borrowers are also 

at risk of needing to find other living arrangements when the 

borrower dies or needs to move.

• The reverse mortgage market is increasingly dominated by small 

originators, most of which are not depository institutions. The 

changing economic and regulatory landscape faced by these small 

originators creates new risks for consumers. 

4. Counseling, while designed to help consumers understand the risks 

associated with reverse mortgages, needs improvement in order to be 

able to meet these challenges.

• Reverse mortgages are inherently complicated, and the new array of 

product choices makes the counselor’s job much more difficult. 

Counselors need improved methods to help consumers better 

understand the complex tradeoffs they face in deciding whether to get 

a reverse mortgage.

• Funding for housing counseling is under pressure, making access to 

high-quality counseling more difficult. Some counselors may 

frequently omit some of the required information or speed through

the material.

• Some counseling agencies only receive payment if and when the 

reverse mortgage is closed (the counseling fee is paid with loan 

proceeds), which could undermine counselors’ impartiality.

• Some borrowers may not take the counseling sessions seriously. 

Additional consumer awareness and education may be necessary. 

• Counseling may be insufficient to counter the effects of misleading 

advertising, aggressive sales tactics, or questionable business practices. 

Stronger regulation, supervision of reverse mortgage companies, and 

enforcement of existing laws may also be necessary.

5. Some risks to consumers appear to have been adequately addressed by 

regulation, but remain a matter for supervision and enforcement, while 

other risks still require regulatory attention. 
10 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

• Cross-selling,b previously a top consumer protection concern, appears 

to have been considerably dampened as a result of federal legislation, 

though some risks remain. Strong supervision and enforcement is 

necessary to ensure that industry participants abide by existing laws.

• The risk of fraud and other scams is heightened for this population.

Vigorous enforcement is necessary to ensure that older homeowners 

are not defrauded of a lifetime of home equity.

• Special disclosures are required for reverse mortgages, but existing 

disclosures are quite difficult for consumers to understand. 

• There are general prohibitions against deceptive advertising, but there 

are no specific federal rules governing deceptive advertising with 

respect to reverse mortgages.

E.2 THE CFPB’S ROLE

Under the Dodd-Frank Act, rulemaking and interpretive authority for consumer 

protection laws and regulations that apply to mortgages transferred to the CFPB on 

July 21, 2011.6 The Dodd-Frank Act authorizes the CFPB to issue regulations it 

determines, as a result of this reverse mortgage study, are necessary or appropriate to 

accomplish the purposes of the Act. These regulations may include providing 

integrated disclosures and identifying practices as unfair, deceptive, or abusive.7 The 

CFPB also has authority to supervise nonbank reverse mortgage companies and larger 

depository institutions and credit unions for compliance with federal consumer 

financial protection laws. 

The findings of the study reveal several areas where the CFPB can play a role to 

protect consumers from risks posed by reverse mortgages and to help consumers make 

better decisions about reverse mortgages. 

1. The CFPB can issue regulations under the federal consumer protection laws 

addressed specifically to protecting consumers considering a reverse mortgage. 

• The CFPB expects to undertake a project to improve and integrate 

TILA and RESPA disclosure requirements for reverse mortgages so 

 

b Cross-selling occurs when a lender or mortgage broker requires or convinces a reverse mortgage borrower to purchase 

another financial product (e.g., an annuity, insurance policy, or investment product) with the proceeds of the reverse 

mortgage loan. 
11 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

that consumers can know before they owe when considering a reverse 

mortgage.

• As part of this project, the CFPB will consider the 2010 proposal by

the Board of Governors of the Federal Reserve System regarding 

reverse mortgages. The proposal would have placed limits on 

misleading advertising, improved disclosures, and closed regulatory 

gaps related to cross-selling, among other things.8

• The CFPB will also consider whether other regulations are necessary 

and appropriate to protect consumers in the reverse mortgage market.

2. The CFPB can develop improved approaches to engage consumers 

considering a reverse mortgage and empower them to make better informed 

decisions. 

• The CFPB will continue to learn from stakeholders and counselors to 

better understand the primary obstacles to good consumer decisionmaking about reverse mortgages. 

• The CFPB will explore improved methods and approaches for 

helping consumers compare products, understand costs and risks, and 

evaluate tradeoffs.

3. The CFPB can monitor the market for unfair, deceptive, or abusive practices 

and compliance with existing laws.

• The CFPB will take enforcement and supervisory actions if necessary.

4. The CFPB can accept complaints from consumers and work to resolve

those complaints. 

• The CFPB is currently accepting reverse mortgage complaints 

through the web at www.consumerfinance.gov, phone at 1-855-411-

CFPB, and mail.

• The CFPB’s Consumer Response team works with lenders, servicers, 

and other related companies to resolve consumer complaints and 

answer consumer inquiries.

5. The CFPB can work with the Department of Housing and Urban 

Development (HUD), the parent agency of the FHA, to develop solutions to 

issues identified in this report over which HUD has influence.

• The CFPB welcomes the opportunity to strengthen its partnership 

with HUD and improve outcomes for consumers. 
12 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

E.3 ABOUT THIS REPORT

This report is organized into an introductory chapter, five main chapters – Product, 

Consumers, Market, Regulatory Structure, and Consumer Protection Concerns – and a 

final summary chapter. 

Product. Contains HECM program requirements, key product options, costs 

and fees, and alternatives to reverse mortgages.

Consumers. Includes consumer motivations for using the product, borrower 

demographics, and an in-depth exploration of the ways borrower behavior has 

changed over the past two decades and how borrower behavior differs 

between different types of borrower.

Market. Discusses market volume, market dynamics, and the relationship 

between the secondary market and the primary market. 

Regulatory Structure. Highlights the major federal and state consumer 

protection regulations and oversight mechanisms.

Consumer Protection Concerns. Assesses a range of concerns related to 

consumer protection in the reverse mortgage market. 
13 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

1. Introduction

A reverse mortgage is a special type of home equity loan for older homeowners that 

requires no monthly mortgage payments. Borrowers are still responsible for property 

taxes and homeowner’s insurance. Reverse mortgages allow seniors to access the equity 

they have built up in their homes now, and defer payment of the loan until they die, sell, 

or move out of the home.c These loans are called “reverse” mortgages because in many 

ways they function “in reverse” as compared to the traditional “forward” mortgages 

most homeowners use to purchase their homes. With a traditional mortgage, 

borrowers’ home equity increases and the loan balance decreases over time as the 

borrower makes payments to the lender. With a reverse mortgage, borrowers’ home 

equity decreases and the loan balance increases over time as borrowers receive cash 

payments from the lender and interest accrues on the loan. 

Because there are no required monthly payments on a reverse mortgage, the interest is 

added to the loan balance each month. The rising loan balance can eventually grow to 

exceed the value of the home, particularly in times of declining home values or if the 

borrower continues to live in the home for many years. However, the borrower (or the 

borrower’s estate) is generally not required to repay any additional loan balance in 

excess of the value of the home.9 

For most Americans, their home is the single largest asset they own. In 2009, half of 

homeowners age 62 and older had more than 55 percent of their net worth tied up in 

home equity.10 Home equity is accumulated over a lifetime of mortgage payments and 

house-price appreciation, but generally cannot be accessed without selling the home or 

taking out a loan. Reverse mortgages enable older homeowners to use that home 

equity to enjoy a more comfortable retirement without selling their home. 

 

c Reverse mortgage borrowers must also meet certain obligations, such as remaining current on property taxes and 

insurance, maintaining the home in good repair, and living in the home as their primary residence. Borrowers who fail to 

meet these obligations can face foreclosure. This risk is discussed in more detail in Section 6.6.
14 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Reverse mortgages are not the only option for accessing home equity without selling 

the home, however. Traditional home equity loans or home equity lines of credit 

(HELOCs) are also possibilities. Reverse mortgages offer a different set of benefits, 

costs, and risks to the borrower than home equity loans or HELOCs. Reverse 

mortgages are generally easier to qualify for than home equity loans or HELOCs, 

which require adequate income and credit scores in order to qualify. Reverse 

mortgages do not require monthly mortgage payments and offer several important 

financial protections, but they have higher costs. Home equity loans and HELOCs 

have required monthly payments and offer fewer financial protections for the 

borrower, but they have lower costs.11 

The vast majority of reverse mortgages are insured by the Federal Housing 

Administration (FHA)d as part of its Home Equity Conversion Mortgage (HECM) 

program.12 The FHA insurance guarantees that borrowers will be able to access their 

authorized loan funds in the future (subject to the terms of the loan), even if the loan 

balance exceeds the value of the home or if the lender experiences financial difficulty. 

Lenders are guaranteed that they will be repaid in full when the home is sold, 

regardless of the loan balance or home value at repayment. Borrowers or their estates 

are not liable for loan balances that exceed the value of the home at repayment – FHA 

insurance covers this risk.

Today, the market for reverse mortgages is very small. Only about 2 to 3 percent of 

eligible homeowners choose to take out a reverse mortgage. 13 Only about 582,000

HECM loans are outstanding as of November 2011, as compared to more than 50 

million traditional mortgages and more than 17 million home equity loans and lines of 

credit.14 But reverse mortgages have the potential to become a much more prominent 

part of the financial landscape in the coming decades. In 2008, the first baby boomers 

became eligible for reverse mortgages. The baby boom generation (48- to 66-year-olds 

in 2012) includes more than 43 million households, of which about 32 million are 

homeowners.15 As of 2009, the median home equity for baby boomer households was 

$108,000.16 Many boomers may find that they will need to use their home equity in 

order to maintain the lifestyle they expect to have in retirement. 

The range of products offered, the structure of the reverse mortgage market, and the 

consumers who use reverse mortgages have all changed dramatically in recent years. In 

the past, government investigations and consumer advocacy groups have raised 

significant consumer protection concerns about the business practices of reverse 

 

d The FHA is a part of the U.S. Department of Housing and Urban Development (HUD). 
15 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

mortgage lenders and other companies in the reverse mortgage industry. New products 

in the market and new ways that consumers are using reverse mortgages today add to 

the risks facing consumers.

It is within this context that Congress directed the Consumer Financial Protection 

Bureau (CFPB) to conduct a study on reverse mortgages as part of the Dodd-Frank 

Wall Street Reform and Consumer Protection Act.17 In designing the study, the 

CFPB’s objectives were to (1) provide an authoritative resource on reverse mortgage 

products, consumers, and markets; (2) identify and assess consumer protection 

concerns; and (3) explore critical unanswered questions and update the public body of 

knowledge to reflect new market realities. This report presents the findings from that 

study. 

This report examines the changes that have taken place in the marketplace and in the 

consumers who use reverse mortgages. The report places these changes within the 

broader context of the factors affecting consumer decision-making in a market poised 

to grow in reach and impact.

This report also examines consumer protection concerns that have been raised in the 

past and identifies emerging concerns. 
16 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

2. Product

Today, all but a handful of reverse mortgages are insured by the Federal Housing 

Administration (FHA)e as part of its Home Equity Conversion Mortgage (HECM) 

program. The HECM program started in 1989 as a small pilot program, was made 

permanent in 1998, and currently insures about 70,000 reverse mortgage loans per 

year. 

Many of the original product design concepts for the HECM program were developed 

during the 1980s by private companies offering proprietary (non-government insured) 

reverse mortgages of various types. Throughout the 1990s, when the HECM program 

was still a small pilot, and again in the mid-2000s, in the midst of the housing boom, a 

range of proprietary products were available in the marketplace. For most consumers, 

however, the HECM offered a better value. Today, only one lender offers a proprietary 

product, which accounts for only a handful of loans per year. 

The HECM program determines how much can be borrowed based on the value of 

the home, prevailing interest rates, and the age of the borrower (or youngest coborrower). The loans require no monthly mortgage payments. Interest and fees are 

added to the principal balance each month, resulting in a rising loan balance over time. 

Borrowers may remain in the home indefinitely, even if the loan balance becomes 

greater than the value of the home – so long as the borrower meets certain conditions. 

In return for this protection, and protection against the possibility that their lender fails 

to make loan disbursements as agreed, borrowers pay a mortgage insurance premium 

(MIP) to FHA. 

HECM borrowers have several options as to the structure of the MIP, the interest rate 

type (fixed or adjustable), and the way that they receive their loan proceeds. The range 

of options has increased in recent years, adding to the difficulty of the choices that 

 

e The FHA is a part of the U.S. Department of Housing and Urban Development (HUD). 
17 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

prospective borrowers have to make around what is already a complex product. 

Prospective borrowers are required to attend mandatory pre-loan counseling, but the 

counseling may not be sufficient to fully equip prospective borrowers to make good 

decisions.

2.1 REVERSE MORTGAGE PRODUCT DEVELOPMENT

The first reverse mortgage in the U.S. was made in 1961 by a savings and loan 

company in Portland, Maine.18 Throughout the next several decades, policymakers and 

mortgage companies explored ways for older homeowners to access their home 

equity.19 In comparison to traditional mortgages that are limited by a number of years, 

reverse mortgages posed an “uncommon combination of risks” that could be difficult 

for lenders to assess.20 

American Homestead took on these risks in 1984 with the first tenure-based reverse 

mortgage product.21 Rather than setting a fixed term for the mortgage, American 

Homestead allowed the loan to stay in place until the borrower stopped occupying the 

home.22 This tenure-based product provided the baseline for government-insured 

reverse mortgages. Senator John Heinz issued a proposal for FHA reverse mortgage 

insurance in 1983, and Congress ultimately passed a pilot program for HECMs in 

1987.23 

In 1988, President Ronald Reagan signed the act authorizing the FHA to insure reverse 

mortgages through the newly created HECM pilot program.24 During the program’s 

first decade, less than 40,000 HECM loans were made.25 At the same time, lenders 

were experimenting with various proprietary, or non-government insured reverse 

mortgage product offerings. In 1998, the HECM program was authorized permanently 

and the FHA-insured product quickly came to dominate the market.26 Throughout the 

early- to mid-2000s, rising home values and rapid increases in annual HECM 

production led lenders to again experiment with proprietary products, but volume 

remained small relative to the FHA’s HECM program. At the peak of the real estate 

boom, perhaps 5 percent to 10 percent of reverse mortgages were proprietary 

products.27 Today, only a handful of reverse mortgages are originated outside the 

HECM program.

Historically, proprietary lenders have struggled to compete with the amount of 

authorized loan proceeds offered in the HECM program. Proprietary products have 

typically only appealed to borrowers with high home values and/or borrowers who did 

not want to pay the high upfront MIP.28 The proprietary market has all but 

disappeared today for two reasons: The overall housing market collapse that halted 

private mortgage securitizations; and recent changes to the HECM program that have 

made the HECM program more appealing to both consumer segments previously 

targeted by proprietary products. 
18 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Only one lender, Generation Mortgage, currently offers proprietary reverse mortgages. 

This product, called the Generation Plus loan, is aimed at the jumbo market with a 

minimum borrower age of 62 and a loan limit of $6 million.29 The product is only 

available as a fixed-rate, lump-sum loan and carries an 8.875 percent interest rate and 

an origination fee of 1.5 percent of the initial principal balance.30 Only 51 loans totaling 

about $48 million have been originated since this product was created in July 2010.31 

Appendix I contains more detailed information about the proprietary products offered 

before the market collapse and the market dynamics present at that time. 

2.2 THE HECM PROGRAM

FHA insurance provides protections to both the lender and the borrower. Lenders are 

guaranteed that they will be repaid in full when the home is sold, regardless of the loan 

balance or home value at repayment. Borrowers are guaranteed that they will be able to 

access their authorized loan funds in the future (subject to the terms of the loan), even 

if the loan balance exceeds the value of the home or if the lender experiences financial 

difficulty. Borrowers or their estates are not liable for loan balances that exceed the 

value of the home at repayment – FHA insurance covers this risk. Figure 1 details the 

major features of HECM loans.

Figure 1: Key HECM features and requirements

Features & Requirements

Eligibility age Borrower (or youngest co-borrower) must be at least 62 years old.

Home value All homes are eligible, but FHA loan limits cap the amount of authorized loan proceeds 

on homes valued more than $625,500.

Authorized loan 

proceeds 

At today’s interest rates, borrowers receive between 51% and 77% of the appraised 

home value (or FHA loan limit, whichever is less) depending on age and product choice.

Mortgage 

Insurance Premium 

(MIP)

Upfront: 2% or 0.01% of home value (or FHA loan limit, whichever is less), depending 

on product choice.

Ongoing: 1.25% per year on outstanding loan balance, assessed monthly.

Guarantee to 

borrowers

FHA guarantees borrowers that if the lender fails to make payments to the borrower as 

agreed, the FHA will make those payments on behalf of the lender.

Consumer 

protections

Mandatory pre-loan counseling; limits on costs and fees; right to remain in the home 

(subject to certain conditions); nonrecourse loan.

Protection for 

lenders/investors

FHA insurance guarantees that lenders/investors will be repaid in full, subject to certain 

conditions.
19 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

2.2.1 RECENT CHANGES TO THE HECM PROGRAM

In 2008, FHA issued guidance clarifying that fixed-rate HECMs could be structured as 

closed-end loans, which enabled the development of a fixed-rate, lump-sum product.32

In 2009, Congress increased the loan limit on HECM loans to $625,500. 33 This limit is

still in effect today. In 2009 and 2010, FHA made changes to the amount of loan 

proceeds borrowers could receive and the pricing of the ongoing MIP. In 2010, FHA 

introduced a new product, the HECM Saver, which offers a lower upfront MIP in 

exchange for lower loan proceeds. 

2.2.1a Fixed-rate, closed-end HECMs

Historically, all HECMs were structured as open-end loans,f which meant that in 

practice nearly all HECMs carried an adjustable interest rate.34 On March 28, 2008, 

FHA issued new guidance stating that fixed-rate HECMs could be structured as 

closed-end loans.g, 35 This regulatory clarification enabled the development of a fixedrate, closed-end HECM in which borrowers are required to take all of their available

proceeds as a lump sum at closing. This product now comprises about 70 percent of 

new HECM originations. The product is discussed in greater detail in Section 2.4.2. 

The factors that led to its development and market dominance are discussed in detail 

in the Market chapter. 

2.2.1b Change in loan limits

Historically, individuals with high home values received lower proceeds from HECM 

loans than they do today. FHA used a set of loan limits that varied by county and 

ranged from $200,160 to $362,790 as of 2007.

36 Despite its name, the loan limit capped 

the value of the home used to calculate proceeds, which in turn limited the amount of 

loan proceeds the borrower could obtain. Prospective borrowers with homes valued 

higher than the applicable limit could still obtain a HECM loan, but the amount they 

could borrow would be determined based on the loan limit rather than on the 

appraised value of the home.

In the Housing and Economic Recovery Act of 2008 (HERA), Congress replaced 

county-based loan size limits with a single national limit of $417,000.37 In the American 

 

f

In an open-end loan (e.g., a line of credit), additional amounts can be borrowed after closing subject to the conditions of the 

loan. Any lender wanting to offer a fixed-rate HECM had to be willing to lend new money in the future at an interest rate fixed 

at origination. Few lenders were willing to take this risk.

g In a closed-end loan, the loan is for a fixed amount and additional principal amounts cannot be borrowed after closing. 
20 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Recovery and Reinvestment Act (ARRA) passed in February 2009, Congress 

temporarily raised the nationwide loan limit to $625,500.38 This temporary increase has 

been extended several times and is currently set to expire on December 31, 2012.39 If 

extensions of the $625,500 limit are not implemented in the future, the program would 

revert to the $417,000 national loan limit. As of 2009, the median home value for 

homeowners age 62 and older was $160,000.40 Less than 10 percent of homeowners 

age 62 and older have home values greater than the current FHA limit of $625,500.41

2.2.1c Change in loan proceeds & mortgage insurance premiums

The FHA has twice lowered the amount that borrowers can receive in loan proceeds, 

first in October 2009 and again in October 2010.42 These changes were made in 

response to falling home values in an effort to improve the financial situation of the 

FHA insurance fund.43 Additionally, in October 2010, FHA increased the ongoing 

MIP assessed monthly on the outstanding loan balance from 0.5 percent to 1.25

percent per year.44

2.2.1d HECM Saver

Historically, FHA charged an upfront MIP of 2 percent of the appraised value of the 

home (or the applicable FHA loan limit, whichever is less), regardless of the balance of 

the loan at closing. On October 4, 2010, FHA introduced a new product option, the 

HECM Saver. It offers borrowers the option to virtually eliminate the upfront MIP –

paying only 1/100th of 1 percent of the appraised value or applicable FHA loan limit –

in exchange for lower proceeds.45 This new option is discussed in greater detail below 

in Section 2.4.1.

2.3 HECM PROGRAM REQUIREMENTS & CONSUMER PROTECTIONS

HECM borrowers must meet certain program eligibility requirements as well as meet 

certain ongoing obligations as a condition of the loan.

2.3.1 PROGRAM ELIGIBILITY REQUIREMENTS

Prospective borrowers must meet several requirements in order to be eligible for a 

HECM reverse mortgage.

1. Age: The borrower (or youngest co-borrower) must be at least 62 years old.

46

2. Ownership: The borrower must hold title to the property.47

3. Principal residence: The borrower must occupy the property as a principal 

residence. 48
21 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

4. Sole mortgage: Any existing mortgages (including home equity loans and 

HELOCs) on the property must be paid off at or before closing. HECM 

borrowers may use HECM proceeds to pay off an existing mortgage at 

closing.49 

5. Property standards: The property must meet minimum housing quality 

standards as prescribed by FHA. If the property does not meet these 

standards, it must be repaired either prior to closing or shortly thereafter.50

2.3.2 ONGOING OBLIGATIONS

As a condition of the loan, borrowers are required to continue to live in the home as 

their principal residence, pay property taxes and insurance, and maintain the property 

in good repair.

1. Principal residence: The borrower must continue to occupy the property as 

a principal residence. For co-borrowers, at least one borrower must continue 

to occupy the property as a principal residence. If the borrower (or last 

remaining co-borrower) lives someplace else for more than 12 months, the 

reverse mortgage may become due and payable. If the borrower does not 

repay the loan as requested, the lender can foreclose on the home.51

2. Taxes & insurance: The borrower must remain current on all property taxes 

and homeowner’s insurance.52 If the borrower fails to pay property taxes or 

maintain current homeowner’s insurance, and fails to bring these accounts 

current when notified, the lender can foreclose and the borrower could lose 

their home.53

3. Maintenance: The borrower must keep the home in good repair. If the home 

falls into bad repair and the borrower does not make repairs when requested, 

the loan may become due and payable, and the lender may ultimately foreclose 

upon the home. 54

2.3.3 CONSUMER PROTECTIONS

HECM loans include several consumer protections:

1. Right to remain in the home: The borrower may live in the home 

indefinitely, regardless of how large the loan balance becomes, so long as the 

borrower complies with the three obligations listed in Section 2.3.2. For coborrowers, if one borrower were to die, the surviving co-borrower would have 

the same right to live in the home indefinitely, provided the co-borrower 

continues to comply with the obligations in Section 2.3.2.

2. FHA-approved lender: Only FHA-approved lenders may make HECM 

loans.
22 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

3. Non-recourse: If the loan balance is greater than the value of the home at the 

time of the borrower’s death, move-out, or foreclosure due to noncompliance 

with loan obligations, the lender cannot seek to recover the additional loan 

balance from the borrower’s (or the estate’s) other assets.55 FHA insurance is 

designed to cover this excess loan balance.

4. No prepayment penalty: Borrowers may repay some or all of their loan at 

any time without being charged a prepayment penalty.56

5. Counseling: The borrower must receive counseling from a FHA-approved, 

independent third-party counseling agency prior to origination.57

6. Disclosures: FHA requires an extensive array of disclosures.58 

2.3.4 REPAYMENT TRIGGERS

HECM loans can be declared due and payable when any of the following events 

occur:59

1. Death: The borrower (or last co-borrower) dies.

2. Move-out: The borrower (or last co-borrower) moves out of the home 

permanently. 

3. Extended absence: The borrower (or last co-borrower) does not physically 

reside in the property for more than 12 months due to illness or other reasons.

4. Sale or gift of the property: The borrower (or last co-borrower) sells the 

property or otherwise transfers the title to a third party.

5. Failure to fulfill obligations: The borrower fails to pay taxes and insurance 

or to keep the home in good repair. The lender will give the borrower the 

opportunity to correct the problem prior to declaring a loan due and payable. 

Once a loan has been declared due and payable, the borrower or the borrower’s estate 

has six months to repay the loan, typically by selling the home.60 If the balance of the 

loan is greater than the sales proceeds (subject to FHA procedures to ensure that the 

sales proceeds reflect the value of the home), the borrower or the estate does not have 

to pay the difference.h, 61 If the borrower or the estate fails to sell the property or 

 

h If the borrower or the borrower’s estate wants to retain the home and pay off the loan using other assets, the borrower’s 

estate may settle the loan by paying the lesser of the loan balance or 95 percent of the appraised value of the home. See 

Section 6.7.2.
23 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

otherwise repay the loan within six months, the lender is required to start foreclosure 

proceedings.62

2.4 KEY PRODUCT DECISIONS FOR THE PROSPECTIVE BORROWER

The first decision consumers have to make is whether a reverse mortgage is right for 

their situation, or whether another product or course of action might be more suitable. 

Having decided upon a reverse mortgage, prospective HECM borrowers have an array 

of choices to make about what kind of loan they would like. 

1. Loan type: The original HECM Standard product or the new HECM Saver 

product, which offers lower proceeds and lower upfront fees.

2. Payment of loan proceeds: Lump-sum, line-of-credit, monthly disbursement 

plan, or a combination.

3. Interest rate: Adjustable-rate or fixed-rate.

2.4.1 LOAN TYPE OPTIONS

The first key choice is between the original HECM Standard loan and the new HECM 

Saver loan. The HECM Standard offers higher loan proceeds with higher upfront 

costs, while the HECM Saver offers lower upfront costs and lower loan proceeds.

Figure 2 illustrates these differences.

During the Saver’s first year, 6.0 percent of consumers applying for HECM loans 

chose that loan option. 63 Adjustable-rate borrowers and older borrowers were much 

more likely to choose the Saver products. These differences are discussed in more 

detail in Section 3.3.2. 
24 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 2: Key differences between Standard and Saver HECMs

Loan type

Features HECM Standard HECM Saver

Upfront Mortgage 

Insurance Premium 

(MIP)

• 2.0% of appraised value*

• Example: $4000

• 0.01 of appraised value*

• Example: $200

Loan proceeds

• Larger. • Smaller. 

• Maximum loan proceeds 

range from 62% to 77% of 

appraised value*, depending 

on age, at today’s interest 

rates.**

• Example: $130,400

• Maximum loan proceeds range 

from 51% to 61% of appraised 

value*, depending on age, at 

today’s interest rates.**

• Proceeds are 12.6 percentage 

points lower on average across 

all ages and interest rates

• Example: $108,600

* Or applicable FHA loan limit, whichever is less. **Using a 5% interest rate (see footnote i).

Example uses a $200,000 home, a 68-year-old borrower, and a 5% interest rate.

2.4.1a Calculating loan proceeds

The amount of loan proceeds a HECM borrower is authorized to receive depends on 

the borrower’s age, the interest rate on the loan,i and the value of the home (or FHA 

loan limit, whichever is less). The complex formula is determined by FHA and 

standardized across lenders. All other things being equal, younger borrowers receive 

lower proceeds than older borrowers. Borrowers choosing the Saver product receive 

lower proceeds than borrowers choosing the Standard product. Borrowers with higher 

interest rates will also receive lower proceeds in most cases.64 Proceeds are calculated 

as a percentage of home value (or FHA loan limit, whichever is less), so higher home 

values will yield higher proceeds measured in dollars.

 

i

Interest rate refers to the rate used to underwrite the loan for proceeds. For fixed-rate loans, this is the interest rate on the 

loan. The interest rate used to determine proceeds for adjustable-rate HECMs is known as the “expected rate” and is 

calculated using a 10-year index (plus the lender’s margin) in lieu of the 1-month or 1-year interest rate actually used in 

calculating the interest rate on the loan. Nearly all adjustable-rate loans today use the 1-month LIBOR index, plus the lender’s 

margin, to calculate the interest on the loan. These loans use the 10-year LIBOR Swap rate, plus the same margin, to 

determine the expected rate.
25 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

FHA publishes a series of “principal limit factors” for every combination of interest 

rates from 5 to 10 percent (in 0.125 percent increments) and borrower age from 62 to 

90, separately for the Standard and Saver programs.65 The principal limit factors are 

analogous to loan-to-value ratios in that, in most cases, they represent the percentage 

of the value of the home that the borrower is authorized to borrow (as calculated at 

the time of application).j For joint borrowers, the age of the youngest co-borrower is 

used. For fixed-rate products, the interest rate used to calculate proceeds is the same as 

the rate of the loan. For adjustable-rate products, a 10-year index rate is used instead of 

the actual rate of the loan (see footnote i). 

The FHA calculations that determine the principal limit factor are the result of a 

complex mathematical model combining the interest rate assumption, life expectancy 

data, and other modeling assumptions (e.g., house price appreciation). 

Figure 3 illustrates how the different inputs affect the calculated principal limit factor. 

The green lines show the principal limit factors for loans at 5 percent interest, which is 

typical of the market in 2012, while the red lines show the principal limit factors at a 

higher 8 percent interest rate. The dark lines show the principal limit factors for 

HECM Standard loans, while the light-shaded lines show the principal limit factors for 

HECM Saver. All four lines increase gradually with borrower age. 

 

j

The principal limit factor is applied to the lesser of the appraised value of the home or the applicable FHA loan limit. Thus, 

for borrowers whose home values exceed the applicable FHA loan limit, the actual loan-to-value ratio would be lower than 

the principal limit factor. The principal limit factor determines the initial authorized loan proceeds – the actual loan-to-value 

ratio will change over time with the rising loan balance and house price appreciation (or depreciation).
26 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 3: Principal limit factors* for Standard and Saver loans at 5% and 

8% interest.

Source: Published FHA Principal Limit Factors. 

Note: Interest rate refers to the rate used to underwrite the loan for proceeds. See footnote i on page 

24).

The principal limit factor is multiplied by the appraised value of the home (or the 

applicable FHA loan limit, whichever is less) to calculate the “initial principal limit,” or 

the maximum dollar amount the borrower is authorized to borrow. In practice, few 

borrowers are authorized to receive the entire initial principal limit. Most borrowers’ 

net principal limit is reduced by upfront mortgage insurance and closing costs, which 

are financed into the loan in lieu of being paid in cash at closing. Borrowers with an 

existing traditional mortgage, home equity loan, or home equity line of credit 

(HELOC) must use their reverse mortgage proceeds to pay off the other loan(s) at 

closing,66 further reducing the amount of actual cash that borrowers receive. Borrowers 

have several choices regarding how they receive their funds, which are discussed in 

Section 2.4.3. 

2.4.1b Complex trade-offs

The HECM Saver was designed as a lower-cost product for seniors who do not need 

access to as much money as the HECM Standard would provide. The tradeoffs 

between the two products are more complex than just differences in upfront costs, 

however. The HECM Saver reduces the upfront MIP from 2 percent to 0.01 percent

of the home value (or FHA loan limit, whichever is less). In today’s market, HECM 
27 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Savers generally carry interest rates one-quarter to one-half of a percentage point 

higher than HECM Standards, and both HECM Savers and HECM Standards carry 

the same 1.25 percent ongoing MIP.67 Thus, at today’s interest rates, the HECM Saver 

could cost more in interest over the life of the loan than a HECM Standard would. 

Depending on how long the borrower keeps the loan, the increased interest on a 

HECM Saver could in some cases outweigh the reduced upfront cost. 

In cases where the borrower anticipates that the loan balance at repayment could be 

greater than the home value (whether due to longer-than-expected borrower life, rising 

interest rates, or slow or negative home price appreciation), the tradeoff between the 

HECM Standard and the HECM Saver is even more complex. The HECM Saver 

product provides lower proceeds to the borrower at the outset of the loan, which 

means that the loan is less likely to exceed the value of the home at repayment than 

with a HECM Standard. But in cases where the loan balance does exceed the value of 

the home at repayment, the borrower receives less funds and devotes a greater portion 

of home equity to interest with a HECM Saver than with a HECM Standard. 

2.4.2 INTEREST RATES

Today, most HECM borrowers have a choice between a fixed-rate product and a 

monthly-adjustable product based on the 1-month LIBOR index.68 In the early years 

of the program, most HECM loans used an annually adjustable rate based on the 1-

year constant maturity treasury rate. The annually adjustable rate option has all but 

disappeared today. 

Prior to 2007, only a handful of lenders offered fixed-rate HECMs.69 Starting in 2007, 

a larger array of lenders began offering fixed-rate HECMs, but volume remained low

until mid-2009, when the fixed-rate option suddenly became the dominant product. 

Around 70 percent of HECMs originated today are fixed-rate loans.70 The Market

chapter discusses the rise of the fixed-rate product option in greater detail.

Importantly for consumers, today the fixed-rate HECM is only available with a lumpsum disbursement option, and is structured as a closed-end loan in which borrowers 

are not permitted to borrow additional funds at a future date. These restrictions are not 

dictated by HECM regulations, but are a result of market forces.71 Fixed-rate HECMs 

also carry a higher interest rate at origination than adjustable-rate HECMs. 

Borrowers who choose adjustable-rate HECMs, in contrast, can choose from any of 

six different options for receiving their loan proceeds. Adjustable-rate loans –

including those where the borrower takes all or almost all of their funds at closing –

are structured as open-end loans in which borrowers can, if they wish, pay off part of 

their loan and free up that part of their credit line for later use.72 Adjustable-rate 

borrowers also benefit from a unique credit line growth feature. If a borrower does not 
28 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

take all the proceeds at the start of the loan, then the total amount that can be 

borrowed later will be higher. The disbursement options and the credit line growth 

feature are discussed in Section 2.4.3. 

Figure 4: HECM loan features by rate type.

Interest rate type

Features Adjustable Fixed

Available 

payment options

All: Line of credit, Term, Tenure, 

Modified Term, Modified Tenure, 

Lump-sum

Lump-sum only

Interest rate

• Averaged 2.5% in FY 2011

• Lower at origination than fixed 

rate, but can change over the life 

of the loan. 

• Averaged 5.1% in FY 2011

• Higher at origination, but 

will not change. 

Loan structure/

prepayment

Open-end loan.* Can prepay all or 

some of the loan at any time and 

re-use credit line.

Closed-end loan.** Can 

prepay all or some of the 

loan at any time, but re-use 

of the credit line is not 

permitted.

Credit line 

growth

Unused credit line grows over time 

at the same rate as the interest plus 

mortgage insurance premium 

assessed on the loan balance.

No credit line growth.

Note: *HECM regulations do not specifically permit nor prohibit closed-end, adjustable-rate loans, 

though in practice the CFPB is not aware of any lenders making these loans. **According to FHA 

Mortgagee Letter 2008-08, fixed-rate reverse mortgages can be open-end or closed-end, though in 

practice the CFPB is not aware of any lenders making open-end, fixed-rate HECMs. 

2.4.3 DISBURSEMENT OF LOAN PROCEEDS

Borrowers who choose adjustable-rate HECMs – whether Standard or Saver – can 

choose from several options for receiving the loan proceeds. 

HECM regulations authorize five different disbursement options:73

1. Line of credit – a line of credit accessible at the borrower’s discretion

2. Term – a fixed monthly disbursement for a fixed number of years 

3. Tenure – a fixed monthly disbursement for as long as the borrower lives in 

the home

4. Modified term – a smaller fixed monthly disbursement for a fixed number of 

years, in combination with a line of credit accessible at the borrower’s 

discretion
29 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

5. Modified tenure – a smaller fixed monthly disbursement for as long as the 

borrower lives in the home, in combination with a line of credit accessible at 

the borrower’s discretion

In practice, a sixth disbursement option also exists – a lump sum at closing. While the 

lump sum does not formally exist as a separate disbursement option in the HECM 

regulations, all HECM borrowers are permitted to withdraw a lump sum at closing.74

Importantly, in today’s market, the fixed interest rate option (discussed in Section 

2.4.2) is only available with a lump-sum disbursement. These fixed-rate, lump-sum loans 

are structured as closed-end loans in which borrowers are not permitted to borrow 

additional funds at a future date.75 

Adjustable-rate borrowers whose principal balance outstanding is less than the 

allowable principal limit benefit from two additional features. First, they may change 

their disbursement plan at any time for a nominal fee. Borrowers with a line of credit 

may decide to convert some or all of their remaining line of credit into a monthly 

disbursement plan. Likewise, borrowers with a monthly disbursement plan may decide 

to reduce or eliminate their monthly disbursement in order to create a line of credit in 

addition to or in lieu of the monthly disbursements.

Second, line-of-credit plans (or partial line-of-credit plans in conjunction with a 

monthly disbursement plan) benefit from an unusual credit line growth feature. If the 

loan is not fully drawn, the unused portion of the credit line is compounded at the 

same rate as the loan balance, and the borrower can take advantage of that expanding 

credit line at a later date. FHA calculates a new maximum allowable loan balance each 

month as if the loan had been fully drawn at closing, and the difference between the 

maximum allowable loan balance and the actual loan balance is available to the 

borrower, as shown in Figure 5. Monthly disbursement plans benefit from the same 

feature, but the expanding loan balance limit is factored into the monthly disbursement 

amount calculation at the outset, so borrowers receive higher monthly disbursements 

than they would without the credit line growth feature. 

Figure 5 illustrates how the unused credit line grows over time using a hypothetical 

borrower who was authorized for $200,000 in net proceeds but took only $100,000 in 

cash at closing and did not take any further draws during the next seven years. By the 

end of year seven, the unused $100,000 grows to an available credit line of $134,578 

(assuming a 3 percent interest rate plus 1.25 percent mortgage insurance premium). 

This increased credit line is available to borrowers as long as they remain in their 

homes and fulfill their other loan obligations as described in Section 2.3.2, regardless 

of the level of appreciation (or depreciation) of their homes. 
30 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 5: Illustration of credit line growth

Note: This example assumes a 3 percent interest rate and a 1.25 percent monthly mortgage 

insurance premium. The amount of credit line growth is dependent on the interest rate. A higher 

interest rate would result in greater credit line growth over time. 

Historically, most borrowers chose a line-of-credit plan. Among loans originated in the 

1990s, 71 percent of borrowers chose a line of credit while 29 percent of borrowers 

chose one of the monthly disbursement plans (term, tenure, modified term, or 

modified tenure). In 2007, 87 percent of borrowers chose a line of credit, and 13

percent chose a monthly disbursement plan.76 However, by the late 2000s, most lineof-credit borrowers were taking a substantial portion of their available funds upfront. 

The median borrower in 2007 took out 82 percent of their available funds within the 

first year, and three-quarters of borrowers took at least half of their available funds 

within the first year.77 

Starting in early 2009, the fixed-rate product, which requires a lump-sum disbursement, 

began to dominate the market. During FY 2011, 69 percent of loans originated were 

fixed-rate, lump-sum.78 Of the remaining 31 percent, the vast majority are line-of-credit 

plans. Among current originations, likely no more than 20 to 30 percent of adjustablerate loans, or no more than about 6 to 10 percent of loans overall, have a monthly 

disbursement plan.79 

Figure 6 shows a hypothetical example comparing the fixed-rate, lump-sum option to 

several different adjustable-rate, line-of-credit scenarios. The example uses a 68-year-
31 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

old borrower with a $250,000 home. At today’s interest rates, this borrower qualifies 

for $163,000 in initial proceeds with the HECM Standard product (the example does 

not deduct for upfront MIP and closing costs, but these costs are the same across 

scenarios). The scenarios show the additional amount that the borrower is eligible to 

receive if she spreads her disbursements out over six years (the typical length of a 

HECM loan) instead of taking all of her funds upfront. A borrower who takes only 

one-third of available proceeds upfront, and takes additional disbursements each year 

for the following five years, receives $15,190 more in proceeds and owes $16,607 less 

in interest after six years than the borrower who takes a lump sum upfront. 

Figure 6: Example loan scenarios

Total amount 

received over 6

years

Total amount paid 

in interest + MIP 

over 6 years

Loan balance 

after 6 years

Fixed-rate lump sum $163,000 $73,933 $236,933

Adjustable-rate plans

Line of credit - 3 equal disbursements 

over 3 years $170,583 $64,932 $235,515

Line of credit – two-thirds of available 

proceeds upfront, 5 additional 

disbursements over next 5 years

$170,595 $64,920 $235,515

Line of credit – one-third of available 

proceeds upfront, 5 additional 

disbursements over next 5 years

$178,190 $57,326 $235,515

Note: This example uses a 5.0 percent interest rate for the fixed-rate, lump-sum option. For the 

adjustable-rate scenarios, it uses a 2.9 percent starting interest rate with an increase of 1 percent in 

each of the following three years. If interest rates increased more quickly, the amount of interest 

owed, but also the additional credit line available, would be larger after 6 years. All scenarios include 

the 1.25 percent ongoing MIP. 

2.5 SPECIAL-PURPOSE HECM LOANS

The vast majority of borrowers (94 percent in FY 2011) used the regular HECM 

products to tap their existing home equity to pay for expenses and/or to pay off an 

existing traditional mortgage. However, the HECM program offers two additional 

special-purpose product types: HECM for Purchase and HECM Refinance. Both 

special-purpose loans are available with either fixed or adjustable interest rates and 

with the Standard or Saver insurance premium/loan proceeds structure. 

2.5.1 HECM FOR PURCHASE: BUYING A HOME WITH A REVERSE 

MORTGAGE 

A HECM reverse mortgage can be used to buy a home. The HECM for Purchase 

program was introduced in 2008 to allow a borrower to use a HECM to purchase a 

new home, rather than borrowing against a home they already own.80 Older 
32 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

homeowners interested in downsizing, moving closer to family, or moving for other 

reasons may find this special-purpose HECM loan more useful than the ordinary 

HECM products. 

The borrower can use the HECM for Purchase in lieu of a traditional mortgage to 

finance part of the home’s cost. As with most traditional mortgage transactions, the 

borrower must supply a down payment to supplement the HECM for Purchase 

financing, which can be paid out of proceeds from the sale of their current home or 

from other savings or assets. However, the down payment requirements under HECM 

for Purchase are substantially higher than in a traditional mortgage transaction. 

The same loan-to-value calculations (“principal limit factors”) for ordinary (nonPurchase) Standard or Saver HECM loans are applied to the HECM for Purchase 

program. For example, at today’s interest rates (using a 5 percent interest rate), a 72-

year-old borrower would qualify for HECM Standard loan proceeds of approximately 

67 percent of the value of the new home (assuming the home is worth less than the 

$625,500 FHA loan limit). This borrower would be able to finance 67 percent of the 

value of the new home (or $134,000 for a $200,000 home) using the HECM for 

Purchase and would have to supply a 33 percent down payment (or $66,000), plus 

closing costs. Borrowers must make their new homes their principal residence within 

60 days of closing the loan.

The HECM for Purchase option comprised 1.8 percent of all HECMs originated in 

FY 2010, rising to 2.3 percent during FY 2011.

2.5.2 HECM REFINANCE: REFINANCING AN EXISTING HECM LOAN

The HECM Refinance program allows borrowers in limited circumstances to refinance 

their existing HECM loans to obtain better terms. Because the balance on a reverse 

mortgage rises over time, refinances are much rarer in the reverse mortgage market 

than in the traditional mortgage market. In many cases, within a few years of taking out 

the loan, the growing loan balance (including interest and fees) on the existing HECM 

will exceed the proceeds a borrower would be eligible to obtain under a new HECM, 

making a refinance impossible. HECM-to-HECM refinances are usually only possible 

in cases where a borrower’s home has appreciated significantly, interest rates have 

fallen substantially, and/or the borrower has drawn only a small portion of the 

authorized loan proceeds on the existing HECM.

Prior to 2004, there were no special procedures for refinancing a HECM. Any 

borrower wishing to refinance would have submitted a new loan application, paid a 

new round of upfront fees, including the upfront MIP, and paid off the old HECM at 

closing of the new HECM. In March 2004, FHA published a new rule implementing 

Section 201 of the American Homeownership and Economic Opportunity Act of 
33 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

2000. The new rule provided for a special refinance option in which the borrower was 

only required to pay the upfront MIP on the difference between the original appraised 

value and the new appraised value (or FHA loan limit, whichever is less) used to 

underwrite the refinance. 

The first refinances under the new program were done in 2005. Between FY2005 and 

FY2008, the market share for HECM Refinance loans hovered between 3.6 percent

and 6.8 percent of all HECMs originated. HECM Refinances peaked in FY 2009 with 

9,754 loans, or 8.5 percent of HECM production. In FY 2011, HECM refinances fell 

to only 2.3 percent of all HECMs.

2.6 COSTS AND FEES

Reverse mortgages have both upfront and ongoing costs and fees associated with 

them. FHA mortgage insurance premiums (MIP), interest, and upfront origination 

fees and closing costs are the largest costs.

2.6.1 UPFRONT COSTS & FEES

Upfront costs and fees consist of the upfront MIP, the origination fee, closing costs, 

and a counseling fee.

Upfront MIP: FHA assesses a one-time, nonrefundable initial MIP equal to 2 percent

(HECM Standard) or 0.01 percent (HECM Saver) of the appraised value of the home 

(or the applicable FHA loan limit, whichever is less).81 

Origination Fee: Lenders may charge an origination fee up to $2,500 for homes 

valued at $125,000 or less. For homes valued at $125,000 or more, the maximum 

allowable origination fee is calculated at 2 percent of the appraised value of the home 

up to $200,000, plus 1 percent of the amount greater than $200,000. The total 

origination fee is capped by regulation at a maximum of $6,000.82 However, because 

the payout to the borrower is typically only 30 to 70 percent of the borrower’s home 

value (depending on age and interest rate), the origination fee can still represent a large 

percentage of the loan amount, as shown in Figure 7. Borrowers typically pay for the 

origination fee using loan proceeds, reducing the amount that the borrower actually 

receives. 
34 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 7: Maximum HECM origination fees as % of loan proceeds at 

various home values and principal limit factors

Maximum origination fee as % of loan proceeds

Home value Maximum 

origination fee

Principal limit factor 

(Loan proceeds-to-home value ratio)

30% 50% 70%

$100,000 $2,500 8.3% 5.0% 3.6%

$150,000 $3,000 6.7% 4.0% 2.9%

$200,000 $4,000 6.7% 4.0% 2.9%

$300,000 $5,000 5.6% 3.3% 2.4%

$400,000 $6,000 5.0% 3.0% 2.1%

Today, origination fees are typically waived on fixed-rate HECMs and may be partially 

discounted on adjustable-rate HECMs. This is due to market conditions explained 

more thoroughly in the Market chapter. Should market conditions change, lenders may 

return to charging the maximum origination fee. 

Closing Costs: Third-party fees for the appraisal, title search, insurance, surveys, 

inspections, recording fees, mortgage taxes, credit checks and other fees are typically 

paid for with loan proceeds, reducing the amount that the borrower actually receives. 

Counseling Fee: Historically, HUD-funded counseling agencies provided counseling 

to prospective reverse mortgage borrowers free of charge. In the 2011 budget cycle, 

funding for this program was cut. As a consequence, many counseling agencies have 

begun charging prospective borrowers a fee. HUD requires that the fee be 

“reasonable and customary,” and agencies must waive the fee for clients with incomes 

less than twice the poverty level.83 Some counseling agencies assess this fee at time of 

counseling, while others will allow it to be paid at closing using loan proceeds. 

2.6.2 ONGOING COSTS & FEES

Ongoing costs and fees consist of the monthly MIP, monthly servicing fee, and 

monthly interest. 

Monthly MIP: FHA assesses an ongoing MIP equal to 1.25 percent of the loan 

balance (principal drawn plus accumulated interest, MIP, and fees) per year on all 

loans, whether HECM Standard or HECM Saver.84 The 1.25 percent rate is an annual 

rate, but it is calculated and added to the loan balance on a monthly basis.85 Because of 

the negative-amortization feature of the loan, the MIP compounds in the same way 

that the interest does. Each month, borrowers are being charged MIP on a growing 

loan balance that includes prior interest and prior MIP.
35 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Servicing Fee: As with traditional mortgages, the servicing fee is embedded in the 

interest rate. Each month, servicers receive between 30 and 144 basis points (0.30 to 

1.44 percent) before the accrued interest is credited to the secondary market 

investors.86 This fee is intended to cover the cost of sending the borrower account 

statements, disbursing loan proceeds, and ensuring that borrowers keep up with loan 

requirements such as real estate taxes and homeowner’s insurance premiums.k It also 

compensates Ginnie Mae issuer-servicers for the financial risks they undertake, as 

explained in Section 4.4.3a.

Interest: Each month, interest accrues on the loan and is credited to the investors who 

own the loan. The interest compounds over time, and is paid to the investors all at 

once when the loan is repaid. 

2.7 ALTERNATIVES TO REVERSE MORTGAGES

Reverse mortgages are best suited to seniors who need or want to supplement their 

retirement resources; who do not have sufficient cash flow from other sources to 

qualify for a traditional home equity line of credit; who want to remain in their home; 

and who can reasonably expect to remain in the home long enough to justify the 

upfront costs of the loan. Financially sophisticated borrowers may also find that a 

reverse mortgage makes sense as a financing tool within a comprehensive retirement 

planning strategy under certain circumstances.

Before choosing a reverse mortgage, consumers should carefully evaluate whether 

another product or course of action would allow them to achieve their financial goals 

at lower cost. Alternative products include a home equity line of credit (HELOC) and 

specialized products and programs offered at the state and local level. Alternative 

courses of action include refinancing a traditional mortgage to lower the monthly 

payments, selling the home and downsizing, and/or applying for federal, state, or local 

programs that may provide financial assistance to seniors.

 

k The servicing fee has not always been embedded in the interest rate. Historically, lenders deducted a “servicing fee setaside” from the borrower’s initial principal limit before determining the net principal limit (the amount of cash the borrower 

can actually access). Lenders then charged a $30 to $35 servicing fee each month, paid out of the reserved loan proceeds. As 

discussed in Section 4.5.1, this practice was discontinued in mid-2009 by all major lenders in favor of the embedded 

structure.
36 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

2.7.1 HOME EQUITY LINE OF CREDIT (HELOC)

Like reverse mortgages, HELOCs offer the borrower the opportunity to convert home 

equity into cash, but they do so with a very different set of eligibility criteria, costs, 

risks, and benefits than a reverse mortgage. For some borrowers who can qualify, a 

HELOC may provide a cheaper method of achieving their financial goals with 

acceptable risks and downsides. For other borrowers, the increased costs of a reverse 

mortgage may be outweighed by the added protections and fewer obligations of a 

reverse mortgage, even if they can qualify for a HELOC. Many prospective reverse 

mortgage borrowers also may be unable to qualify for a HELOC. Figure 8 compares 

the costs, risks, and benefits of a HECM as compared to a HELOC.
37 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 8: Comparison of costs, risks, and benefits of HECMs vs. HELOCs

Feature HECM HELOC

Eligibility

Age Must be 62 or older. None.

Income None currently, though a basic financial 

assessment may be a requirement in the 

future.*

Must have sufficient income to make 

monthly payments.

Credit None currently, though a basic credit check 

may be a requirement in the future.*

Must pass lender’s underwriting criteria.

Costs/Benefits

Upfront costs Historically: High (origination fee, upfront 

MIP, closing costs).

Currently: Lower than in the past with 

HECM Saver option and waiving/ discounting 

of origination fees, though generally still 

higher than HELOCs.

Generally no origination fee, although some 

lenders may charge an early cancellation 

fee if the line is closed within a certain 

number of years.87 No MIP.

Mortgage 

Insurance

Premium (MIP)

HECM Standard: 2% of home value** 

upfront.

HECM Saver: 0.01% of home value** 

upfront.

Ongoing: 1.25% per year on outstanding 

loan balance, assessed monthly.

No MIP.

Interest rate Fixed rate: 4.5% to 5% 

Adjust. rate: LIBOR + 2.25% to 3% (Fully 

indexed: 2.5% to 3.25% as of April 2012).

Typically Prime + 1% to 2%, though can be 

higher depending on credit. (Fully indexed: 

4.25% to 5.25% as of April 2012).

Maximum Loan 

to Value Ratio 

(LTV)

At origination: 51% to 77% at today’s rates, 

depends on age and product choice.

Through life of loan: No limit.

At origination: Generally 80%, some allow 

up to 90%.

Through life of loan: Not designed to be a 

negative-amortization product. Credit line 

may be cut if LTV exceeds lender criteria.

Risks/ Protections

Future credit line 

availability

Fixed rate: no future credit line

Adjustable rate: future credit line 

guaranteed, increases at same rate as 

interest + MIP

Future credit line may be cut or suspended 

if home prices decline, overall credit 

conditions tighten, or the borrower’s credit 

picture declines.

Foreclosure risk 

due to 

nonpayment

Limited to tax & insurance defaults Defaults on monthly payments as well as 

tax & insurance.

Obligations

Monthly 

mortgage 

payments

None. Required, can face foreclosure if unable to 

make monthly payments.

Taxes & 

insurance

Required, can face foreclosure if fail to 

make payments.

Can be escrowed by lender.

Primary 

residence

Required. Required.

Note: *FHA has indicated that it is considering proposing an upfront financial assessment in response to rising tax 

and insurance defaults, as discussed in Section 6.6. FHA has indicated that it expects to publish new regulations in 

the 4th quarter of 2012.88 ** Home value or FHA loan limit, whichever is less.

2.7.2 SPECIALIZED PRODUCTS & PROGRAMS

In additional to HECM and proprietary reverse mortgages, alternative financial 

products and other forms of financial assistance are available at the state and local level 

for seniors who need help staying in their homes. These products were historically 
38 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

considered lower-cost alternatives to HECM or proprietary reverse mortgages. Other 

forms of assistance also may be available at no cost to the consumer. Alternative 

products generally fall into four categories: tax credits or loan advances for paying 

property taxes, property tax deferrals, deferred payment loans for home improvements, 

and specialized reverse mortgage loans offered in conjunction with state housing 

finance agencies. 

2.7.2a Circuit breaker tax credits or tax grants

The most common form of assistance in paying property taxes available for senior 

citizens and other eligible consumers is the Circuit Breaker tax credit or tax grant. 

Offered by over half of the states, Circuit Breaker programs provide a mechanism for 

tax relief for qualifying seniors.89 While requirements vary among the states, in order 

to qualify consumers generally must have paid an amount in real estate taxes that 

exceeds a certain percentage of their income and cannot earn more than the income 

limits set by the state or locality for the tax year. Consumers receive the assistance 

either in the form of a tax credit when filing income taxes or a grant in the form of a 

check. Recent budget cuts have affected certain states’ ability to offer Circuit Breaker 

programs and the ability of states to continue to provide this assistance is not certain.90

2.7.2b Property tax deferrals

Property tax deferral programs allow taxpayers, usually 65 or older and meeting annual 

income limits, to delay payment of property taxes until the property is sold or until the 

death of the taxpayer. There are generally no origination fees or insurance premiums, 

and interest rates, if any, can vary among states and programs. Many programs limit the 

amount consumers can borrow, and some programs do not allow consumers to obtain 

a property tax deferral loan if the consumer already has a reverse mortgage on the 

property.91 Approximately half the states have some permutation of a property tax 

deferral program.92

2.7.2c Deferred payment loans

Deferred payment loans provide eligible homeowners with one-time, lump-sum 

advances that may be used for repairing or improving the consumer’s home. As with 

other alternative products, eligibility requirements vary among the state and local 

programs. Many contain income limits or minimum age requirements. These loans may 

only be used for specific purposes, such as bringing a house up to code or making a 

home handicapped-accessible by adding a ramp. Generally, deferred payment loans 

are offered at a low or zero interest rate and repayment of principal and interest is 

required when the home is sold or the borrower dies.93 Select programs may offer 

grants or forgivable loans for emergency repairs.94 
39 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

2.7.2d Specialized reverse mortgage loans from state housing finance 

agencies & nonprofit partnerships

Some states have implemented programs to provide financial assistance to the elderly 

through specialized reverse mortgage loans, as discussed further below.

95 

CONNECTICUT

Starting in 1993, Connecticut’s Housing Finance Authority partnered with Department 

of Social Services to provide the Reverse Annuity Mortgage Program.96 Borrowers 

must be 70 years or older and at least one borrower must have costs associated with 

long-term care.97 Borrowers’ income cannot exceed $81,000, and the maximum loan 

available amount is 70 percent of the appraised home value, not to exceed $417,000. 

Loan payments are made monthly for five or ten years, with the borrower having the 

option to take out a $5,000 one-time, lump-sum payment at the time of closing. The 

program currently offers a 7.0 percent fixed interest rate. 

MONTANA

The Montana Board of Housing implemented its Reverse Annuity Mortgage Loan 

Program in October of 1990.98 Borrowers must be 68 years of age or older and meet 

income requirements. Loan payments are made for 10 years, with a lump sum advance 

of up to $10,000 available at the closing for payment of prior mortgages or liens, 

repairs to the home, and advances for certain closing costs. The program currently 

offers a 5.0 percent interest rate. 

MASSACHUSETTS

Since 1984, the Homeowner Options for Massachusetts Elders (H.O.M.E.) nonprofit 

agency has partnered with community lenders to offer reverse mortgages and lines of 

credit to elder homeowners.99 H.O.M.E. assists Massachusetts residents ages 60 and 

above (or 50 and above if facing foreclosure) who meet annual income requirements. 

In addition to offering counseling, referral, and foreclosure prevention services, 

H.O.M.E. has a variety of loan products including the Term Reverse Mortgage, the 

Modifiable In-Home Care Reverse Mortgage, the Senior Equity Line of Credit, and 

combination options. H.O.M.E. considers loans to be a “last resort” and endeavors to 

find other alternatives.100

2.7.3 ALTERNATIVES TO A REVERSE MORTGAGE

Some consumers may be better off not taking a reverse mortgage and instead pursuing 

an alternative course of action. Many consumers considering a reverse mortgage may 

not realize that they are eligible for government benefit programs.101 One reverse 

mortgage counseling agency reports finding other solutions for 50 percent of the 

potential borrowers it counsels.102 The National Council on Aging estimates that 

prospective reverse mortgage borrowers could be eligible for more than $378 million 
40 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

in benefits.103 Available benefits include both federal programs such as Supplemental 

Security Income (SSI), as well as state and local programs such as energy assistance and 

the special-purpose loans discussed in Section 2.7.2.

Homeowners struggling with existing mortgage payments but whose income could 

support a smaller payment may find that a traditional mortgage refinance will suit their 

needs at a lower cost. Downsizing is another alternative to a reverse mortgage. Selling

the current home and buying or renting a smaller home may free up enough equity to 

cover a consumer’s needs. Furthermore, the smaller home could decrease 

maintenance and tax expenses. Consumers in poor health or who need assistance 

might consider retirement communities, assisted living facilities, or moving in with 

relatives.
41 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

3. Consumers

As of 2010, there were roughly 24 million homeowner households in the U.S. headed 

by someone age 62 and older.104 Home equity makes up a large portion of senior 

homeowners’ net worth. In 2009, half of homeowners age 62 and older held more than 

55 percent of their net worth in home equity.105 By some estimates, older homeowners 

held more than $3 trillion in home equity as of the third quarter of 2011.106 

Although the potential pool of borrowers is quite large, only about 2 to 3 percent of 

eligible households actually have a reverse mortgage.107 For the most part, older 

homeowners are simply not interested in reverse mortgages. Older homeowners who 

do consider a reverse mortgage and complete counseling are much more likely than the 

general population of older homeowners to have an existing traditional mortgage, a 

home equity line of credit (HELOC), or other consumer debt. Among older 

homeowners who do have debt, prospective reverse mortgage borrowers owe more on 

average than households not seeking a reverse mortgage.108

Over the past two decades, the HECM program grew dramatically from a small pilot 

program to more than 100,000 loans per year in the late 2000s, before falling to about 

70,000 loans per year in 2010 and 2011.109 It is difficult to say whether shifts in 

borrower characteristics over time are the result of this expansion or a result of 

broader demographic changes and economic conditions. However, today’s reverse 

mortgage borrowers look very different from borrowers in the early years of the 

program. 

Today’s borrowers are taking out reverse mortgages at substantially younger ages, and 

are more likely to have existing traditional mortgage debt than in the past. Today’s 

borrowers also are much more likely to take all of their available proceeds upfront than 

in the past. Younger borrowers and those with lower home values are especially likely 

to take all of their proceeds upfront. 

The market is poised to change again, as the large cohort of baby boomers make their 

way into retirement. As shown in Figure 9, Census figures project that the number of 

people over age 60 will reach 75 million by 2020, and 92 million by 2030.110 Given 

homeownership rates among older homeowners, there are likely to be nearly 40 million 
42 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

eligible homeowner households headed by someone 62 or older by 2030.111 It is too 

early to tell whether the aging boomers will choose to use reverse mortgages in greater 

or lesser proportions – or in similar or different ways – than the current generation of 

older homeowners.

Figure 9: Projection of population age 60 and over, 2010 to 2050

Source: U.S. Census Bureau

3.1 CONSUMER AWARENESS, ATTITUDES, & MOTIVATIONS

While the population of older homeowners eligible for reverse mortgages is poised to 

grow significantly in the coming years, the number of eligible homeowners that will 

actually choose to take out a reverse mortgage is much more uncertain. Older 

homeowners today are largely uninterested in reverse mortgages, and market 

penetration is very low. Only about 2 to 3 percent of eligible homeowners today have a 

reverse mortgage.112 It is difficult to predict whether the baby boomers will choose to 

take out reverse mortgages in higher proportions than today’s eligible homeowners. 

3.1.1 HIGH AWARENESS

Evidence from two national AARP-sponsored surveys of consumers age 45 and older 

suggests that the low market penetration is not due to lack of awareness. In 2007, 70
43 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

percent of survey respondents indicated that they had heard of a reverse mortgage 

before, up from 51 percent in 1999.113 Yet respondents who said they might consider a 

reverse mortgage in the future decreased from 19 percent to 14 percent over the same 

time period.114 

A 2007 survey by Harris Interactive, a polling organization, similarly found that 72

percent of baby boomers (then aged 43-61) and 86 percent of respondents aged 62 and 

older indicated that they were aware of reverse mortgages. The awareness level of 

reverse mortgages was roughly the same as the awareness level of fixed-rate traditional 

mortgages (76 percent among baby boomers, 84 percent among respondents aged 

62+).115 

Although most older consumers are aware of the product, eligible homeowners are 

largely not interested in taking out reverse mortgages. One survey of homeowners 62 

and older conducted in the late 2000s found that after the HECM program was 

described, 71 percent of respondents said they were not interested (21 percent said 

they wanted to learn more, and only 4.3 percent said they would participate).116 Among 

those who are sufficiently interested in the product to attend counseling, only about 60

percent actually go through with the transaction.117 Figure 10 illustrates the drop-off 

between awareness and interest.

Figure 10: Estimated market penetration, 2011

3.1.2 LOW INTEREST

Surveys of consumers suggest that consumers are reluctant to take out reverse 

mortgages for a number of reasons. These reasons include a general wariness about the 

product, a belief that the product should be used only as a last resort, a desire to own 

the home free and clear after many years of making mortgage payments, and a desire 

to leave the home to children or other heirs as an inheritance.

A 2007 poll of the general adult population found that 36 percent of consumers had an 

unfavorable or very unfavorable impression of reverse mortgages, while 39 percent

were neutral and 25 percent had a favorable or very favorable impression.118 As shown 

in Figure 11, consumers were much more wary of reverse mortgages than fixed-rate 

traditional mortgages.
44 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 11: Consumer impressions of mortgage products, 2007

Source: Harris Interactive Poll

Historically, senior homeowners have felt that a reverse mortgage should only be used 

as a last resort. A 2001 study of low-income reverse mortgage borrowers in 

Massachusetts found that borrowers typically did not seek out a reverse mortgage until 

they had exhausted their savings and were behind on their bills.

119 In a 2006 AARP 

survey, reverse mortgage borrowers were more likely to have looked into reverse 

mortgages as a means to pay for “basic necessities and essential expenses” (50 percent) 

than as a means to have “more money to spend on extras” (38 percent).120 A survey 

conducted in the late 2000s of age-eligible homeowners indicates that this “last resort” 

orientation continues, as many respondents commented that they “thought it [HECM] 

was an attractive program for those who needed it,” with some respondents adding 

that they “hoped they would not need the program.” 121 

The 2001 Massachusetts study of low-income reverse mortgage borrowers suggests 

that at least among earlier generations of older homeowners, the desire to own the 

home free and clear and pass that home on to one’s children was a strong reason for 

consumers to decide against a reverse mortgage. Borrowers reported struggling with 

the decision to use the equity in their homes. Some needed assurances from their 

children that their children were “financially set,” while some homeowners interviewed 

for the study who received reverse mortgage counseling ultimately decided against the 

loan on the same grounds.122 Lenders interviewed for the 2000 evaluation of the 

HECM program stated that they were having difficulty marketing the loans because of 
45 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

a “Depression-era mentality among the current elderly generation that views debt of 

any kind as risky and unwise.”123

There is some evidence that current seniors and the aging baby boomers may be more 

amenable to taking on debt and less attached to the idea of leaving an inheritance, 

though there is still an interest in leaving bequests. Between 2004 and 2007, the median 

household debt increased by 38 percent among households headed by an adult aged 50 

to 61.

124 A 2010 industry poll found that when asked to choose between leaving their 

children an inheritance and being able to pay all their bills so their children would not 

worry about them, 27 percent of eligible homeowners said they wanted to leave their 

children an inheritance and 68 percent said they wanted to be able to pay their bills.125

However, survey participants may not view these options as mutually exclusive, so 

some caution is warranted in interpreting these results. It is not yet clear whether baby 

boomers will be any more likely to take out reverse mortgages than the current 

generation of older homeowners. In a 2011 survey of leading-edge baby boomers (65-

year-olds in 2011), only 12 percent of respondents indicated that they would consider a 

reverse mortgage in the future.126 

3.1.3 LOW TAKE-UP

Data from the 2006 AARP survey of reverse mortgage counseling participants indicate 

that interested consumers who ultimately decided against taking out a reverse mortgage 

did so for many of the same reasons that drive the overall reluctance of consumers to 

take out reverse mortgages. The belief that reverse mortgages should only be used as a 

last resort is echoed in the primary reasons that counseling participants cited for not 

going through with the loan. 

Nearly 60 percent of counseling participants who decided against the loan appear to 

have reconsidered whether they really needed the loan and whether it was worth the 

cost. 127 Fully 30 percent said that the primary reason they did not take out the loan was 

because the costs were too high. Another 28 percent said that the loan was not 

necessary at this time.128 And 10 percent said that they wanted to continue to own their 

home free and clear or wanted to ensure that their heirs would be able to inherit the 

home.129 

Other reasons given for not going through with the loan included lower proceeds than 

expected, a complicated process, concerns about debt, and expensive home repairs 

required as a condition of the loan. 
46 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

3.1.4 MOTIVATIONS OF PROSPECTIVE BORROWERS

Prospective reverse mortgage borrowers are generally motivated by a combination of 

two things: a need or desire for additional cash, and a desire to remain in their current 

home.

3.1.4a Need or desire for more cash

A recent study conducted by MetLife and the National Council on Aging (NCOA) 

seems to indicate that the last few years have produced stark changes in the primary 

purpose for which prospective borrowers are seeking additional cash. According to the 

2006 AARP survey, the most common reasons prospective reverse mortgage 

borrowers looked into the product were to improve their quality of life and/or plan for 

emergencies. According to the 2010 MetLife/NCOA study, the overwhelming reason 

that prospective borrowers looked into the product was as a means to manage debt, 

especially among counseling participants in their 60s.130 Figure 12 displays the results 

of these two studies.

However, these data need to be interpreted with caution. The samples for the two 

studies were drawn differently. The AARP study was a phone survey of individuals 

who had obtained counseling through an AARP-endorsed housing counselor as much 

as three years prior to the survey. The MetLife study used data collected during 

counseling sessions over a three-month period. In addition, the questions asked in the 

two studies were not identical. Importantly, AARP provided counselees with separate 

answer choices for paying off mortgage debt and non-mortgage debt, while 

MetLife/NCOA grouped these responses into a single category. It seems likely that 

there is some overlap between the two categories in the 2006 AARP study (i.e., some 

respondents chose both mortgage and non-mortgage debt as a reason for looking into 

reverse mortgages) but we do not know how much. Moreover, in both studies, 

respondents were allowed to select multiple responses. With this type of question, it 

can be difficult to discern the primary motivations for consumer behavior. While there 

are other reasons to think that recent borrowers are more likely than previous 

borrowers to be most concerned about managing debt, more research on borrower 

motivations is needed.l

 

l

As discussed in Section 3.2.4, today’s counselees are significantly more likely to report having an existing mortgage than in 

years past.
47 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 12: Motivation among reverse mortgage counseling participants, 

2006 & 2010

2010 2006

Reason for interest Age 62-69 Age 70+ Borrowers

Nonborrowers

Pay off debt 73% 62% - -

 Mortgage debt - - 40% 40%

 Non mortgage debt - - 28% 27%

Increase income for every day expenses 31% 36% 50% 40%

Enhance quality of life 26% 28% 73% 68%

Plan ahead for emergencies 21% 24% 78% 66%

Sources: 2010 data - Changing Attitudes, Changing Motives, MetLife 2012. 2006 data – AARP, 

Reverse Mortgages: Niche Product or Mainstream Solution?, 2007.

3.1.4b Desire to remain in the current home

According to a 2010 industry poll, 81 percent of reverse mortgage borrowers say they 

plan to remain in their current home for the rest of their life.131 Reverse mortgage 

borrowers are only slightly more likely to indicate a desire to remain in their current 

home than other eligible homeowners, 77 percent of whom said they wanted to stay in 

their current home for the rest of their lives.132 These homes often have strong 

emotional ties – 43 percent of reverse mortgage borrowers and 36 percent of eligible 

homeowners still live in the home where they raised their children.133

However, comparatively few reverse mortgage borrowers actually do remain in their 

homes for the rest of their lives. Historically, the median reverse mortgage borrower 

repaid their loan after about 5 to 6 years,134 despite having a life expectancy at 

origination of 11 years.135 Recent developments in the housing market have resulted in 

fewer borrowers repaying their loans early, but this may be a temporary phenomenon. 

Repayment behavior is discussed in greater detail in Section 3.4.2. 

3.1.5 HIGH SATISFACTION REPORTED AMONG RECENT BORROWERS

Despite the general unease about reverse mortgages expressed by older consumers, 

reverse mortgage borrowers have reported high levels of initial satisfaction with the 

loans. More than four out of five borrowers in the 2006 AARP survey said that the 

loan had “completely” (58 percent) or “mostly” (25 percent) met their financial needs. 

Similarly, large majorities of borrowers agreed or strongly agreed that the reverse 

mortgage had helped them remain at home (79 percent), improved their quality of life 

(87 percent), and given them peace of mind (94 percent).136 The 2010 poll conducted 

for the National Reverse Mortgage Lenders Association reported that 52 percent of

borrowers would definitely recommend a reverse mortgage to a family member or a 

friend, and 28 percent would probably recommend it.137
48 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

However, to date no studies have been conducted on the long-term financial impact of 

reverse mortgages or borrowers’ long-term satisfaction. The borrower satisfaction 

surveys conducted thus far have contacted borrowers whose loans are only a few years 

old. Reverse mortgages may well have different impacts, and borrowers may have 

different opinions of them, five to ten years into the loan. In addition to assessing 

long-term borrower satisfaction with the loans, more research is needed to understand 

what borrowers do after they repay the loans. As noted above, many borrowers do not 

actually remain in the home until they die. More research is needed with both current 

borrowers who have had their loans for many years, and with former borrowers who 

have repaid their loans, in order to learn more about the impacts on borrowers five to 

ten years after origination. 

3.2 BORROWER DEMOGRAPHICS

Reverse mortgage borrowers today are different from earlier borrowers in several 

important respects. Today’s borrowers are taking out the loans at younger ages than 

earlier cohorts and are more likely to be married than in the past. They also are more 

likely to have traditional mortgage debt than in the past. These shifts coincide with the 

rapid expansion of the HECM program, from less than 10,000 loans per year in the 

late 1990s to over 100,000 loans per year in 2008 and 2009.138 Recent borrowers 

constitute a much larger group than earlier borrowers. It is difficult to say whether 

shifts in borrower characteristics over time are a result of this transition from a very 

niche product to a wider set of borrowers, or whether the shift in borrower 

characteristics is a result of broader demographic changes and economic conditions.

Today’s prospective reverse mortgage borrowers also differ from the underlying 

population of older homeowners, especially with respect to levels of debt. Prospective 

reverse mortgage borrowers are more likely to have a traditional mortgage and other 

types of debt than the general population of older homeowners. Among those that 

have traditional mortgages, reverse mortgage counseling participants have higher 

balances than the underlying population of older homeowners with a mortgage. 

3.2.1 AGE

Over the last two decades, reverse mortgage borrowers have started taking out the 

loans at younger and younger ages. Throughout the 1990s, more than half of 

borrowers were in their 70s, with borrowers in their 80s slightly more common than 

borrowers in their 60s. Beginning in the mid-2000s, a surge of younger borrowers in 

their 60s reshaped the age distribution. During this time period, the HECM program 

also dramatically expanded, from less than 10,000 loans per year to over 100,000 loans 

per year in 2008 and 2009. As shown in Figure 13, the proportion of borrowers in 
49 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

their 60s has more than doubled to 47 percent in FY2011, while borrowers in their 70s 

have slid to only 36 percent. 

Figure 13: Share of loans by age at origination, FY1990-2011

Source: CFPB analysis of FHA data.

Figure 14 tracks the evolving age distribution of HECM borrowers and compares it to 

the underlying senior population in 2010. The first two charts show the distribution of 

borrowers’ ages at origination during the first and second decades of the program. The 

third chart shows the age distribution for the most recent fiscal year, FY2011, and the 

fourth chart provides a comparison to the overall senior population. This fourth chart 

includes 60- and 61-year olds in red bars for additional context. 

Not only are recent borrowers younger at origination than earlier borrowers, but a 

dramatic spike in loan volume appears among the youngest eligible borrowers. While 

the median borrower in FY 2011 was 69.5, the most common age for borrowers was 

62.139 This surge of borrowers at the entry age of the program suggests a bottleneck of 

younger borrowers waiting to become eligible. The fourth chart in Figure 14, which 

shows the underlying senior population, does not have such a large concentration of 

62-year-olds.140 The distinctly taller bars for ages 62-64 in the third chart (FY 2011 

borrowers) and ages 60-63 in the fourth chart (2010 population—one year earlier) 

represent the leading edge of the Baby Boomers. 
50 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 14: Evolving age distribution of HECM borrowers, with 2010 

senior population

Source: CFPB analysis of FHA and U.S. Census Bureau data. 
51 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

With the exception of the spike at age 62, the age profile of HECM borrowers more 

closely mirrors the underlying population now than ever before. However, reverse 

mortgages do not provide equal value to borrowers of all ages. Borrowers in their 60s 

receive the lowest amount of proceeds, and stand to lose the most amount of home 

equity to compounded interest over a longer number of years. Section 3.4 discusses in 

greater detail the changing ways that borrowers are using the product. Section 3.5

discusses the increased risks to younger borrowers.

3.2.2 GENDER & MARITAL STATUS

Historically, the typical reverse mortgage borrower was a single female in her 70s.m

With the increase of younger borrowers over the past decade, the proportion of 

couples has increased as well. Couples comprised 30 percent of borrowers in the 

1990s, increasing to 37 percent in the late 2000s.141 Single male borrowers, meanwhile, 

have also become more common. 

Figure 15 shows this transition. While the share of single females has fallen from an 

average of 56 percent in the 1990s to an average of 43 percent in the late 2000s, single 

females are still the largest segment of reverse mortgage borrowers.

 

m FHA data does not actually record the marital status of borrowers, but rather whether there are one or two borrowers on the 

reverse mortgage. A small number of borrowers recorded as single may in fact be married or partnered, but chose not to 

include their spouse/partner on the reverse mortgage note. This can be risky for the non-borrowing spouse/partner, as 

discussed in Section 6.7.
52 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 15: Share of loans by gender & marital status, 1990-2011

Source: CFPB analysis of FHA data. 

3.2.3 RACE/ETHNICITY

There is no publicly available race and ethnicity data for HECM borrowers, so we have 

to rely on published program evaluations and survey data. Early in the HECM 

program, some observers raised concerns that nonwhite homeowners were underrepresented among borrowers. In a 1995 analysis, only 7 percent of borrowers were 

nonwhite, while the underlying population of homeowners age 62 and over was 11

percent nonwhite in 1997.142 By 1999, the proportion of nonwhite HECM borrowers 

had risen to nearly match the underlying population.143 In 2006, nonwhite reverse 

mortgage borrowers in an AARP survey were actually over-represented compared to 

the underlying population.144 
53 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 16: Race & ethnicity of HECM borrowers compared to 

homeowners age 62+

Source (Homeowners age 62+): 1997 American Housing Survey (AHS), 2005 American Community 

Survey (ACS).

Source (HECM borrowers): 1995 and 1999 HECM Evaluation Reports. Donald L. Redfoot et al., AARP, 

Reverse Mortgages: Niche Product or Mainstream Solution? (Dec. 2007, 2006 data).

In 2010, the Federal Reserve Board held four public hearings and requested comments 

on possible amendments to Regulation C, the implementing regulation of the Home 

Mortgage Disclosure Act (HMDA).145 Public comments spanned a range of issues 

including amending Regulation C to require the reporting of reverse mortgages, which 

are currently excluded from the regulation’s requirements.146 The Dodd-Frank Act 

transferred rulemaking authority for HMDA to the CFPB.147 

3.2.4 FINANCIAL POSITION

Consumers who seek out reverse mortgages are more likely to have a traditional 

mortgage than the general population of older homeowners – and that difference is 

growing. In 2006, 47 percent of reverse mortgage counseling participants reported 

having a traditional mortgage or HELOC.148 In contrast, only 42 percent of 

homeowners over age 62 had mortgage debt in 2007.149 By 2010, 67 percent of 

counseling participants reported having mortgage debt,150 while only 43 percent of 

homeowners over age 62 had mortgage debt in 2009.151 
54 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

As shown in Figure 17, these differences between HECM counselees and the general 

population of older homeowners diverge dramatically when we look just at the late2000s time frame (2009 homeowner data and 2010 counseling participant data). 

Homeowners in their 60s are more than twice as likely to have mortgage debt as 

homeowners age 70 and older (61 percent vs. 29 percent), because homeowners pay 

down their mortgages as they age. HECM counseling participants in their 60s are 

about 20 percent (12 percentage points) more likely than the general population of 

homeowners in their 60s to have mortgage debt. Meanwhile, HECM counseling 

participants in their 70s are more than twice as likely to have mortgage debt than all 

homeowners of the same age. 

Figure 17: Proportion older homeowners and HECM counseling 

participants and with mortgage debt

Percent of homeowners with mortgage debt

Year, by age group Homeowners, Age 62+ HECM Counseling Participants

Mid-2000s 42% 47%

Late 2000s 43% 67%

Age 62-69 61% 73%

Age 70+ 29% 62%

Source (Homeowners age 62+): CFPB analysis of Survey of Consumer Finance data, 2007 (mid-2000s) 

and 2009 (late 2000s).

Source (HECM counseling participants): Donald L. Redfoot et al., AARP, Reverse Mortgages: Niche 

Product or Mainstream Solution?, Dec. 2007 (2006 data: mid-2000s). MetLife, Changing Attitudes, 

Changing Motives, 2012. (2010 data: late 2000s). 

Data obtained by the CFPB from one reverse mortgage lender confirms that reverse 

mortgage borrowers commonly have existing mortgage debt. In 2010, 64 percent of 

borrowers using this lender (69 percent of borrowers age 62-69 and 61 percent of 

borrowers age 70 and over) used at least some portion of their reverse mortgage 

proceeds to pay off an existing mortgage.152

Prospective reverse mortgage borrowers are not only more likely to have mortgage 

debt than their counterparts in the general population, but those who do have a 

mortgage also owe more on their homes than comparable older homeowners. Figure 

18 compares the amount of mortgage debt (measured as a percent of home value) 

reported by HECM counselees who had a mortgage in 2010 with the amount of 

mortgage debt owed by general-population homeowners in 2009 (the closest year 

available). Overall, HECM counselees were about 10 percentage points more likely to 

owe at least 25 percent of their home’s value than all older homeowners. The lender 

data obtained by the CFPB is broadly consistent with these findings. 

Whereas the difference in likelihood of having a mortgage between reverse mortgage 

counseling participants and the general population of older homeowners is more 
55 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

pronounced for homeowners age 70 and over, the difference in the proportion of home 

value owed is larger for homeowners in their 60s. 

Figure 18: Amount of mortgage debt, homeowners and HECM 

counselees with mortgages

Source (Homeowners): CFPB analysis of Survey of Consumer Finances data, 2009. Note: 

Homeowners are limited to homeowners ages 62+ who have a mortgage.

Source (Counselees): MetLife Mature Market Institute, Changing Attitudes, Changing Motives, 2012.

(2010 data)

Finally, prospective reverse mortgage borrowers also are more likely to have more debt 

overall than the general population of older homeowners. Figure 19 uses the same 

2010 counseling data and 2009 population data to compare the debt characteristics of 

HECM counselees with the general population of older homeowners. Overall, HECM 

counselees are 18 percentage points more likely to have some type of mortgage or 

consumer debt than the general population of homeowners age 62 and older. For 

HECM counselees in their 60s, the difference is smaller (9 percentage points more 

likely) while for HECM counselees age 70 and over, the difference is even greater (27 

percentage points, or more than twice as likely). 
56 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 19: Debt characteristics of older homeowners and HECM 

counselees, late 2000s 

Source (HECM counselees): MetLife Mature Market Institute, Changing Attitudes, Changing Motives, 

2012 (2010 data).

Source (Homeowners 62+): CFPB analysis of Survey of Consumer Finances data (2009 data). 

Historically, reverse mortgage borrowers have had somewhat lower incomes than older 

homeowners generally. Figure 20 shows the income distribution of reverse mortgage 

borrowers in 2009. 

There is some evidence to suggest that the baby boom generation – whose members 

are just beginning to become eligible for reverse mortgages – will carry more debt into 

retirement than earlier generations. Between 2004 and 2007, the median household 

debt increased by 38 percent among households headed by an adult aged 50 to 61.153
57 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 20: Income distribution of reverse mortgage borrowers, 2009. 

Source: CFPB analysis of American Housing Survey data, 2009.

3.3 BORROWER BEHAVIOR DIFFERS BY SEGMENT

Not all reverse mortgage borrowers are alike. FHA data reveals several interesting 

differences between different consumer segments. 

3.3.1 FIXED-RATE, LUMP-SUM PRODUCT MORE POPULAR WITH 

YOUNGER BORROWERS AND LOWER-HOME-VALUE BORROWERS

Younger borrowers are more likely to take out fixed-rate, lump-sum loans than older 

borrowers. As shown in Figure 21, borrowers in their 60s are about 30 percentage 

points more likely to take out fixed-rate loans than borrowers over age 85. Data 

obtained by the CFPB from a reverse mortgage lender add additional context to this

observation. Among this lender’s customers, younger borrowers are much more likely 

to use their reverse mortgage to pay off an existing lien at closing. This suggests that 

one reason younger borrowers are choosing fixed-rate, lump-sum loans in higher 

proportions than older borrowers may be because they are using the loan to pay off an 

existing mortgage. 
58 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 21: Fixed-rate, lump-sum usage and lien payoffs by age group, 

FY2010

Age

% of borrowers choosing a 

fixed-rate, lump-sum loan 

(market-wide FHA data)

% of borrowers paying off 

a lien at closing* 

(data restricted to one lender)

Less than 65 77% 70%

65 - 69 76% 69%

70 - 74 70% 68%

75 - 79 63% 64%

80 - 84 57% 59%

85+ 47% 48%

Source: Fixed-rate market share: CFPB analysis of FHA data. Pay off lien at closing: CFPB analysis of 

data provided by a reverse mortgage lender. *In this data, “lien” generally refers to an existing 

mortgage, but could also include a federal lien or judgment. The lien payoff data is from one lender 

only, and so cannot be interpreted as representative of the entire market. 

Borrowers with lower home values are also more likely to take out fixed-rate, lumpsum loans than borrowers with higher home values. As shown in Figure 22, borrowers 

with home values less than $100,000 are 25 percentage points more likely to take out 

fixed-rate, lump-sum loans than borrowers with home values greater than $500,000.

Unlike in Figure 21, the lender data on the proportion of borrowers paying off a lien at 

closing exhibits a contrary trend to the data on borrowers choosing a fixed-rate loan. 

This could be because borrowers with lower home values receive lower proceeds, in 

dollar terms, than borrowers with higher home values. Borrowers with low home 

values who own their homes free and clear and choose a fixed-rate, lump-sum loan 

may view the overall dollar amount of proceeds to be insufficient to warrant saving a 

portion for later use. 

Figure 22: Fixed-rate, lump-sum usage and lien payoffs by home value, 

FY2010

Appraised value

% of borrowers choosing a 

fixed-rate, lump-sum loan 

(market-wide FHA data)

% of borrowers paying off 

a lien at closing* 

(data restricted to one lender)

Less than $100,000 83% 48%

$100,000 - $200,000 73% 60%

$200,000 - $300,000 65% 66%

$300,000 - $400,000 61% 68%

$400,000 - $500,000 61% 72%

$500,000+ 57% 76%

Source: Fixed-rate market share: CFPB analysis of FHA data. Pay off lien at closing: CFPB analysis of 

data provided by a reverse mortgage lender. *In this data, “lien” generally refers to an existing 

mortgage, but could also include a federal lien or judgment. The lien payoff data is from one lender 

only, and so cannot be interpreted as representative of the entire market. 
59 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

3.3.2 SAVER PRODUCT MORE POPULAR WITH OLDER BORROWERS 

AND ADJUSTABLE-RATE BORROWERS

As discussed in Sections 2.2.1d and 2.4.1, a new product called the HECM Saver was 

introduced in October 2010 that virtually eliminated the upfront FHA mortgage 

insurance premium in exchange for offering loan lower proceeds to the borrower. 

Overall, the new Saver product has had very low uptake (7 percent in FY 2011), but as 

Figure 23 shows, the uptake increases significantly with age. The oldest homeowners 

are particularly well-suited to benefit from the Saver’s lower upfront fees and may need 

to access less of their home equity.n 

The Saver product also has proved much more popular among adjustable-rate 

borrowers than among fixed-rate borrowers. As shown in Figure 24, the Saver reached 

28 percent market share among adjustable-rate borrowers in early 2011 before 

retreating to 18 percent in late 2011. In contrast, only 2 percent of fixed-rate borrowers 

chose the Saver product in 2011. This makes sense, as the Saver is designed to appeal 

to borrowers who do not need as much money, while the adjustable-rate loan appeals 

most to borrowers who do not need all of their proceeds upfront. It seems likely that 

borrowers who need less proceeds overall are also less likely to need all of their 

proceeds upfront. Thus, borrowers who do not need a lot of proceeds are both more 

likely to choose the Saver product (in order to take advantage of lower upfront 

mortgage insurance) and more likely to choose the adjustable-rate product (in order to 

save on interest costs and benefit from the credit line growth). 

 

n The older the borrower, the less benefit the borrower will derive from the Standard product because the borrower has fewer 

years of life expectancy over which to spread the higher upfront fees of the Standard product. 
60 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 23: HECM Saver volume and share by borrower age, FY 2011

Source: CFPB analysis of FHA data

Figure 24: HECM Saver market share, by rate type

Source: CFPB analysis of FHA data.
61 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

3.4 SHIFTS IN BORROWER USAGE PATTERNS

Borrowers today are taking out more cash upfront than in the past. This trend has 

been building slowly over time, but was exacerbated in 2009 when the new fixed-rate 

product requiring borrowers to take the full amount up front was introduced.

Meanwhile, the housing crash in 2008 appears to have triggered a significant slowdown 

in the rate at which borrowers repay their loans, but it is too soon to tell whether this 

trend will continue or revert to historical norms when the housing market recovers.154 

3.4.1 MORE BORROWERS TAKE MORE CASH UPFRONT

Over the last two decades, borrowers have been taking more and more of their reverse 

mortgage proceeds upfront.155 In 1990, the median borrower took out 36 percent of 

authorized loan proceeds within the first year.156 Throughout the 1990s and 2000s, the 

proportion of proceeds taken out upfront crept upwards. By 2008, the median 

borrower was taking out 88 percent of authorized loan proceeds within the first year –

nearly a full draw.157

As the market shifted toward fixed-rate lump-sum products in early 2009, the 

proportion of borrowers who took all of their loan proceeds upfront increased 

markedly. The increase in median upfront cash draws through 2008 suggests that many 

of the borrowers who chose fixed-rate loans since mid-2009 would have taken out 

most of their available proceeds upfront regardless of which product they chose. Many 

of these borrowers appear to be using the reverse mortgage not as a method for 

generating income to supplement expenses in retirement, but as a method to refinance 

their existing mortgage without incurring monthly mortgage payments. Data from one 

lender indicate that borrowers who use most or all of their proceeds in order to 

refinance an existing mortgage are more likely to choose a fixed-rate, lump-sum loan 

than borrowers who own their homes free and clear or who have only a small existing 

mortgage.158 Borrowers who refinance an existing mortgage with a reverse mortgage 

face increased risks, which are discussed in greater detail in Section 3.5. 

However, as shown in Figure 25, the market adoption of the fixed-rate, lump-sum 

product in early 2009 coincides with a 32 percentage point increase in the proportion 

of borrowers taking 90 percent or more of their available funds at closing. These 

figures strongly suggest that the fixed-rate, lump-sum product is largely responsible for 

increasing the proportion of borrowers taking all of their funds upfront. 
62 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 25: Borrowers taking a full draw at closing, 2008 & 2010

Loan type 2008 2010

Adjustable rate 98% 30%

 Less than full draw (<90% at closing) 57% 25%

 Full draw (90%+ at closing) 41% 5%

Fixed rate (lump sum) 2% 70%

Total 100% 100%

Borrowers taking 90%+ at closing 43% 75%

Source: CFPB analysis of FHA data.

There appears to be a significant segment of borrowers who are taking fixed-rate, 

lump-sum loans and taking sizeable cash payouts. According to data from one lender 

covering the two-year period after the fixed-rate product had come to dominate the 

market, nearly one-third of borrowers who owned their homes free and clear or had 

only a small existing mortgage balance chose a fixed-rate loan.159 As noted in Section 

3.3.2, this phenomenon is particularly pronounced among borrowers with lower home 

values. During the same time period, 28 percent of this lender’s fixed-rate, lump-sum 

borrowers took home more than $50,000 in cash at closing.160 

Data on how borrowers use these funds are not available. Some may be paying off 

other, non-mortgage debt, investing in home improvements, or taking care of other 

major expenses. However, to the extent that borrowers’ immediate expenses are less 

than their total proceeds, these fixed-rate borrowers may be saving or investing a 

portion of the proceeds. These borrowers may be earning less on the money than they 

are paying in interest on the loan, and might be better served by choosing an 

adjustable-rate loan that benefits from the line-of-credit growth feature discussed in 

Section 2.4.3. These borrowers also face increased risks of making poor investment 

choices or being targeted for fraud or other scams.

Around 70 percent of borrowers have chosen the fixed-rate product since mid-2009. 

Some of these borrowers have high upfront cash needs due to an existing mortgage, 

while other borrowers are taking large sums in cash for reasons that are less well 

understood. In contrast, borrowers who have chosen to stay with the adjustable-rate 

product are, for the most part, taking out much less in cash up front. After the 

introduction of the fixed-rate product, the upfront cash draw of the median adjustablerate borrower plummeted. Figure 26 reveals this emerging segmentation between fixedrate borrowers, who take a lump-sum at closing, and adjustable-rate borrowers, who 

are increasingly taking lower draws at closing. By mid-2011, the median adjustable-rate

borrower was taking out only 45 percent of available proceeds in cash.161 
63 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 26: Initial cash draws of adjustable-rate borrowers, 2006-2011

Source: CFPB analysis of FHA data.

3.4.2 TYPICAL LOAN TERMS HAVE LENGTHENED

Historically, the median reverse mortgage borrower repaid the loan after about 5 to 6 

years,162 despite having a life expectancy at origination of about 10 to 11 years.163 An 

analysis conducted in 2007 found that borrowers in their 60s at origination were less 

likely to live in the home for the rest of their lives than borrowers who were in their 

70s or 80s at origination. Borrowers in their mid-60s at origination paid off their loans 

6 to 8 times more quickly than would have been expected based on underlying agespecific mortality rates. Borrowers in their mid-70s paid their loans off about 2 to 3 

times more quickly, and borrowers in their mid-80s paid their loans off about 1.5 times 

more quickly, than underlying mortality rates would suggest.164

Starting in 2007, borrower payoff behavior changed markedly. Borrowers started 

repaying their loans more slowly. Figure 27 shows the cumulative proportion of loans 

paid off over time for each origination year from 2001 through 2010. The loans 

originated between 1990 and 2000 behaved similarly to each other, and are aggregated 

together to provide historical context. 

The 2005 origination year offers a clear example of how much loan terms have 

lengthened. Loans originated in 2005 reached their sixth year during 2011. Historically, 
64 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

at least 50 percent of borrowers would have paid off their loans by the sixth year. As 

shown in Figure 27, however, only 30 percent of loans originated in 2005 had been 

paid off by the sixth year. 

The 2001 through 2006 lines all have clear bends where they switch from a steeper to a 

flatter trajectory. The points at which the lines bend correspond approximately with 

the year 2007. This pattern is easiest to see for the 2005 origination year. The 2005 line 

separates from the rest of the pack at 24 months, which is in 2007. The same is true 

for the 2003 origination year (the curve bends at about 48 months, which is in 2007) 

and every other origination year from 2001 through 2006. The origination years 2007 

and later are all on a lower trajectory from the very beginning. 

The timing of this shift in borrower behavior suggests that the housing crash may be 

significant in explaining payoff behavior. The height of the housing bubble was in 2006 

and early 2007.165 By the end of 2008, many borrowers may have had little remaining 

equity in their homes due to the rising reverse mortgage balance coupled with home 

price declines. With little equity remaining, many borrowers who would otherwise have 

moved may not have had the financial resources to do so. 

Borrowers in origination years 2007-2010, who took out their loans during and after 

the housing crash, are already exhibiting lower pay-off rates than any prior origination 

year. For these borrowers, the overall market environment may be contributing to less 

mobility than in previous years. 
65 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 27: Cumulative proportion of loans paid off, by origination year, 

1990-2010.

Source: CFPB analysis of FHA data. 

When the dataset is restricted to just states hardest hit by the foreclosure crisis, the 

pattern is similar to that observed in Figure 27, but more pronounced. Compared to 

historical norms, payoff speeds increased during the boom, and then flattened out even 

more markedly than in Figure 27. The pattern also holds throughout the age 

distribution of reverse mortgage borrowers. As shown in Figure 28, the curves are 

flatter for borrowers in their 60s and steeper for borrowers 70 and older (reflecting 

shorter life expectances and more payoffs due to deaths in the older cohort), but the 

overall pattern is strikingly similar. 
66 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 28: Cumulative proportion of loans paid off, by age and 

origination year, 1990-2010.

Source: CFPB analysis of FHA data.
67 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

3.5 NEW RISKS TO CONSUMERS

This chapter has identified five key trends present among reverse mortgage borrowers:

• Today’s prospective borrowers are more likely to have substantial existing 

mortgage debt and/or consumer debt than the general population of older 

homeowners, and they are more likely to have mortgage debt than borrowers 

in the past. 

• Borrowers are taking more cash upfront than in the past. 

• Borrowers are more likely to be in their 60s at origination than in the past. 

• Borrowers in their 60s are more likely to have substantial existing mortgage 

debt than older borrowers.

• Borrowers in their 60s are more likely than older borrowers to choose a 

fixed-rate, lump-sum product. 

Taken together, these facts suggest that borrowers today are increasingly using reverse 

mortgages as a way to refinance existing mortgage debt – while eliminating their 

monthly mortgage payments – early in their retirement or even before reaching 

retirement. Data obtained by the CFPB from one reverse mortgage lender supports 

this conclusion. This pattern of use is very different from what was originally intended 

when the product was first developed, and poses several significant risks to the 

consumer. 

The original purpose envisioned for reverse mortgages was to enable older borrowers 

to convert home equity into cash they could use to help meet expenses in retirement.166

Borrowers could choose between an income stream for everyday expenses, a line of 

credit for major expenses (such as home repairs and medical expenses), or a 

combination of the two. It was anticipated that most, though not all, borrowers would 

use their loans to age in place, living in their current homes for the rest of their lives or 

at least until they needed skilled care. Upon the borrower’s death, or upon leaving the 

home, the borrower or the estate would sell the home to repay the loan and would 

receive any remaining home equity.

When borrowers instead use reverse mortgages as a method of refinancing an existing 

mortgage (or other debt), they essentially devote their existing home equity to servicing 

the debt on the property. While they gain additional cash flow (that previously was 

going to mortgage payments) for a period of time, they lose the ability to use their 

home equity as a cushion against other major expenses in retirement, such as needed 
68 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

home repairs or medical expenses. This risk is greater for the new surge of borrowers 

in their 60s with sizeable traditional mortgage balances and long life expectancies. 

Refinancing a traditional mortgage with a reverse mortgage may well be a good choice 

for borrowers in their 60s who have adequate retirement resources to cover everyday 

expenses and who are unable to continue working or whose employment income does 

not support the current mortgage. This type of borrower receives something of 

considerable value – the ability to remain in the current home indefinitely – in 

exchange for assuming a rising loan balance that will slowly consume the borrower’s 

remaining equity. 

Even for this relatively stable prospective borrower, however, choosing a reverse 

mortgage early in retirement is a riskier decision than it is for older borrowers with 

similar financial circumstances. Borrowers in their 60s have longer life expectancies 

than borrowers in their 70s. If borrowers in their 60s succeed in aging in place, they 

will most likely use up all of their home equity, but they will receive considerable 

benefit in exchange for that home equity. But if borrowers in their 60s do not succeed in 

aging in place indefinitely – if, due to health or other reasons they need to move at 

some point in their 70s or 80s – they are at high risk of having used up all of their 

home equity and having no financial resources with which to finance their move. 

Meanwhile, if prospective borrowers do not have adequate savings and other retirement 

resources and are instead struggling to make ends meet, using a reverse mortgage to 

refinance an existing traditional mortgage can result in even greater long-term financial 

risk to the borrower. Some prospective borrowers’ financial situations may be 

fundamentally unsustainable. Using a reverse mortgage to hold on to the home for the 

near term may simply postpone hard decisions, provide little long-term benefit to the 

borrower, and consume most or all of the borrower’s home equity in the process. This 

type of borrower is at high risk of getting behind on taxes and insurance, and facing 

foreclosure on the reverse mortgage. 

According to an industry poll, the vast majority of older homeowners say that they 

want to live in their homes for the rest of their lives.167 Nonetheless, some do 

downsize.168 Some portion of younger borrowers might be using reverse mortgages as 

a medium-term financing tool to increase cash flow prior to downsizing or otherwise 

selling their homes. In this case, there is less reason to be concerned that younger 

borrowers may be jeopardizing their long-term financial stability by tapping their home 

equity too early. However, traditional mortgage products may be more suitable for 

these borrowers than a reverse mortgage. Reverse mortgages carry a sizeable insurance 

premium to cover the risk that at the time the loan is repaid the loan balance will 

exceed the value of the home, either because the borrower outlived the actuarial tables 

or because home prices declined. If younger borrowers do not intend to live in the 
69 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

home long enough to need this coverage, traditional mortgage or HELOC financing 

may be a better option for those who can qualify.

In sum, reverse mortgage borrowers in their 60s, especially those seeking to refinance a 

sizeable traditional mortgage balance, are at higher risk than other borrowers of finding 

themselves with few financial resources with which to cover unexpected expenses or 

finance a move later in life. Prospective borrowers in their 60s with few other 

retirement resources may simply be prolonging an unsustainable financial situation by 

using a reverse mortgage to refinance a traditional mortgage. And prospective 

borrowers in their 60s seeking to use a reverse mortgage as a way to increase cash flow 

for a few years before moving may find that traditional mortgage products are better 

suited to their situation. 

Some borrowers also appear to be taking a lump sum upfront without refinancing a 

traditional mortgage. They too face increased risks of having fewer resources to draw 

upon later in life. Borrowers who save or invest the proceeds may be earning less on 

the savings than they are paying in interest on the loan, or they may be exposing their 

savings to risky investment choices. These borrowers also face increased risks of being 

targeted for fraud or other scams.
70 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

4. Market

The reverse mortgage market has changed dramatically in the past few years. 

Proprietary products, which had proliferated during the mortgage boom in 2006 and 

2007, completely evaporated in the subsequent recession. In late 2007, Ginnie Maeo

introduced a new securitization model that led to the development of a new fixed-rate 

product in which borrowers are required to take all of their authorized loan proceeds 

upfront in a lump sum. In early 2008, FHA issued guidance stating that this fixed-rate 

product could be structured as a closed-end loan. In April 2009, Fannie Mae,p which 

had been the dominant secondary-market purchaser of HECM loans since the 

program’s inception, began scaling back its presence in the market. In its place, Ginnie 

Mae-backed HECM Mortgage-Backed Securities (HMBS) have become the nearly

exclusive secondary-market instrument. 

In mid-2009, changes in the interest rate environment coupled with the exit of Fannie 

Mae and the shift to the Ginnie Mae securities altered the cost and benefit calculus –

for both consumers and lenders – of adjustable rate HECMs as compared to the new 

fixed-rate, lump-sum HECMs. In less than six months, the market share of fixed-rate 

HECMs swung from less than 10 percent to more than 60 percent of originated 

HECMs. Since August 2009, the market share of the fixed-rate, lump-sum product has 

ranged between 60 percent and 75 percent.

In October 2010, FHA introduced a variety of policy changes including a new product, 

the HECM Saver, which virtually eliminates the upfront mortgage insurance premium 

in exchange for lower proceeds available to the borrower. FHA also lowered the loan 

proceeds available to Standard HECM borrowers. 

 

o Ginnie Mae is a special-purpose government-sponsored secondary market facilitator dedicated to facilitating the 

securitization of FHA-insured mortgages.

p Fannie Mae and Freddie Mac are government-sponsored enterprises, also known as GSEs, dedicated to facilitating the 

securitization of traditional, non-FHA insured residential mortgages.
71 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

In early 2011, the two largest reverse mortgage lenders, Wells Fargo and Bank of 

America, announced their exit from the market. In April 2012, the largest remaining 

lender, MetLife, also announced its exit. These three lenders had large retail lending 

operations. With their departure, the market has become much more heavily 

dependent on mortgage brokers and small correspondent lenders.

4.1 SIZE OF THE MARKET

During the first decade of the HECM program’s existence, less than 10,000 loans were 

made each year. The program initially was authorized only as a demonstration program 

with specific caps on the number of loans that could be insured. In 1998, Congress 

made the HECM program permanent and expanded FHA’s authority to insure reverse 

mortgages.169 In the early 2000s, volume began to grow steadily, reaching 50,000 loans 

per year by 2005. 

Figure 29 provides three different measures of HECM origination volume over time:

• Number of loans. The number of loan originations peaked in FY 2009 at 

115,000 and fell to 72,000 by FY 2011.170 In total, 740,000 loans have been 

originated under the HECM program; about 582,000 are still outstanding.

• Home value. The dollar volume of originations can be measured by the 

home value at origination (or applicable FHA loan limit, whichever is less). 

Known as the maximum claim amount, this represents the maximum future 

value of the loan to investors at repayment, including compounded interest.171

By this measure, about $166 billion (not adjusted for inflation) has been 

originated over the history of the program. As of November 2011, $136 

billion is outstanding.172

• Initial Principal Limit. The initial principal limit is generally the actual cash 

amount borrowers are authorized to receive.173 For fixed-rate borrowers, this 

would represent the actual initial balance on the loan. For adjustable-rate 

borrowers, the initial balance is often less. By this measure, nearly $114 billion 

in loans (not adjusted for inflation) has been originated since the program’s 

inception. As of November 2011, about $92 billion is outstanding.

174
72 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 29: HECM loan volumes, FY 1990-2011.

Source: CFPB analysis of FHA data.

Figure 30 chronicles the increase in average home values and initial principal limits for 

HECM loans over time. 

The proprietary market is almost nonexistent today. Only one lender, Generation 

Mortgage, offers a product. Appendix I details the development of the proprietary 

market prior to the housing crash. 
73 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 30: Average home values* and initial principal limits for HECM 

loans, 1990-2011.

Source: CFPB analysis of FHA data.

4.2 A COMPLEX MARKET

Much like the traditional mortgage market, the reverse mortgage market includes 

several types of companies that fill different and sometimes overlapping roles. Loan 

originators are companies that take borrowers’ applications and arrange loans. Lenders 

underwrite and fund the loans. The originator and the lender can be the same, or 

separate, companies. 

Reverse mortgage lenders, like traditional mortgage lenders, do not typically want to 

hold reverse mortgage loans on their books until maturity. Instead, they sell the loans 

to a secondary market investor, or ultimate owner of the loan. By selling the loans into 

the secondary market, lenders free up capital to make new loans. The terms prevailing 

in the secondary market drive the pricing and product availability decisions made by 

lenders and brokers, ultimately having a profound impact on the options available to 

consumers.

Like traditional mortgage loans, reverse mortgage loans are originated through three 

channels: retail, wholesale, and correspondent.
74 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

• Retail. Large lenders employ a retail sales force to make loans directly. In the 

retail channel, the originator and the lender are the same company.

• Wholesale. Large lenders have business relationships with a network of 

independent brokers who facilitate and prepare loans for the large lender. The 

large lender then makes the loans using its funds. In the wholesale channel, the 

originator and the lender are different companies (the broker is the originator). 

• Correspondent. Correspondent lenders are not able to or do not wish to sell 

loans directly into the secondary market. These lenders have business 

relationships with other companies that do deal directly with the secondary 

market. The correspondent lender makes loans on its own behalf, using its 

own funds, and then sells the loans to the other company. Correspondent 

lenders generate loans through their own retail loan officers, brokers, and 

sometimes through other correspondent lenders.

In the traditional mortgage market, the government-sponsored enterprises (GSEs) 

Fannie Mae and Freddie Mac play an important role in purchasing mortgages from 

lenders. They package loans into securities and sell those securities to investors. In the 

reverse mortgage market, neither GSE is involved in purchasing HECMs. Today, the 

primary method of selling HECMs into the secondary market is through Ginnie Mae, a 

special-purpose government-sponsored secondary market entity that facilitates the

securitization FHA-insured mortgages. 175 Unlike the GSEs, Ginnie Mae does not 

purchase and securitize loans itself. Instead, it provides a government guarantee for 

securities packaged by individual securities issuers through its HECM Mortgage 

Backed Securities (HMBS) program. 

Securities issuers can be one of two types of companies. Some issuers are also retail 

lenders. These retail lender-issuers package securities containing loans that they 

originated themselves, bought from correspondent lenders, or sourced through

brokers. Other issuers are niche secondary-market intermediaries (referred to here as 

aggregator-issuers) that package securities primarily composed of loans bought from 

correspondent lenders or sourced through brokers. 

After packaging a security, issuers sell the security to Wall Street broker-dealers who 

place the securities with investors in the secondary market. The investors interested in 

purchasing HMBS are typically institutional investors such as pension funds, domestic 

banks, hedge funds, and money managers.176 

Ginnie Mae issuers are required to be the servicer of record for all the loans in their 

securities, which means that the issuer is responsible for servicing the loans in the 

future. While issuers may subcontract some of the day to day tasks of servicing the 

loan,177 they retain several financial and procedural obligations (discussed in greater 

detail in Section 4.4.3a). Thus, issuers are referred to throughout this report as issuerservicers. 
75 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 31 illustrates the reverse mortgage market relationships as they exist today.

Figure 31: Today’s reverse mortgage market

4.2.1 UNIQUE MARKET CHALLENGES FOR REVERSE MORTGAGES

Reverse mortgages are more complicated to sell and service than traditional mortgages. 

In a traditional mortgage, the exchange of money is straightforward. For a fixed-rate, 

lump-sum reverse mortgage, the cash flows are less predictable – the money is repaid 

in a lump sum at an uncertain date instead of being paid periodically over time. 

Historically, however, nearly all reverse mortgages were structured as adjustable-rate, 

line-of-credit or monthly disbursement plans. For these products, the exchange of 

money is not only less predictable, but also more complicated than in the traditional 

mortgage market. The reverse-mortgage market has to contend with the extra question 

of which entity will provide the cash to make future payments to the borrower. Figure 

32 illustrates this difference in cash flows between traditional mortgages and 

adjustable-rate reverse mortgages. The challenges this dynamic creates are discussed in 

greater detail in Section 4.4 and 4.5.3.
76 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 32: Difference in cash flows between traditional and reverse 

mortgages

4.3 THE HECM MARKET TODAY

The HECM market today is fragile, although there is substantial appetite for reverse 

mortgage securities among investors. High-profile exits of the largest lenders in 2011 

and 2012 have left the origination side of the market fragmented and unstable with 

more than 2,000 loan originators in a market that does just 70,000 loans a year.178

Meanwhile, the issuer-servicer conduit to the secondary market is heavily concentrated 

with only five companies actively securitizing new originations. The fixed-rate, lumpsum product continues to dominate the market with about 70 percent market share. 

Current market conditions make this product especially profitable to lenders, which 

has led to competition and innovation in consumer pricing. 

4.3.1 LENDER EXITS CREATE NEW DYNAMICS IN THE PRIMARY MARKET

The two largest originators, Wells Fargo and Bank of America, exited the market in 

2011. Together, they comprised 36 percent of the market. Wells Fargo cited concerns 

over the reputational risks of foreclosing on seniors due to tax and insurance defaults. 

Bank of America cited a need to refocus on its core business lines in the aftermath of 

the crisis.179 Financial Freedom, which had been a driving force in the industry in the 

early to mid-2000s but had been slowly losing market share in recent years, also 

announced its exit in 2011.180
77 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

MetLife, the third-largest originator prior to the exit of Wells Fargo and Bank of 

America, expanded rapidly in 2011 to absorb much of the market share left behind. By 

the fourth quarter of 2011, MetLife had captured 25 percent of the market between its 

retail and wholesale channels. But on April 26, 2012, MetLife announced its exit from 

the reverse mortgage business as part of the wind-down of its banking charter.181

Figure 33 shows how the key players in the market have changed between the fourth 

quarters of 2010 and 2011. The companies shaded in orange are no longer accepting 

new business. 

Figure 33: Top 10 originators, Q4 2010 & Q4 2011

Q4 2011

Retail Wholesale Total

Top 10 Originators # loans

% of 

total 

market

# 

loans

% of 

total 

market # loans

% of 

total 

market

METLIFE BANK, N.A. 2,539 18% 966 7% 3,505 25%

ONE REVERSE MORTGAGE LLC 1,263 9% 0 0% 1,263 9%

URBAN FINANCIAL GROUP 313 2% 627 5% 940 7%

GENWORTH FINANCIAL HM EQ ACC 381 3% 554 4% 935 7%

WELLS FARGO BANK NA 817 6% 0 0% 817 6%

GENERATION MORTGAGE COMPANY 322 2% 428 3% 750 5%

AMERICAN ADVISORS GROUP 626 5% 0 0% 626 5%

SECURITY ONE LENDING 256 2% 205 1% 461 3%

THE FIRST NATIONAL BANK LAYTON 298 2% 0 0% 298 2%

REVERSE MORTGAGE USA, INC 279 2% 0 0% 279 2%

Total Top 10 7,094 51% 2,780 20% 9,874 71%

Total 10,818 78% 3,046 22% 13,864 100%

Q4 2010

Total

Top 10 Originators # loans

% of 

total 

market

WELLS FARGO BANK NA 4,678 25%

BANK OF AMERICA NA CHARLOTTE 2,048 11%

METLIFE BANK, N.A. 1,519 8%

ONE REVERSE MORTGAGE LLC 1,005 5%

GENERATION MORTGAGE COMPANY 360 2%

1ST AA REVERSE MORTGAGE INC 336 2%

URBAN FINANCIAL GROUP 266 1%

FINANCIAL FREEDOM ACQUISITION 218 1%

SECURITY ONE LENDING 201 1%

AMERICAN ADVISORS GROUP 178 1%

Total Top 10 10,809 59%

Total 18,384 100%

Source: CFPB analysis of FHA data.
78 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

A number of nonbank originators with very different business models have emerged as 

the remaining major players in the industry. Urban Financial Group is a largely 

wholesale-driven lender relying on a network of brokers and is owned by Wall Street 

finance firm Knight Group. One Reverse Mortgage, a subsidiary of Quicken Loans, a 

privately held nonbank mortgage company, is an entirely retail, call-center-driven 

originator. Generation Mortgage is a nonbank, mostly wholesale-driven lender with 

some retail presence, backed by Guggenheim Partners, a privately held financial 

services firm. Genworth Financial Home Equity Access is an affiliate of a large 

insurance company, also relying largely on wholesale. Of these top four remaining 

originators, two (Urban Financial Group and Generation) are also active Ginnie Mae 

issuers. The other two (One Reverse and Genworth) are approved Ginnie Mae issuers 

but are not yet actively issuing securities.182 

4.3.2 FRAGMENTED ORIGINATIONS

As shown in Figure 33, prior to the exit of MetLife, only 51 percent of loans were 

originated by the top 10 retail lenders. Smaller retail or correspondent lenders 

originated 27 percent, and brokers in the wholesale channel originated 22 percent. The 

loss of MetLife’s 18 percent retail share and the final wind-down of Wells Fargo and 

Bank of America will make the originations market more heavily dependent on small 

brokers and independent mortgage companies than it has been. With the exception of 

One Reverse Mortgage, the remaining top lenders in the business are more wholesaleoriented than those that have exited. A recent industry report found that originations 

growth in the wholesale channel had surged in recent months, while retail originations 

had actually declined.183 

The reverse mortgage industry today is a crowded marketplace with low overall loan 

volume of only about 70,000 loans per year. Issuers need loans to fill their 

securitization pipelines, but there are few borrowers. In today’s market, at least half of 

all loans are originated through wholesale and small correspondent lenders, and 

borrowers are scattered across many originators. In 2011, the industry had over 2,000 

small originators, most of them brokers, doing a handful of loans a month.184

Competition among large lender-issuers for brokers’ and correspondents’ business is 

intense. According to industry rate sheets obtained by the CFPB, a large proportion of 

the secondary market premiums earned by issuers – that is, the amount paid by an 

investor to the issuer that exceeds the loan balance advanced to the borrower – is 

passed through to brokers and correspondents.

Some brokers, community banks, and small mortgage companies are primarily 

traditional mortgage businesses that may only do a reverse mortgage once every few 

months. Other brokers and small originators are dedicated reverse mortgage 

companies or divisions that are actively looking for customers. For these small 

companies, the difference between producing three loans a month and four loans a 
79 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

month is very important to the bottom line. Without the advertising budgets or brandname recognition of the larger lenders, small originators struggle to find interested 

clients. Given the size of the premiums that wholesale lenders and issuers are offering, 

aggressive sales tactics among originators could be a cause for concern. 

Many brokers also turn to lead-generation services, which sell lists of names of people 

who have supposedly expressed interest in a reverse mortgage.185 As discussed in 

Section 6.9.2, these lead- generation companies do not always follow good business 

practices, which can lead to frustration and wasted money for originators, and a poor 

experience for the consumer. 

4.3.3 HEAVILY CONCENTRATED CONDUIT TO THE SECONDARY 

MARKET

Today, almost all HECM loans are packaged into Ginnie Mae securities.186 The Ginnie 

Mae-based market is barely three years old and still faces challenges.187 As shown in 

34, only five issuer-servicers are actively packaging HECM securities from new 

originations.188 A larger number of entities are authorized issuer-servicers, but some 

have yet to actually issue any securities, preferring instead to sell their loans to existing 

issuer-servicers. The capacity of the issuer-servicer sector to buy loans and bundle 

securities shrank considerably with the departure of Wells Fargo, Bank of America, and 

Financial Freedom in 2011 and MetLife in 2012. In January 2011, Ginnie Mae also 

tightened its issuer requirements by increasing the net worth requirement from $1 

million to $5 million, which further limited the number of lenders eligible to become 

issuers.189 

Figure 34: Active Ginnie Mae issuers securitizing new originations, May 

2012

Issuer Channels Rate types Volume 

Jan 2012

Volume 

2011

Urban 

Financial 

Group

Small retail, larger 

wholesale, 

correspondent

Fixed & 

adjustable

$132m $1,556m

Generation 

Mortgage

Small retail, larger 

wholesale, 

correspondent

Fixed & 

adjustable

$80m $1,046m

Reverse 

Mortgage 

Solutions

Mostly 

correspondent

Fixed only $121m $871m

Sunwest 

Mortgage

Mostly wholesale Fixed & 

adjustable

$41m $354m

Live Well 

Financial

Mostly wholesale and 

correspondent

Fixed & 

adjustable

first issuance April 2012

Source: Ginnie Mae, interviews with industry participants.
80 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

The newest issuer is Live Well Financial, which obtained Ginnie Mae approval in 

January 2012 and issued its first security in April 2012.190 Nationstar Mortgage, a 

nonbank mortgage company, has recently acquired the reverse mortgage servicing 

portfolios of Bank of America and MetLife (pending regulatory approval).191 While 

Nationstar is not currently securitizing new originations, it could do so in the future. 

Industry participants have indicated that an accounting question about how to treat 

securitized loans is limiting the number of issuers actively issuing securities. Ginnie 

Mae requires the issuer to repurchase the loan when it reaches 98 percent of the 

maximum claim amount, as discussed in Section 4.4.3a.192 This requirement may mean 

that, under generally accepted accounting principles, issuers cannot claim “true sale” 

status for securitized loans and would have to continue to report securitized loans as 

liabilities on their balance sheets. Several large lenders approved by Ginnie Mae to 

issue HECM securities say they are refraining from securitizing reverse mortgages 

because of this uncertainty. 

4.3.4 FIXED-RATE, LUMP-SUM PRODUCT DOMINATES THE MARKET

Prior to 2009, nearly all HECMs carried adjustable interest rates. In the very early years 

of the program, the rates adjusted annually based on the one-year constant maturity 

treasury (CMT) rate. In the late 1990s, monthly adjustable loans replaced annually

adjustable loans as the dominant rate option, though the monthly adjustments were 

calculated using the same one-year CMT rate used in calculating annually adjustable 

HECMs. In October 2007, FHA published a rule allowing monthly adjustable rates to 

be calculated using the one-month LIBOR.193 By mid-2009, the monthly adjustable 

LIBOR had become the dominant adjustable-rate option.194 

In late 2007, a fixed-rate product previously offered by only one or two banks became 

more widespread, though volume remained low through 2008 and early 2009. The 

development of this product was enabled through the introduction of the Ginnie Mae 

securitization mechanism in late 2007, and a regulatory clarification issued by FHA in 

early 2008 that permitted the fixed-rate product to be structured as a lump-sum, 

closed-end loan.195 In mid-2009, Fannie Mae, the longtime buyer of HECM loans, 

began to exit the market. The new fixed-rate, lump-sum product rocketed from less 

than 10 percent of the market to more than 60 percent in less than six months. Since 

then, fixed-rate loans have ranged between 65 percent and 75 percent of the market. 

Figure 35 illustrates this transition from a mostly adjustable-rate to a mostly fixed-rate 

market. The events that led to this transition are discussed in more detail in Sections 

4.4 and 4.5.
81 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 35: HECM loan volumes by rate type, FY 1990-2011.

Source: CFPB analysis of FHA data.

4.3.5 HIGH SECONDARY MARKET PREMIUMS PROMPT LOWER FEES 

AND INTEREST RATES

Due to complex market forces discussed in greater detail in Section 4.5, issuers have 

been receiving exceptionally high premiums in the secondary market for some time. In 

mortgage finance, premium refers to the amount a secondary market investor pays the 

lender at the time of the loan’s sale that is above and beyond the loan balance 

advanced to the borrower. In the reverse mortgage market, the premium is paid to the 

Ginnie Mae issuer, which typically pays a portion of the premium to the broker, retail 

loan officer, or correspondent lender that originated the loan. Premiums do not 

translate directly into profit. In today’s market, some portion of the high premiums get 

returned to consumers as waived origination fees and/or lender-paid closing costs. 

Issuers and originators also must cover their expenses. 

In early 2012, investors in Ginnie Mae HECM securities were willing to pay between 

10 and 12 percent of the loan balance as a premium on fixed-rate HECMs.196

Adjustable-rate HECMs were commanding premiums of 6 to 9 percent of the loan 

balance.197 HECM Saver pools were on the lower end of those ranges.198 In contrast, 

typical premiums in the traditional mortgage market for market-rate loans are in the 1

to 4 percent range. 
82 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Enabled by the high secondary market premiums, competition has led issuers and 

lenders to reduce or eliminate origination fees, to begin paying closing costs on behalf 

of the borrower, and more recently to reduce interest rates. For reasons discussed in 

detail in Section 4.5.4b, most of these pricing changes have occurred on fixed-rate, 

lump-sum loans only. For most of 2011, the typical interest rate on a fixed-rate HECM 

was 5.06 percent. In March 2012, several major lender-issuers reported that their 

primary fixed-rate product was priced at 4.75 percent with zero origination fee.199 In 

early April, just before exiting the market, MetLife introduced a 4.5 percent fixed-rate 

product with zero origination fee.200 The latest available data on the market as a whole 

put the average fixed-rate product at 5.0 percent in March 2012. However, this data is 

based on FHA insurance endorsements of closed loans, which lag several months 

behind consumer prices in the market.201 

4.4 THE EVOLUTION OF THE HECM SECONDARY MARKET

Ginnie Mae securities have been the dominant secondary market vehicle for only the 

past three years. In the 23 years since the HECM program’s inception, the secondary 

market has evolved considerably. Previously, both Fannie Mae and Wall Street 

securitization houses participated in the HECM secondary market. Throughout the 

HECM program’s history, the various secondary market structures have had to 

contend with the unique challenge of future cash flows to the borrower described in 

Section 4.2.1. 

4.4.1 FANNIE MAE ENABLES EARLY HECM LENDING 

From the inception of the HECM program until the mid-2000s, Fannie Mae was the 

only secondary market investor. During the 1990s, HECM production was less than 

10,000 loans a year. Fannie Mae held these loans on its balance sheet and did not 

package the loans into securities. In its loan purchase agreement with lenders, Fannie 

Mae agreed to provide the funds for future payments to borrowers.202 At the time, 

nearly all HECMs were adjustable-rate, line-of-credit or monthly disbursement 

loans.203 There was little or no variation in the interest rate margin, which was 

effectively set by Fannie Mae. As the only investor, Fannie Mae set the terms under 

which it was willing to purchase loans. Fannie Mae reimbursed the lender for the 

upfront funds provided to the borrower but paid little, if any, premium.204 Lenders 

covered their expenses and made their profits primarily on the basis of upfront 

origination fees charged to the borrower.205 If the lender also serviced the loan on 

behalf of Fannie Mae, it would also earn monthly servicing fees. 
83 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

4.4.2 WALL STREET GAINS INTEREST AS THE HECM PROGRAM GROWS

In 1998, Congress authorized the HECM program permanently, ending its status as a 

pilot program.206 Between 2002 and 2005, HECM production increased significantly, 

reaching 50,000 loans in FY2005 and nearly 84,000 loans in FY2006.207 In late 2006, 

Wall Street emerged as an alternative source of secondary market investors. Using a 

securitization structure similar to that developed by Lehman Brothers in 1999 to 

securitize proprietary reverse mortgages, Bank of America Securities and later 

Deutsche Bank and RBS Greenwich Capital issued a series of private-label HECM 

securities between August 2006 and September 2007.208 In this case, the securities’ 

investors were responsible for funding future payments to borrowers. The 

securitization trust included a small pool of liquid assets for this purpose, which was 

replenished as individual borrowers died, moved out, or otherwise repaid their loans. 

The AAA-rated securities were attractive to investors because they offered a different 

risk profile as compared to other available investments. The underlying loans also

carried FHA insurance guaranteeing repayment of principal and interest regardless of 

the value of the home at the end of the loan.209 The Wall Street securitization houses 

were able to sell the securities into the market at higher prices than Fannie Mae was 

paying for the underlying loans. This enabled Wall Street to offer lenders higher 

premiums than Fannie Mae was offering for the same type of loans.210 As a result, 

secondary market share slowly shifted from Fannie Mae to the Wall Street 

securitization model. In FY2007, roughly 25 percent of HECMs (by dollar volume) 

were sold to Wall Street.211

4.4.3 GINNIE MAE ENTERS THE MARKET

By late 2007, Ginnie Mae had developed yet another alternative using a new 

securitization structure.212 As shown in Figure 36, the new structure altered the division 

of risk and responsibility within the market. In the private-label structure pioneered by 

Lehman Brothers and Bank of America, Wall Street securities houses purchased whole 

loans from lenders and made the securitization trust responsible for funding future 

payments to borrowers. In the Ginnie Mae model, secondary market securities 

investors purchase only the portion of the loan paid to the borrower in cash at the time 

of closing, and the reverse mortgage issuer-servicer is responsible for funding future 

payment to borrowers. Those future payments are then packaged into separate 

securities and sold into the market at a later date. A single reverse mortgage could be 

broken up into dozens of different Ginnie Mae securities.
84 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 36: Ginnie Mae securitization model

The issuer-servicer role was a new role for reverse mortgage market participants to 

play. In the old model, lenders simply sold their loans to Fannie Mae or a Wall Street 

investment bank and might or might not continue to service the loans on behalf of the 

investor in exchange for a monthly servicing fee.q In the new model, lenders had a 

choice: they could either become issuer-servicers and begin bundling securities 

themselves, or they could sell their loans to another market participant (usually a large 

lender or specialty servicer) that was an approved Ginnie Mae issuer-servicer. 

4.4.3a New risks for Ginnie Mae issuers

Becoming a Ginnie Mae issuer-servicer entailed accepting several risks and 

responsibilities that were previously borne by Fannie Mae or investors in Wall Street 

securities. First, issuer-servicers needed capital to fund the future repurchase of the 

loan. Because the FHA insurance program accepts loans for assignment (sale) to FHA 

once the loan value reaches 98 percent of its maximum claim amount (the appraised 

value at origination or applicable FHA loan limit, whichever is less), the Ginnie Mae 

 

q Specialty reverse mortgage servicers were available to accept the servicing contract if the lender preferred not to develop a

servicing business line. The major subcontracted servicers in the market today are Reverse Mortgage Solutions, an 

aggregator-issuer and servicer, and Celink, which specializes in subcontracted servicing only.
85 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

securitization agreements require the issuer-servicer to repurchase the loan from the 

pools when that threshold is reached.213 If the loan is in good standing, the issuerservicer can then assign (sell) the repurchased loan to FHA and receive reimbursement. 

However, the reimbursement can take up to 60 days to process, during which time the 

issuer-servicer must cover the cost of holding the loan.214 More importantly, if the loan 

is not in good standing (e.g., if the borrower has failed to pay taxes or insurance on the 

property), FHA will not accept the loan for assignment.215 In this case, the issuerservicer must continue to hold and service the loan until the borrower becomes 

current, until maturity, or until foreclosure.216 

Second, issuer-servicers needed ready, flexible access to capital in order to fund future 

payments to borrowers, which could be in unpredictable amounts at unpredictable 

times. Under the Fannie Mae and Wall Street models, the loan’s investor had funded 

these future draws. Under the Ginnie Mae model, the issuer-servicer was responsible.

Third, there was the risk that future market conditions might make it difficult to 

securitize and sell the future cash draws. If an issuer packaged an adjustable-rate, lineof-credit HECM into a security at LIBOR + 2.5 percent today, and two years from 

now the borrower requested a large cash draw but the secondary market was 

demanding LIBOR + 3 percent, the issuer would have to take lower revenue or even a 

loss on that particular draw in order to securitize it. 

4.4.3b Development of the fixed-rate, lump-sum product

Of the three new risks to Ginnie Mae issuer-servicers described above, the first risk 

applies equally to all HECMs. The second two risks, in contrast, are largely eliminated 

if the reverse mortgage is a fixed-rate, lump-sum loan as opposed to an adjustable-rate, 

line-of-credit or monthly disbursement loan. With a fixed-rate, lump-sum loan, there 

are no future draws to fund or securitize. 

Prior to the introduction of the Ginnie Mae securitization structure, fixed interest rates 

were technically an available option under HECM regulations, but only a small handful 

of fixed-rate loans were done each year. Historically, all HECMs had been structured 

as open-end loans, meaning that lenders wanting to offer a fixed-rate HECM had to be 

willing to take the interest rate risk of lending new money in the future at an interest 

rate fixed at origination.217 Very few lenders were willing to take that risk, and neither 

was Fannie Mae. Prior to November 2008, Fannie Mae did not purchase fixed-rate 

HECMs.218 

However, because adjustable-rate, open-end loans carried the additional risks and 

capital requirements under the new Ginnie Mae securitization model described above, 

issuer-servicers and Ginnie Mae gave new consideration to the idea of a closed-end, 

fixed-rate, lump-sum HECM. Industry participants approached FHA to inquire 
86 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

whether fixed-rate, lump-sum HECMs could be considered closed-end loans. On 

March 28, 2008, FHA issued new guidance stating that fixed-rate HECMs could be 

structured as closed-end loans, opening the door for widespread origination of the 

fixed-rate, lump-sum product.219

Ginnie Mae further bolstered the development of the new fixed-rate, lump-sum 

product through its issuer program. Initially, Ginnie Mae was more willing to approve 

applications to issue fixed-rate HECM securities than applications to issue adjustablerate HECM securities, because of the additional financial risks adjustable-rate issuance 

posed to issuer-servicers. As late as early 2011, several nonbank issuers had approval 

for fixed-rate issuance only.220

4.4.4 MARKET CRASH LEADS TO NEW MARKET REALITIES

The housing market crash in 2008 triggered a series of changes in the secondary 

market for HECMs that fundamentally reshaped the market and the offerings to 

consumers. 

The last private-label HECM securitization had been done in September 2007. During 

the turbulent markets of 2008, Fannie Mae and the new Ginnie Mae securities were the 

only options for originators looking to sell their loans. The first Ginnie Mae security 

was issued in November 2007, but it failed to attract interest from investors.221

Investors were wary from the unfolding mortgage and economic crisis and were 

unfamiliar with the new securitization structure. The anticipated cash flows from these 

securities were quite different than Ginnie Mae traditional mortgage-backed securities, 

and re-securitization mechanisms (which provide a wider array of cash-flow structures 

appealing to different types of investors) were not yet available.r As 2008 came to a 

close, only a handful of successful Ginnie Mae securities – some fixed-rate and some 

adjustable-rate – had been issued.222 The vast majority of HECM loans in 2008 were 

still adjustable-rate loans sold to Fannie Mae. 

 

r

As in the traditional mortgage market, investors in reverse mortgage-backed securities have different preferences for the 

type of cash flows and the risk profile of the securities they purchase. Ginnie Mae program rules require that all Ginnie Mae 

HECM Mortgage Backed Securities (HMBS) have a simple structure in which each investor receives a pro rata portion of loan 

repayments when they occur. This structure only appeals to a limited number of investors. In order to appeal to a wider array 

of investors, Ginnie Mae needed a structure to allow market participants to create a wider array of cash flow structure and risk 

profiles by creating new securities out of a set of underlying HMBS pools (i.e., re-securitizing the HMBS pools). 
87 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

While the new Ginnie Mae securitization model worked better with fixed-rate, lumpsum loans (as discussed in Section 4.4.3a) and the FHA had issued critical guidance in 

March 2008 stating that fixed-rate, lump-sum HECMs could be structured as closedend loans, the new product did not immediately gain much market share. The most 

likely explanation for this is that, at the time, borrowers received more loan proceeds 

with adjustable-rate loans. 

As discussed in Section 2.4.1a, FHA determines the proceeds that a borrower can 

receive based on the borrower’s age and the interest rate on the loan. For adjustablerate loans, the “expected rate,” or the sum of the lender’s margin plus a 10-year index, 

is used instead of the actual interest rate on the loan.223 Throughout 2008, fixed-rate 

HECMs carried higher interest rates than the expected rate on adjustable-rate HECMs 

due to underlying interest rate conditions. This meant that borrowers would receive 

substantially lower proceeds with the fixed-rate HECM than with the adjustable-rate 

product.s 

Beginning in April 2009, however, the fixed-rate, lump-sum product began to rapidly 

gain market share. Within six months, this product dominated the market. A number 

of factors contributed to this market shift, most notably changes in the interest-rate 

environment and disruptions in the secondary market. These changes altered lender 

incentives and increased the proceeds available to consumers with fixed-rate loans 

compared to adjustable-rate loans. 

In late 2008 and early 2009, lenders raised margins on adjustable-rate HECM loans 

from an average of 1.5 percent in July 2008 to an average of 2.6 percent by March 

2009. Several factors may have contributed to these margin increases, including 

changes to Fannie Mae pricing policies and sharp drops in underlying interest rates due 

to the Federal Reserve’s quantitative easing program to stabilize the economy.224 In 

April 2009, Fannie Mae – which was under pressure from its regulator to reduce the 

size of its portfolio – began to withdraw from the market by reducing the prices it paid 

lenders for their loans. These Fannie Mae pricing changes pushed margins on 

adjustable-rate HECMs higher still.225 By June 2009, average margins were 2.94

percent.226

In April 2009, a spike in the LIBOR swap rate combined with the margin increases on 

adjustable-rate HECMs to alter the choices faced by reverse-mortgage borrowers. The 

“expected rate” used to determine proceeds on adjustable-rate loans is the sum of the

 

s Loan proceeds are inversely related to the interest rate.
88 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

lender’s margin and the 10-year LIBOR swap rate.t The combined increase in these 

two components (shown in Figure 37) was enough to push the adjustable “expected” 

rate higher than the interest rate on fixed-rate loans for the first time in the history of 

the HECM program (shown in Figure 38). This meant that for the first time, fixed-rate 

loans offered higher loan proceeds than adjustable-rate loans, making fixed-rate loans 

substantially more attractive to borrowers than they had ever been. 

At the same time that this shift in relative proceeds was occurring, Fannie Mae was 

withdrawing from the market and pushing market share into Ginnie Mae securities. 

For over a year, issuers and their broker-dealer partners had been slowly educating the 

investor community about the value of Ginnie Mae-backed HECM securities 

compared to alternative investments.227 At the same time, Ginnie Mae had developed a 

structure for re-securitizing the HMBS pools that made them more attractive to a 

larger array of investors.228 The Ginnie Mae-based market was ready to absorb more 

loans just as Fannie Mae was retreating. Ginnie Mae market share picked up 

dramatically in the space of only a few months in mid-2009.229 By September 2009, 

Fannie Mae estimated that its market share of new loans was only about 10 percent.230

Most or all of the other 90 percent was going into Ginnie Mae securities. 

As discussed in Section 4.4.3b, Ginnie Mae had been reluctant to provide approval for 

adjustable-rate issuers because of the risks retained by these issuers. As a result, several 

issuers were only purchasing and securitizing fixed-rate loans in early 2009.231

In sum, secondary market forces in mid-2009 had both made the market better 

equipped to provide fixed-rate loans, and altered pricing conditions such that 

borrowers preferred fixed-rate loans. In the space of less than six months, fixed-rate 

loans went from less than 10 percent to more than 60 percent market share. Figure 37

and Figure 38 illustrate this transition. 

 

t

As discussed in Section 2.4.1a, according to FHA policy, adjustable-rate HECMs are underwritten for the purpose of 

determining the “initial principal limit” (i.e. the maximum amount of proceeds) using the 10-year LIBOR swap rate instead of 

the one-month LIBOR index used to actually price the loans. The loans are underwritten using the 10-year swap rate plus the 

lender’s margin; this composite rate for underwriting purposes is known as the “expected rate.”
89 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 37: Increased margins and spike in LIBOR swap rate produce 

higher “expected” rate 

Source: CFPB analysis of FHA data, Wall Street Journal (LIBOR), Federal Reserve (10-year LIBOR Swap).
90 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 38: Interest rates and fixed-rate market share 

Source: CFPB analysis of FHA data.

4.5 CONTINUED DOMINANCE OF THE FIXED-RATE, LUMP-SUM 

PRODUCT AND NEW APPROACHES TO PRICING

Since the market swung toward fixed-rate, lump-sum loans in mid-2009, these loans 

have continued to dominate the market. As discussed in Section 4.4, part of the reason 

that fixed-rate, lump-sum HECMs were able to capture more than two-thirds of the 

market in less than six months in 2009 was that the fixed-rate, lump-sum product 

provided more proceeds to consumers. By late 2011, initial loan proceeds had largely 

equalized between the fixed-rate and the adjustable-rate products. Yet fixed-rate, lumpsum HECMs still claimed about 70 percent market share in early 2012. 

There are several factors that contribute to this outcome. First, in the absence of a 

difference in proceeds, consumers clearly have a preference for fixed interest rates. 

Second, the Ginnie Mae-based secondary market is still immature, and challenges in 

the market may be limiting the capacity of some market actors to offer adjustable-rate 

loans. Third, pricing in the secondary market favors fixed-rate loans. That pricing 

difference may (a) encourage some loan originators to recommend the fixed-rate

product versus the adjustable-rate product to prospective borrowers, and (b) result in 

higher fees for the adjustable-rate product that could deter consumers from selecting 

this product. These factors are explored more fully in the following sections.
91 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

4.5.1 INITIAL LOAN PROCEEDS HAVE EQUALIZED BETWEEN FIXEDAND ADJUSTABLE-RATE LOANS 

In this era of very low interest rates, a previously little-known provision of FHA 

underwriting policy has emerged as a key force affecting market dynamics and, 

ultimately, the choices offered to consumers. Since the HECM program’s inception, 

FHA has used an interest rate “floor” for underwriting purposes.232 The floor rate has 

the effect of setting an upper limit on maximum allowable proceeds.233 If prevailing 

interest rates fell below the floor, originators were free to charge borrowers the lower 

rate, but borrowers would not receive any additional loan proceeds as a result. 

Historically, the floor rate was set at 5.5 percent, which for much of the program’s 

history was well below prevailing interest rates and thus had little practical impact. 

Starting in early 2009, prevailing interest rates had fallen such that the floor rate began 

to affect market dynamics. Figure 39 shows the same chart as Figure 38, this time with 

the FHA floor rate. In early 2009, the interest rate for fixed-rate loans begins to track 

the floor rate very closely. In October 2010, FHA lowered the floor for the first time 

in the history of the HECM program, from 5.5 percent to 5.0 percent.234 Interest rates 

on fixed-rate loans promptly fell to meet the new floor and stayed at 5.0 percent

through the end of 2011.

Lenders, counselors, consumer advocates, and other industry participants interviewed 

for this study unanimously report that as a general rule, the single most important thing 

to prospective reverse mortgage borrowers is how much money they can receive from 

the loan proceeds.235 Without the ability to offer more proceeds to borrowers, lenders 

and originators did not have a strong incentive to reduce the interest rates on fixed-rate 

loans below the floor. Some lenders reported experimenting with offering below-floor 

rates in 2010 and 2011, but they found that without higher proceeds, lower rates were 

ineffective in attracting more borrowers.236 

As noted in Section 4.3.5, more recently the continued high premiums in the secondary 

market coupled with intense competition among issuers for loans has prompted 

lenders to reduce rates below the floor. As of April 2012, many lenders were offering a 

4.75 percent fixed-rate loan with no origination fee, but several industry participants 

report that prevailing rates are still higher than they would be without the FHA 

floor.237
92 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 39: Interest rates, FHA floor rate, and fixed-rate market share

Source: CFPB analysis of FHA data.

In 2010, however, in lieu of lowering interest rates below the FHA floor, lenders began 

experimenting with ways to increase proceeds. The first innovation was the 

abolishment of the servicing fee set aside. Since the inception of the program, lenders 

had reduced borrowers’ net loan proceeds by an amount intended to cover the cost of 

future servicing fees. Starting in March 2010, several large lenders incorporated the 

servicing fees into the interest rate (as is standard practice in the traditional market) 

and eliminated the servicing fee set aside. This increased borrower proceeds by several 

thousand dollars.238 

At first, most lenders eliminated the servicing fee set aside on fixed-rate loans only. 

Within a few weeks, the no-servicing fee set aside fixed-rate loan had become the 

industry standard.239 Wells Fargo, however, eliminated the servicing fee set aside on 

fixed and adjustable rate loans simultaneously.240 Adoption was slower for adjustablerate loans, but within 12 months servicing fee set-asides were virtually non-existent on 

both fixed- and adjustable-rate loans.241

Starting in April 2010, lenders began experimenting with reducing or eliminating 

origination fees as well.242 Some lenders even began paying the upfront mortgage 

insurance premium or other closing costs on behalf of borrowers.243 These pricing 

changes generally differed between fixed-rate and adjustable-rate products and are 

discussed in more detail in Section 4.5.4b.
93 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

By mid-2010, average margins on adjustable-rate HECMs had fallen to 2.1 percent

(down from nearly 3 percent in mid-2009 when the market first transitioned from 

Fannie Mae to Ginnie Mae securities), a sign that the market was becoming more 

competitive. After fluctuating in late 2010 and early 2011, the 10-year LIBOR swap 

rate fell to its lowest level yet, pushing the “expected rate”244 used to determine the 

proceeds on adjustable-rate HECMs below the floor in late 2011, as shown in Figure. 

Immediately, margins started to tick up again as lenders were able to capture higher 

premiums in the secondary market while holding the expected rate steady as underlying 

interest rates continued to slide. With the FHA floor in place, the increased margins 

did not affect the amount of proceeds borrowers received. The higher margins did

increase the interest rate on the loans, however, which means that borrowers’ equity 

will get depleted more quickly. 

With both adjustable and fixed rates at or below the floor, consumers in late 2011 were 

presented with roughly equal proceeds regardless of whether they chose a fixed-rate, 

lump-sum loan or an adjustable-rate, line-of-credit or monthly payment loan. Yet 

fixed-rate market share continues to range between 65 percent and 75percent, due to a 

combination of consumer preferences for fixed interest rates generally, challenges in 

the market to offering adjustable-rate loans, and pricing in the secondary market.

4.5.2 CONSUMERS PREFER FIXED INTEREST RATES

Lenders and counselors interviewed for this study universally agreed that with initial 

proceeds roughly equal, many borrowers are simply uninterested in considering an 

adjustable-rate loan. After several years of housing-crisis headlines about the dangers 

of adjustable interest rates, borrowers appear to be transplanting the lessons from the 

traditional mortgage market into the reverse mortgage market with little adaptation. 

This bias towards fixed interest rates may be doing consumers a disservice when it 

comes to reverse mortgages, however.245 

Unlike in the traditional mortgage market, adjustable-rate reverse mortgages do not 

carry the risk of payment shock, as there are no mortgage payments required on a 

reverse mortgage. Moreover, the higher initial interest rates, coupled with the fact that 

fixed-rate loans require borrowers to take all of their available proceeds upfront as a 

lump-sum, may well mean that consumers stand to lose more of their home equity to 

compounded interest with a fixed-rate loan than with an adjustable-rate loan. Finally, 

the credit-line growth feature of the adjustable-rate, line-of-credit product in some 

ways compensates for the interest rate risk that adjustable-rate borrowers bear. If rates 

rise, borrowers’ home equity is depleted more quickly as interest accrues on the loan 

balance. However, because the growth rate of the remaining credit line is equal to the 

current interest rate plus the mortgage insurance premium, if interest rates rise, the 

amount of additional funds that the borrower can access increases at a greater rate as 

well. See Section 2.4.1a for more discussion of the credit line growth feature.
94 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

4.5.3 CHALLENGES IN THE MARKET TO OFFERING ADJUSTABLE-RATE 

LOANS

As discussed in Section 4.4.3a, adjustable-rate HECMs pose a unique capital 

requirement on issuers: the need to fund future draws, which are unpredictable in both 

timing and dollar size. Both the need for capital itself and the uncertainty around the 

timing and size of future draws are particularly problematic for smaller nondepositary 

and/or lightly capitalized issuers relying on warehouse lines of credit.u 

Since the market turmoil in 2008 and the switch to the Ginnie Mae securitization 

model in 2009, warehouse lenders have been generally unwilling to allow HECM 

issuers to use their warehouse lines of credit to fund future draws on adjustable rate 

loans.v Thus, nonbank issuers without access to a bank’s liquidity and resources (or a 

well-capitalized parent company) have been largely unable to issue adjustable-rate 

securities because they have no way to fund the future draws. 246 

Because of these risks, in the first two years of the Ginnie Mae program, Ginnie Mae 

was generally not approving nonbank mortgage companies to issue adjustable-rate 

HMBS securities. From the inception of the Ginnie Mae program through early 2011, 

Generation Mortgage and Urban Financial Group, the two largest issuers today, had 

approval for fixed-rate issuance only.247 

This dynamic limited the potential outlet for adjustable-rate loans in the recent past. 

Prior to their exit, Bank of America, Wells Fargo, and MetLife were the primary issuers 

of adjustable-rate securities. Having now received Ginnie Mae approval, Urban 

Financial Group and Generation Mortgage stepped in (along with MetLife, until its 

exit) to help fill the gap in adjustable-rate issuer capacity left by the departure of Wells 

Fargo and Bank of America, but they do not have the liquidity that the big banks had. 

With the departure of MetLife, internal funding constraints on the nonbank issuers 

could again limit the potential outlet for adjustable-rate loans. Reverse Mortgage 

 

u In mortgage finance, nonbank mortgage companies typically negotiate revolving credit lines, known as warehouse lines, 

with commercial banks. These warehouse lines are used to fund the mortgage company’s working capital needs, but they 

are subject to specific terms and conditions governing how the money can be used.

v In contrast, using warehouse credit lines to fund the initial advance to the borrower is permitted under the warehouse credit 

agreements currently in use by nonbank lenders and issuers. Industry experts have indicated concerns that the Ginnie Mae 

HMBS participation structure inhibits warehouse lending because the issuers are not able to pledge to the warehouse lender 

the participations created by the warehouse lending as collateral subject to repurchase.
95 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Solutions, the third-largest issuer today, is still only issuing fixed-rate HECM securities. 

Industry participants report, however, that warehouse lenders may soon begin offering 

credit lines that permit the funding of future draws.

4.5.4 PRICING IN THE SECONDARY MARKET FAVORS FIXED-RATE 

LOANS

As discussed in Section 4.3.5, issuers earn a premium when they securitize loans and 

sell them into the secondary market. That premium is structured as a percentage of the 

loan balance at closing, and the percentage rate is higher for fixed-rate loans than for 

adjustable-rate loans. As of early 2012, secondary market investors paid a premium of 

between 10 and 12 percent of the loan balance on fixed-rate loans, and a premium of 

between 6 and 9 percent of the loan balance on adjustable-rate loans. There are three 

primary reasons for this. 

First, the FHA floor, coupled with low underlying market interest rates and consumers 

who value loan proceeds more than other factors, has resulted in above-market interest 

rates for fixed-rate HECMs in recent years. Secondary market investors pay higher 

prices for higher interest rates, relative to alternative securities. While there is some 

evidence that the floor may be boosting the interest rates of adjustable-rate HECMs in 

recent months, the impact is not as large as on the fixed-rate side.248 

Second, the secondary market values HECM securities in part because of the stable 

rate of HECM prepayments.249 Unlike traditional mortgage borrowers, HECM 

borrowers do not generally refinance when rates fall. Investors are concerned that 

adjustable-rate borrowers may prepay at faster rates than fixed-rate borrowers.250 Thus,

investors are not willing to pay quite as high a premium for adjustable-rate HECM 

securities as for fixed-rate HECMs. As more data on adjustable-rate borrowers 

becomes available, the difference in premium may change depending on whether the 

data confirms or dispels this concern. 

Third, there is a chicken-and-egg problem with loan volume. The loan volume of 

adjustable-rate HECMs is low compared to fixed-rate HECMs, and some institutional 

investors are unwilling to invest in securities unless they can buy large, steady 

quantities. If adjustable-rate loan volume increases, secondary market premiums may 

drop initially as supply outpaces demand, but may rise in the long term relative to 

fixed-rate premiums as more buyers enter the market. 

4.5.4a Loan originators may have an incentive to recommend fixed-rate 

loans

Issuers earn their upfront revenues based on the loan balance at time of securitization, 

not the total authorized proceeds available to the borrower. Fixed-rate, lump-sum loans 
96 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

typically have a higher initial loan balance than adjustable-rate, line-of-credit loans. The 

higher balance, coupled with the higher percentage paid on that balance (as discussed 

above), mean that fixed-rate loans generate more revenue at time of origination. The

secondary market premium at origination is not the only component of loan profitability, 

however. 

Large lender-issuers will earn premiums from the secondary market as they securitize 

and sell each subsequent draw of an adjustable-rate loan. However, these future 

revenues are subject to more risk than the upfront revenues of a fixed-rate loan. For 

example, changing market conditions could alter the pricing that issuers receive from 

the secondary market. Alternatively, borrowers could move, die, or otherwise repay the 

loan without ever using much of their available credit lines. Nevertheless, lenderissuers can factor the future secondary market revenue of adjustable-rate loans, 

discounted for risk, into their profitability calculations. 

Retail lender-issuers do appear to be taking a long view of the profitability of 

adjustable-rate loans. They are adopting policies designed to ensure that their retail 

loan officers have no incentive to favor fixed-rate loans over adjustable-rate loans. 

Several large lender-issuers report that they compensate their company-branded, retail 

loan officers the same amount regardless of whether the loan is a fixed-rate, lump-sum 

loan or an adjustable-rate, line-of-credit or monthly disbursement loan. These lenders 

typically charge an origination fee on adjustable-rate loans, but the fee is paid to the 

corporate lender rather than to the retail loan officer. Retail loan officers at these 

lender-issuers earn a fixed percentage of either the initial principal limit or the 

maximum claim amount (depending on the lender), neither of which varies based on 

the consumer’s choice of product.251

Non-issuer lenders and brokers face a different set of circumstances. Once a 

correspondent lender or broker sells or places a loan with an issuer, its involvement 

with the loan is finished. Thus, for a correspondent lender or broker, the amount of 

the loan balance at time of closing and the premium it earns on the basis of that loan 

balance is very important to profitability. Today, aggregator-issuers’ pricing policies for 

correspondent lenders and compensation policies for brokers typically mirror the 

revenues that aggregator-issuers earn in the secondary market. Correspondent lenders 

and brokers earn a percentage of the funded loan balance at closing. Adjustable-rate 

loans not only have lower balances at closing, but the percentage rate applied to that 

balance is lower.252 As a result, most correspondent lenders and brokers charge 

origination fees for adjustable-rate loans. The potential impact of this pricing 

difference is discussed in the next section. 

Even with an origination fee, in some cases broker or correspondent loan originators 

may still earn lower revenues on adjustable-rate loans than on the comparable fixedrate product. According to industry rate sheets obtained by the CFPB, the percentage 
97 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

rate that brokers are paid on fixed-rate loan balances is nearly twice that of adjustablerate loans.253 Accordingly, some originators may be recommending the fixed-rate 

product more strongly than – or even to the exclusion of – the adjustable-rate product 

to prospective borrowers. Anecdotally, multiple HECM counselors interviewed for 

this study reported that some clients reported having only been presented with the 

fixed-rate product by their loan originator.

With the exit of Wells Fargo, Bank of America, and MetLife, the remaining issuers are 

all nonbank mortgage companies relying heavily on wholesale and correspondent 

channels, where the financial incentives for loan originators are more heavily tilted 

towards fixed-rate loans. Figure 40 illustrates the stark difference between the large 

retail players that have now left the market (shown in orange) and the remaining top 10 

originators in terms of the balance between fixed-rate and adjustable-rate loans.

Figure 40: Adjustable and fixed-rate market share, by originator, Q4 

2010 & Q4 2011

Q4 2010 Q4 2011

Originator Fixed Adjustable Fixed Adjustable

METLIFE BANK, NATIONAL ASSOCIATION 44% 56% 39% 61%

BANK OF AMERICA NA CHARLOTTE 56% 44% - -

WELLS FARGO BANK NA 35% 65% 46% 54%

GENERATION MORTGAGE COMPANY 89% 11% 76% 24%

URBAN FINANCIAL GROUP 86% 14% 90% 10%

AMERICAN ADVISORS GROUP 79% 21% 77% 23%

GENWORTH FINANCIAL HM EQUITY ACCESS INC 76% 24% 67% 33%

SECURITY ONE LENDING 90% 10% 74% 26%

ONE REVERSE MORTGAGE LLC 86% 14% 66% 34%

THE FIRST NATIONAL BANK LAYTON - - 89% 11%

Source: CFPB analysis of FHA data.

In theory, large aggregator-issuers could estimate their future revenues from 

adjustable-rate loans and pay their suppliers (correspondent lenders and brokers) 

higher upfront premiums based on the initial principal limit (or other metric) rather 

than the loan balance at time of closing. Prior to its exit, MetLife had begun to 

experiment with various methods of raising the amount paid to brokers and 

correspondents on low-balance, adjustable-rate loans.254 However, given that 

correspondents and brokers have a choice as to which issuers they work with on a 

loan-by-loan basis, in the short term, issuers following this strategy are at risk of 

adverse selection.255

4.5.4b Consumer-facing pricing structures are different for fixed-rate 

versus adjustable-rate loans

The high secondary market premiums have allowed originators to reduce or even 

eliminate the origination fees they charge borrowers. In some cases, originators have 
98 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

even begun paying third-party closing costs and/or FHA’s upfront mortgage insurance 

premium (MIP) on behalf of the borrower.256 

In most cases, originators charge lower upfront fees for fixed-rate loans than for 

adjustable rate loans. Fixed-rate, fully drawn loans not only earn a higher percentage 

premium in the secondary market, but they earn that premium on a higher loan 

balance. Thus, there is more money in the equation for fixed-rate loans, making it 

easier to return more of that money to consumers in the form of waived origination 

fees and lender-paid discounts on closing costs and/or MIP. 

Fixed-rate loans are also subject to a different regulatory regime than adjustable-rate 

loans. This regulatory difference tends to encourage zero origination fees for fixed-rate 

loans. As explained in Section 5.1.1b, under the mortgage loan originator (MLO) 

compensation rules under the Truth in Lending Act (TILA) that became effective in 

April 2011, brokers can receive compensation from only one source (consumer or 

lender) for closed-end loans.257 In today’s reverse mortgage market, closed-end loans 

are synonymous with fixed-rate loans.w In the wholesale channel, brokers and lenders 

have universally opted for the lender-paid model. Under the lender-paid model, the 

lender controls the pricing of the loan, any origination fee is paid to the lender and not 

to the broker, and the lender compensates the broker based on a fixed percentage of 

the loan balance.258 Retail and correspondent lenders typically have a similar 

arrangement, in which the origination fee is paid to the lender and the lender 

compensates its loan officers separately. In today’s market, consumers will typically 

encounter a zero origination fee fixed-rate loan no matter where they shop. Some 

lenders also offer additional lender credits to cover a portion of the loan’s closing 

costs.

In contrast, adjustable-rate loans, which are open-end loans, are not subject to the 

MLO rule’s prohibition on compensation from more than one source.259 Thus, brokers 

are permitted to receive compensation from two sources on adjustable-rate loans – a 

small premium from the lender based on the typically smaller balance at closing, and an 

origination fee from the borrower. Individual brokers choose how much of an 

origination fee to charge (within HECM guidelines). Some brokers report charging an 

 

w Adjustable-rate loans, in contrast, are open-end loans. Open end loans (e.g., a line of credit) allow additional amounts to be 

borrowed after closing, subject to the conditions of the loan. Closed-end means that the loan is for a fixed amount and 

additional principal amounts cannot be borrowed after closing. The fixed-rate, closed-end / adjustable-rate, open-end 

categorization is market-driven rather than regulatory. In theory, fixed-rate loans could be open-end, and adjustable-rate 

loans could be closed-end, but such combinations are not present in the market today. 
99 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

origination fee on adjustable-rate HECMs at all times, while others report waiving or 

discounting that fee if the balance at closing is high enough for the broker to make 

sufficient revenue from the premium.260 

In the retail and correspondent channels, the lender sets the origination fee on both 

fixed-rate and adjustable-rate loans. Generally, adjustable-rate loans will carry an 

origination fee while fixed-rate loans will not.

There is some evidence to suggest that the presence of an origination fee on 

adjustable-rate products could impact borrower decisions. On fixed-rate products, 

most lenders offer a few different combinations of interest rate and origination fee (a 

lower rate is available with a higher origination fee). Industry participants interviewed 

for this study report that the vast majority of consumers choose the zero-fee loan with 

the higher rate. Thus, it seems possible that when faced with a choice between a zerofee fixed-rate loan and a several thousand dollar origination fee for the adjustable-rate 

loan, borrowers might opt for the zero-fee fixed-rate loan. 

Moreover, higher upfront fees for adjustable-rate loans introduce a slight difference in 

net proceeds between fixed-rate and adjustable-rate loans. Origination fees, closing 

costs, and upfront MIP (in the case of HECM Standard loans) are typically financed 

into the loan and thus reduce the net proceeds available to the borrower. As borrowers 

have historically displayed a strong sensitivity to loan proceeds, this slight difference in 

net proceeds could prompt some borrowers to choose the fixed-rate product. 
100 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

5. Regulatory Structure

The regulatory structure that applies to the reverse mortgage industry is very different 

from that of most other consumer financial products because of the dominance of the 

FHA-insured HECM products in the marketplace. FHA program regulations apply 

only to FHA-insured HECM products – which means they cover almost all, but not 

quite all, of the market. 

Several states have adopted laws and regulations that extend HECM-style protections 

to proprietary products and/or require lenders to submit proprietary products to state 

regulators for approval. A few states have gone above and beyond the FHA rules to 

place additional requirements on HECM and proprietary products alike. 

Federal banking regulators have been involved in the regulation of reverse mortgages

through implementation of federal consumer financial protection laws applicable to 

consumer credit generally. As explained below, federal regulations implementing the 

Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) 

set forth protections applicable to reverse mortgages. Most recently, the Federal 

Financial Institutions Examinations Council (FFIEC) issued guidance in 2010 

encouraging supervised entities offering proprietary reverse mortgage products to 

adopt HECM-style consumer protections as a best practice. 

With the exit of Wells Fargo, Bank of America, OneWest (the current parent company 

of Financial Freedom), and MetLife from reverse mortgage lending, the market share 

subject to oversight by federal banking regulators has substantially decreased. Most of 

the remaining large reverse mortgage lenders are nonbank financial companies. In the 

past, these companies would have been supervised only at the state level. The CFPB 

now has the authority to supervise these nonbank reverse mortgage companies for the 

first time at the federal level. 

The broad federal consumer protection statutes that apply to reverse mortgages are 

rarely tailored to the particular features of these products. Thus, some of these 

protections are of limited use to reverse mortgage borrowers and prospective 

borrowers. In 2010, the Board of Governors of the Federal Reserve System (the 

Board) issued a proposed rule that would have extended several HECM-style 

consumer protections to the proprietary market, and improved the usefulness of 
101 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

reverse mortgage disclosures to potential borrowers. Authority and responsibility for 

this proposed rule transferred from the Board to the CFPB on July 21, 2011. 

5.1 FEDERAL CONSUMER PROTECTION REGULATION

Like traditional mortgages, reverse mortgages are subject to federal laws governing

mortgage lending, including TILA, RESPA and fair lending laws such as the Equal 

Credit Opportunity Act (ECOA).

261 These laws and their implementing regulations set 

forth important protections for all mortgage borrowers, including reverse mortgage 

borrowers. However, many of the protections are not tailored to the unique needs of 

reverse mortgage consumers. In the Dodd-Frank Act, Congress granted the CFPB the

authority to implement TILA and RESPA, as well as other federal consumer financial 

protection laws and fair lending laws applicable to reverse mortgages.

5.1.1 TRUTH IN LENDING ACT

TILA and its implementing regulation, Regulation Z, set forth rules regarding 

disclosure of information, finance costs, and borrower rights in connection with 

reverse mortgage transactions. Only some of the disclosures are specific to reverse 

mortgages. 

Reverse mortgage consumers receive different documents at the time an application is 

provided. The specific disclosure documents depend on whether a reverse mortgage is 

open- or closed-end. Generally, fixed-rate reverse mortgages are structured as closedend loans, while adjustable-rate reverse mortgages are structured as open-end loans, 

though future product innovation could produce other combinations. Figure 41

explains the different disclosures. 
102 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure 41: TILA disclosures by loan type.

Disclosure 

Requirements

Loan Type

Closed-end Open-end

Typical rate type* Fixed rate Adjustable rate

Pre-application 

disclosures

None for fixed-rate loans.

In the event an adjustable-rate, 

closed-end product were to be 

developed, the lender would be 

required to provide the 

consumer with a booklet 

entitled “Consumer Handbook 

on Adjustable Rate Mortgages” 

(CHARM Booklet).262

Standardized HELOC brochure, 

or a suitable substitute.263

Disclosures that contain 

information about the creditor’s 

open-end reverse mortgage 

plans.264 These disclosures do 

not include consumer-specific 

information.

Post-application 

disclosures

Early TILA disclosure within 

three business days after 

application (but no less than 

seven business days before 

closing, and before the 

consumer has paid any fee 

other than for obtaining a credit 

history).

None.

Pre-closing 

disclosures

Reverse mortgage-specific 

disclosure provided at least 

three business days before 

closing, to include information 

on the loan terms, itemized 

charges, and a total annual loan 

cost (TALC table). (See 

discussion below).

Reverse mortgage-specific 

disclosure provided at least three 

business days before account 

opening, to include information 

on the loan terms, itemized 

charges, and a total annual loan 

cost (TALC table). (See 

discussion below).

Closing 

disclosures None required.

Disclosure of transaction-specific 

costs and terms at the time that 

an open-end reverse mortgage 

plan is opened.265

*Note: According to FHA Mortgagee Letter 2008-08, fixed-rate reverse mortgages can be open-end or 

closed-end, though in practice the CFPB is not aware of any lenders making open-end, fixed-rate 

HECMs. HECM regulations do not specifically permit nor prohibit closed-end, adjustable-rate loans, 

though in practice the CFPB is not aware of any lenders making these loans. 

Because TILA applies provisions and regulations designed for traditional mortgages to 

reverse mortgages, many of the documents required by TILA are not tailored to 

reverse mortgages. For instance, the HELOC brochure required for open-end reverse 

mortgages does not contain information specific to reverse mortgages.266

5.1.1a Reverse-mortgage specific provisions

TILA establishes additional requirements applicable specifically to reverse mortgage 

transactions. These requirements state that reverse mortgage consumers shall receive 

disclosures substantially similar to the model form included in the appendix to 

Regulation Z at least three business days before obtaining the reverse mortgage.

267 The 

disclosure must:
103 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

1. State that the consumer is not obligated to complete a reverse mortgage 

transaction even though the consumer received disclosures or signed a reverse 

mortgage loan application;

2. Include itemized loan terms, charges, age of the youngest borrower, and the 

appraised property value; 

3. Set forth a good faith projection of the total cost of credit expressed as a table 

of “total annual loan cost” (TALC) rates; and 

4. Provide an explanation of the TALC table.268 

All reverse mortgage creditors must provide the TALC disclosure. The TALC table is 

designed to show consumers how the cost of the reverse mortgage varies over time 

and with house price appreciation. Generally, the longer the consumer keeps a reverse 

mortgage the lower the relative cost will be because the upfront costs of the reverse 

mortgage will be amortized over a longer period of time. Thus, the TALC rates usually 

will decline over time even though the total dollar cost of the reverse mortgage rises 

over time due to interest and fees being charged on an increasing loan balance. 

The Board tested the TALC rate disclosure with consumers prior to proposing new 

reverse mortgage disclosures.269 Participants were shown a disclosure with the TALC 

table as currently required by Regulation Z. According to the Board, very few 

consumers understood the TALC table, and some could not even attempt to explain 

what it was showing. The Board found that most participants “thought the TALC rates 

shown were interest rates, and interpreted the table as showing that their interest rate 

would decrease if they held their reverse mortgage for a longer period of time.”270

Consumers indicated a preference for a disclosure that set forth the costs of a reverse 

mortgage as a dollar amount rather than as a percentage of costs incurred over the 

duration of the mortgage. 271 

In 2010, the Board published for public comment a proposed rule, which is discussed 

in detail in Section 5.5, to address many of the issues identified here. The CFPB now 

has the responsibility for any further rulemaking activity. 

5.1.1b Mortgage loan originator compensation

On September 24, 2010, the Board finalized a rule amending Regulation Z to 

implement TILA with respect to mortgage loan originator compensation for all closedend mortgages, including both traditional mortgages and closed-end reverse 

mortgages.272 The rule sets forth the manner in which mortgage loan originators may 

be compensated.273 For closed-end reverse mortgages, which in today’s market are 

synonymous with fixed-rate, lump-sum reverse mortgages, a mortgage loan originator 

may not receive compensation based on the reverse mortgage transaction’s terms and 

conditions.274 For example, an originator of a closed-end reverse mortgage may be 
104 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

compensated based on a fixed percentage of the credit extended, but not on a term or 

condition of the mortgage, such as the interest rate.275 Further, mortgage brokers may 

receive compensation from only one source – either the consumer or the lender -- for 

closed-end loans.276 

In contrast, open-end reverse mortgage loans, which in today’s market are synonymous 

with adjustable-rate loans, are not subject to the mortgage loan originator 

compensation rules. Thus, for an open-end reverse mortgage, a mortgage loan 

originator is not barred by the rule from receiving compensation from more than one 

source or from receiving compensation that is based on the terms or conditions of the 

open-end reverse mortgage.

277 

5.1.2 REAL ESTATE SETTLEMENT PROCEDURES ACT

RESPA and its implementing regulation, Regulation X, set forth, among other things, 

rules regarding the disclosure of settlement costs and fees and the servicing of 

mortgage transactions. 

The rules set forth in RESPA and Regulation X apply to reverse mortgage 

transactions. RESPA and Regulation X require that a lender provide a Good Faith 

Estimate (GFE) to a reverse mortgage consumer within three business days after a 

lender receives an application.278 Further, settlement agents are required to use the 

HUD-1 settlement statement for reverse mortgage transactions.279 The Department of 

Housing and Urban Development (HUD), which had authority to implement RESPA 

prior to the transfer of this authority to the CFPB under the Dodd-Frank Act,

published “New RESPA Rule FAQs” in 2010 that provided guidance to reverse 

mortgage lenders on adapting these forms for use in reverse mortgage transactions.280

Rules in RESPA and Regulation X with respect to mortgage loan servicing also apply 

to reverse mortgages.281 Further, like other mortgage lenders, reverse mortgage lenders 

may neither pay nor accept any fee or other thing of value in exchange for the referral 

of business related to a reverse mortgage transaction.282

In accordance with the Dodd-Frank Act, the CFPB plans to issue a proposal in July 

2012 to integrate the separate disclosures required by TILA and RESPA into a new 

combined disclosure statement. Though the integrated disclosure statement currently 

contemplated by the CFPB will not apply to reverse mortgages, the CFPB expects 

separately to undertake a project to integrate TILA and RESPA disclosure 

requirements with respect to reverse mortgage transactions.
105 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

5.1.3 EQUAL CREDIT OPPORTUNITY ACT

ECOA and its implementing regulation, Regulation B, set forth rules prohibiting 

discrimination by a creditor on the basis of age (or race, color, religion, national origin, 

sex or marital status) with respect to any aspect of a credit transaction. ECOA covers 

both intentional discrimination (disparate treatment) and also facially neutral practices 

that have a disparate impact on a prohibited basis, including age. Regulation B also 

prohibits creditors from making statements to applicants or prospective applicants 

discouraging – on a prohibited basis – a reasonable person from making or pursuing 

an application. 

Reverse mortgages are available only to consumers 62 years of age and older. As 

discussed in Section 2.4.1a, the amount that a consumer can borrow is partly a 

function of the consumer’s age. This is permissible under Regulation B.283 However, 

fair lending concerns can still arise in the reverse mortgage context. For example, if a 

lender that offers a range of lending products including reverse mortgages were to 

discourage creditworthy applicants over age 62 from applying for alternatives to a 

reverse mortgage, the lender could risk violating Regulation B.

5.2 FHA REGULATION OF REVERSE MORTGAGES THROUGH THE 

HECM PROGRAM

Because the vast majority of reverse mortgages are insured under the HECM program, 

regulations implementing the HECM program have a substantial impact on the reverse 

mortgage market. However, HECM program regulations are narrower in scope than 

consumer protection regulations in two important ways. First, HECM program 

regulations are applicable only to FHA-insured loans and do not directly impact the 

smaller proprietary market. Second, HECM program regulations exist primarily to 

establish the conditions under which FHA will accept HECM mortgages for insurance. 

HECM borrowers have been unsuccessful in enforcing HECM program requirements 

against lenders in private litigation.284 

Congress established the HECM program as a pilot program in the Housing and 

Community Development Act of 1987.285 In 1998, Congress made the HECM 

program permanent and expanded FHA’s authority to insure reverse mortgages to 

150,000 total loans.286The cap has since been raised to 275,000.287 However, as of 

November 2011, there were nearly 550,000 HECMs outstanding. For the past several 

years, the HECM program has been operating under a series of waivers exempting the 

program from the loan volume cap that were passed during the appropriations process. 

The most recent waiver expires on December 31, 2012.288 

HUD, through FHA, administers the HECM program and is authorized to implement 

the program through regulations.289 HUD further supplements the regulations through 

interpretative guidance. These interpretations are provided in HUD’s HECM 
106 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Handbook and through a series of “Mortgagee Letters” directed to private lenders 

participating in the HECM program. The HECM Statute, the HECM Regulations, the 

HECM Handbook and the Mortgagee Letters all serve to guide the reverse mortgage 

market. 

5.2.1 CONDITIONS OF THE HECM PROGRAM

The HECM Statute states that the Secretary of HUD may insure any HECM eligible 

for insurance to the extent such mortgages “(1) have promise for improving the 

financial situation or otherwise meeting the special needs of elderly homeowners; (2) 

will include appropriate safeguards for borrowers to offset the special risks of such 

mortgages; and (3) have a potential for acceptance in the mortgage market.”290 To be 

eligible for insurance as a HECM, a reverse mortgage must meet certain eligibility 

requirements and satisfy certain consumer protections as explained in Section 2.3. 

The Housing and Economic Recovery Act of 2008 (HERA) made several amendments 

to the HECM Statute. Among other things, HERA authorized HUD to insure reverse 

mortgages for cooperatives and reverse mortgages used to purchase property.291

HERA also prohibited reverse mortgage lenders or any other party from requiring the 

borrower to purchase insurance, an annuity, or other similar product as a condition of 

obtaining a HECM.292 Moreover, HERA requires that reverse mortgage lenders and 

any other party that participates in the origination of a HECM must either:

1. Refrain from participating in, being associated with, or employing any party 

that participates in or is associated with any other financial or insurance 

activity; or 

2. Demonstrate that appropriate safeguards are in place to ensure that (a) 

personnel involved in the reverse mortgage transaction have no involvement 

with or incentive to provide any other financial or insurance product and (b) a 

borrower will not be required to purchase any other financial or insurance 

product as a condition of obtaining a HECM.293

5.3 STATE-LEVEL REGULATION & OVERSIGHT

State regulation of reverse mortgages generally takes a three-prong approach focusing 

on licensing, supervision, and enforcement. State banking regulators, insurance 

regulators, and other state agencies may be involved. Over half of all states have 

regulations specific to reverse mortgages. There was an increase in state regulation 

after the enactment of HERA in 2008, the Secure and Fair Enforcement for Mortgage 

Licensing Act of 2008 (SAFE Act), and the Dodd-Frank Act. Many states have 

consumer protections that expand upon those provided by federal law. 
107 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

5.3.1 STATE LEGISLATION

State legislation has focused on deceptive marketing techniques, the adequacy of

disclosures and counseling, and the dangers of cross-selling unsuitable financial or 

insurance products with a reverse mortgage. Specific provisions are discussed in 

greater detail in the Consumer Protection Concerns chapter. Recent state legislative 

proposals have considered strengthening consumer protections for reverse mortgage 

borrowers by extending a consumer’s right of rescission and calling for the imposition 

of a fiduciary duty on those who offer, sell, or arrange the sale of a reverse mortgage.294 

5.3.2 STATE OVERSIGHT

State oversight of reverse mortgage lenders and brokers includes licensing, 

examination, and enforcement actions. Many state enforcement actions have focused

on deceptive marketing techniques. These actions are discussed in greater detail in 

Section 6.2. Meanwhile, concern over lending practices has led some states to expand 

oversight to include prior approval of the specific reverse mortgage lending programs 

offered, in addition to licensing requirements.

5.3.2a Lender & product licensing

In 2008, Congress enacted the SAFE Act, which is implemented by the CFPB’s 

Regulation H. As a result, states have established uniform methods for registering and 

licensing mortgage loan originators, including reverse mortgage loan originators and 

brokers.295 Some states have sought to expand consumer protections by requiring the 

licensing not only of entities and individuals but of reverse mortgage lending programs 

as well. In Iowa, a financial institution must submit to regulators a prototype plan for 

offering reverse mortgages before making reverse mortgage loans.296 In Massachusetts, 

the Commissioner of Banks must review and approve reverse mortgage lending 

programs, and cannot approve a program that does not provide for specific disclosures 

and protections.

297 Washington requires proprietary reverse mortgage loan products to 

be preapproved by the state banking department.298 

Some state regulations have effectively banned proprietary products. Vermont, for 

example, provides that only FHA-approved lenders may issue reverse mortgage loans, 

and those loans must comply with all requirements for participation in the HECM 

program and be insured by the FHA.299 Texas did not allow reverse mortgage lending 

of any kind until 1995, and its homestead law prevents the offering of the HECM for 

Purchase program until 2013.300 Other states have adopted, or recommended that 

licensees adopt, guidance from federal regulators advising entities and individuals to 

follow HECM requirements such as mandatory counseling and cross-selling 

restrictions when offering proprietary products.301 
108 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

5.4 PRUDENTIAL REGULATOR GUIDANCE

In August 2010, the Office of the Comptroller of the Currency, the Board of 

Governors of the Federal Reserve System (the Board), the Federal Deposit Insurance 

Corporation, the Office of Thrift Supervision and the National Credit Union 

Administration, through the FFIEC, adopted guidance regarding reverse mortgage 

lending. FFIEC published the guidance to assist their supervised financial institutions 

in managing compliance and reputation risk with respect to reverse mortgages.302 

Importantly, this guidance is primarily directed at depositary financial institutions 

supervised by the FFIEC agencies. With the exit of Wells Fargo, Bank of America, and 

MetLife, today’s reverse mortgage market is dominated by nonbank financial 

companies not subject to supervision by these regulators. 

The guidance directed financial institutions to voluntarily adopt relevant HECM 

program requirements for any proprietary reverse mortgages the financial institution 

may offer. Those requirements include mandatory independent counseling and

restrictions on cross-selling. The guidance also directs institutions to provide clear 

information about the costs and risks of reverse mortgage products, and take 

appropriate steps to determine that consumers will be able to pay required property 

taxes and homeowner’s insurance. Finally, the guidance directs institutions to adopt

clear compensation policies to guard against inappropriate incentives to make 

reverse mortgage loans and to develop effective internal controls to ensure that 

policies and procedures are followed.

5.5 FEDERAL RESERVE BOARD’S PROPOSAL

On September 24, 2010, the Board published a proposed rule to amend Regulation Z 

as part of a comprehensive review of TILA’s rules for home-secured credit.303 Among 

other subjects, the proposed rule addressed disclosures and other consumer 

protections for reverse mortgages. Authority for any future rulemaking under TILA 

was transferred to the CFPB on July 21, 2011. 

5.5.1 REVERSE MORTGAGE DISCLOSURES

The Board proposed revised disclosure forms to create a new unified disclosure system 

for all reverse mortgages (HECMs and proprietary products).

304 The proposal would 

have exempted reverse mortgages from existing TILA disclosure requirements and 

would have required the following new forms of disclosure: 305

• A two-page disclosure entitled “Key Questions to Ask About Reverse 

Mortgage Loans,” provided before a consumer applies for a reverse mortgage.

• For open-end reverse mortgages, an “early” open-end reverse mortgages 

disclosure provided within three business days after application, and an 
109 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

account-opening disclosure provided at least three business days before 

account opening.

• For closed-end reverse mortgages, a closed-end reverse mortgage disclosure 

provided within three business days after application and again at least three 

business days before closing.

The proposed rule also would have replaced the table of TALC rates with a table that 

demonstrated how the reverse mortgage loan balance grows over time expressed 

through dollar amounts.306 Using a total dollar cost demonstrates how a reverse 

mortgage balance will grow over time and eliminates confusion from TALC rates that 

may decline over time as the initial costs of a reverse mortgage are amortized over a 

longer period.

5.5.2 ADDITIONAL CONSUMER PROTECTIONS

The Board’s proposed rule also would have provided important consumer protections 

for all reverse mortgage consumers, not just HECMs subject to regulation by HUD. 

The protections in the proposed rule included:

• Reverse-mortgage consumers would have been required to receive mandatory 

counseling prior to obtaining a reverse mortgage.

• Nonrefundable fees would have been barred until the third business day 

following a consumer’s completion of counseling.

• Lenders would have been prohibited from steering consumers to a particular 

counselor or counseling agency.

• Lenders would have been prohibited from requiring the purchase of another 

financial or insurance product as a condition of the reverse mortgage.

• Certain advertising statements that may mislead reverse mortgage borrowers 

would have triggered clarifying statements. These provisions are discussed in 

further detail in the Section 6.2. 
110 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

6. Consumer Protection 

Concerns

Reverse mortgages have long been the subject of consumer protection scrutiny. As a 

product targeted specifically at an elderly, vulnerable population, the risk of fraud, 

scams, discrimination, and poor financial decisions is particularly acute.307 So, too, is 

the potential harm of misleading advertising, aggressive sales tactics, and discriminatory 

practices. Consumer advocates have long documented cases of seniors who did not 

fully understand what they were getting into and who were rushed into a decision.308

Mandatory counseling, which has been a part of the HECM program since its 

inception, is intended to counter these concerns. However, the counseling itself has 

not always been fully effective. In 2009, the U.S. Government Accountability Office 

(GAO) published a study highlighting concerns about deceptive advertising and 

ineffective counseling (2009 GAO report).309 

As with any financial product, reverse mortgages have costs, risks, and benefits. 

Individual consumers have to decide whether the benefits outweigh the costs and the 

risks in their particular situation. Historically, reverse mortgages have had very high 

costs and fees relative to traditional home loans, and advocates have been concerned 

that for many borrowers, the benefits might not outweigh the costs. With recent 

changes to product offerings, consumers now have more options for lower-cost 

products. However, the resulting array of choices present prospective borrowers with 

complex decisions that they may find challenging to make. One new and very popular 

choice, the fixed-rate, lump-sum product, raises particular concerns about its suitability 

for borrowers.

Reverse mortgages pose several risks to prospective borrowers and their families. 

Borrowers who live for many years after taking on the reverse mortgage may ultimately 

need to move due to health or other reasons. These borrowers risk having no equity 

left in their homes with which to finance that move. This risk is greater for the recent 

wave of borrowers who are taking out reverse mortgages at an early age. Borrowers 

who fail to pay their property taxes and homeowner’s insurance are at risk of losing 

their homes to foreclosure. 
111 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Spouses of reverse mortgage borrowers who are not themselves named as borrowers 

are often unaware that they are at risk of losing their homes. If the borrowing spouse 

dies or needs to move, the non-borrowing spouse must sell the home or otherwise pay 

off the reverse mortgage at that time. Other family members (children, grandchildren, 

etc.) who live with reverse mortgage borrowers also are at risk of needing to find other 

living arrangements when the borrower dies or needs to move.

Reverse mortgages also provide several benefits to the prospective borrower, which in 

some cases will outweigh the costs and risks. Reverse mortgages allow borrowers to 

access the equity in their homes knowing that their credit lines will not be cut and they 

are not required to pay back more than the value of the home. These loans require no 

monthly mortgage payments and are typically easier to qualify for than a traditional 

mortgage refinance or home equity loan. A reverse mortgage can also provide an 

annuity-like stream of income for as long as the borrower remains in the home, 

although most borrowers do not choose this option.

6.1 REVERSE MORTGAGES ARE COMPLEX PRODUCTS THAT ARE 

DIFFICULT FOR CONSUMERS TO UNDERSTAND

The costs, risks, and benefits of reverse mortgages are complex. Consumers struggle to 

understand the product and make good decisions about tradeoffs on two levels. First, 

they may have difficulty deciding between a reverse mortgage and an alternate course 

of action, such as downsizing, refinancing with a traditional mortgage, or using a 

traditional home equity loan or line of credit. Second, consumers may have difficulty 

assessing costs and making tradeoffs between the different types of reverse mortgage 

products and options in the marketplace today. 

A 2006 AARP survey found that certain aspects of reverse mortgage loans were 

challenging for most respondents, even after counseling.310 In general, survey 

respondents found it difficult to assess monthly loan costs, the “rising balance, falling 

equity” nature of the loans, and the cost impact of interest rate and home value 

changes. The AARP study also found that consumer confusion was particularly 

pronounced among women, nonwhites, consumers age 85 and over, and consumers in 

poor health.

There are several reasons why consumers may not be well equipped to fully assess the 

long-term cost of reverse mortgages. Given that borrowers do not make monthly 

payments for a reverse mortgage, costs accrue throughout the life of the loan. 

Borrowers may have trouble understanding the extent of accruing servicing, interest, 

insurance, and financed upfront costs because they can delay payment until the loan 

becomes due.311 Research has found that consumers often focus on short-term costs 

and underestimate long-term costs.312 This consumer bias, coupled with the sheer 

complexity of the product’s pricing, may result in an inaccurate perception of how 
112 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

much it costs to take out a reverse mortgage.313 To the extent that consumers 

underestimate the costs of a reverse mortgage, they are at risk of choosing to pursue a 

reverse mortgage when another option might be a better financial choice.314 Borrowers 

who underestimate the effects of compounded interest may also be more likely to 

choose a reverse mortgage product option that is poorly suited to their situation.

6.1.1 CONSUMER EDUCATION CHALLENGES

The CFPB interviewed HECM counselors from counseling agencies around the 

country for this study. The counselors identified five main challenges they encounter in 

working to educate and assist prospective borrowers. These challenges, explored more 

fully below, highlight the need for more effective counseling as well as the need for 

other consumer protections discussed in the remainder of this chapter. 

6.1.1a A reverse mortgage is a complex product

The overarching message among counselors is that reverse mortgages are difficult to 

understand, even among sophisticated borrowers. Counselors noted that borrowers 

often come to counseling sessions with misperceptions about the product.

6.1.1b A reverse mortgage is a loan

The most common misperception counselors reported was the presumption that a 

reverse mortgage is a government entitlement program similar to Medicare. Counselors 

often find themselves explaining to clients that a reverse mortgage is in fact a loan. This 

confusion echoes concerns expressed in the 2009 GAO report about advertising 

suggesting that a reverse mortgage is a government benefit. Counselors recommended 

that misleading marketing should remain a focus for regulators. Other HECM clients 

come to counseling with fears that a reverse mortgage will allow the federal 

government to confiscate their homes. 

6.1.1c Rising balance, falling equity

Counselors unanimously reported that the concept of a home loan with a rising 

balance and falling equity is the most difficult concept to teach. Reverse mortgage 

consumers struggle to understand how interest gets compounded on a loan that does 

not involve monthly payments on interest and principal. A HECM counselor in the 

Midwest echoed other counselors when he reported, “We spend a lot of time on this 

in our agency. People don’t understand how this loan works, and because of that, they 

don’t understand how expensive it can be.” 

6.1.1d Loan disbursement options

As described in Section 2.4.3, HECMs provide a number of loan disbursement options 

(lump sum, line of credit, term, and tenure) and interest rate options (fixed and 
113 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

adjustable). Counselors report that many borrowers are confused about the options 

available to them. Many borrowers also did not make the product choices that the 

counselor believed was best for the borrower based upon the information provided by 

the borrower about their health, finances, family, and expected remaining time in the 

home. 

As detailed in the Market chapter, the fixed-rate, lump-sum payment option remains 

the most popular payment choice among borrowers, even though it may not be an 

optimal choice for many of them. As one counselor reported, “Many seniors do not 

trust an adjustable rate even when it will benefit them. It confuses them even after it is 

explained, and most of them come in wanting the fixed rate from the beginning.”

Most counselors interviewed for this study presumed that prevailing wisdom from the 

traditional mortgage market (where adjustable rates create a risk of payment shock if 

the adjustment results in an increase in the interest rate) is influencing borrowers to 

choose the fixed-rate lump-sum option. “We can’t tell them not to do it [take a lumpsum draw],” said one counselor. “But for some who use a lump sum, they could be at 

risk later if their homes require a large repair, or a major medical expense arises and 

they don’t have enough equity or cash left to draw on.” 

6.1.1e Aging in the home

Another challenge for HECM counselors is to ensure that borrowers have a reasonable 

chance of remaining in their homes as they age. Most counselors reported confidence 

in the FHA-provided Financial Interview Tool (FIT) as a means to discuss physical 

needs and health concerns with clients. However, counselors also expressed doubt in 

borrowers’ ability to accurately project their needs 10 years or more into the future. In 

some cases, counselors observe dependent spouses who will be poorly equipped to 

manage alone in their home if widowed. As one counselor put it, “No matter how you 

ask them, many borrowers are unable to imagine what life will be like after a spouse 

dies or a health crisis limits mobility. Many do not realize how dependent they are on 

another person.”

6.2 ADVERTISING

Numerous state and federal agencies have expressed concerns about how reverse 

mortgage products are advertised. Reverse mortgages are inherently complex

products, which can make it difficult for consumers to recognize inaccurate or 

misleading statements. 
114 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

6.2.1 RISKS TO CONSUMERS

False or misleading advertising poses a serious risk to consumers. If consumers 

misunderstand the features, risks, and obligations of a reverse mortgage, they are more 

likely to make poor decisions. They may take out a reverse mortgage when an 

alternative product would better suit their needs or when selling the home and 

downsizing would be a wiser financial choice. They may not choose the best set of 

mortgage features for their situation. They may also be more likely to fail to meet their 

mortgage-related obligations, such as payment of taxes and insurance.

In connection with its 2009 report, the GAO reviewed marketing materials for major 

HECM lenders.315 The GAO’s study included a review of Internet marketing materials 

for 12 major HECM lenders, as well as mailed materials from 11 of the 12 lenders. The 

GAO further reviewed DVDs and other materials from HECM lenders that advertise 

on television, conducted Internet searches for materials with potentially misleading 

statements, and collected materials distributed at reverse mortgage information 

seminars.316 

In its study, the GAO identified six potentially misleading claims:

317

1. A borrower will “never owe more than the value of your home.”

2. A reverse mortgage is a “government benefit” or otherwise not a loan.

3. A reverse mortgage is a “lifetime loan” or a borrower “can’t outlive the loan.”

4. Borrowers can “never lose” their home.

5. Implied or misrepresented government affiliation.

6. Implied time limits or geographic limits on the availability of reverse 

mortgages.

6.2.2 POLICY AND ENFORCEMENT RESPONSE

In response to the risks posed by misleading advertising for reverse mortgage 

consumers, state regulators have introduced more specific regulations and taken 

enforcement actions against individual companies. The Board of Governors of the 

Federal Reserve System (the Board) also issued a proposed rule that would have 

imposed new restrictions at the federal level. 

6.2.2a State regulation and enforcement actions

Most of the state regulation against deceptive marketing has focused on how 

information is disseminated to the consumer and the information required to be in the

disclosures. Several states require the loan agreement to specifically state that the deed 
115 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

or mortgage “secures a reverse mortgage loan.”318 Some states also require explicit 

descriptions of fees and costs,319 with many states requiring the inclusion of interest 

and fees to be charged when the loan becomes due and payable.320 Arizona requires an 

originator to disclose in writing all costs being charged and clearly identify which 

charges are for items not required to obtain the reverse mortgage.321 Other states have 

focused on the disclosure of events that could trigger the loan to become due and 

payable.322

State regulators have taken enforcement actions to combat unfair and deceptive 

marketing of reverse mortgages. Recent actions have centered not only on individuals 

and entities that make unfair or deceptive statements about reverse mortgages, but also

those that misrepresent their ability and qualifications to offer reverse mortgages to 

consumers.

Between 2008 and 2010, regulators in Florida, Illinois, Maryland, Massachusetts, 

Virginia and Washington brought allegations of deceptive marketing or consumer 

fraud against American Advisors Group of Irvine, California (AAG). The allegations 

centered on multiple direct-mail solicitations marked “Notice of 2008 Government 

Benefits”323 or “2009 Economic Stimulus Plan – HECM Program”324 that could have 

created the impression that the product being offered was a benefit and not a reverse 

mortgage loan. The marketing also contained the Equal Housing Opportunity logo, 

identified “Administrative Offices” as the sender of the mailing, and told consumers 

that they had been “pre-selected” and that they would have to make “NO 

MONTHLY PAYMENTS of any kind on proceeds.”325

To resolve the administrative action and allegations in Massachusetts, AAG entered 

into a Consent Order with the Massachusetts Commissioner of Banks agreeing, among 

other things, to (1) revise its advertising practices and procedures; (2) to issue a written 

clarification notice to consumers stating that it was not affiliated with a government 

entity; and (3) pay an administrative penalty.326 To resolve the suit and allegations by 

the Attorney General in Illinois, AAG agreed to enter an Agreed Order and Consent 

Decree that, among other things, required the payment of an administrative penalty 

and enjoined American Advisors Group from making certain statements in connection 

with the marketing and sale of reverse mortgages.327 The types of statements AAG is 

permanently enjoined from making include any that represent, expressly or by 

implication, that: (1) a reverse mortgage is a government benefit; (2) President 

Obama’s stimulus plan created the HECM; and (3) AAG is affiliated with a 

government agency.328

State regulators have also taken action against individuals and entities that misrepresent 

their ability to offer reverse mortgages to consumers.329 In 2011, the Massachusetts 

Commissioner of Banks took action against several Internet-based entities that were 

not licensed in the Commonwealth as mortgage brokers, lenders, or originators. The 
116 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Commissioner issued Cease Directives to these entities for misrepresenting themselves 

as being licensed to transact business, collecting personal information from consumers, 

and offering quotes to consumers.330 One entity offered consumers a “Lender’s 

Pledge” claiming: “We at Reverse Mortgage Page are committed to bringing you 

together with the best, most reputable reverse mortgage lenders. Our reverse mortgage 

lenders pledge to: 1) be registered and in good standing with all appropriate 

government regulators...7) completely follow all federal, state, and administrative 

laws...”331 Another entity referred consumers from its “Find a Lender” webpage to 

entities not authorized to conduct mortgage business in Massachusetts and further 

claimed, “You won't lose your home through a reverse mortgage. Your lender does not 

ever gain ownership.”332

Similar concerns about how individuals and entities represent themselves have been 

noted by other regulators, who as early as 2007 took note of aggressive marketing 

campaigns targeted at seniors utilizing purported credentials or designations that 

implied a level of expertise or special training in advising senior citizen investors.333

Securities regulators in the Commonwealth of Massachusetts and other states made it a 

dishonest or unethical practice for individuals (broker-dealers, agents, and investment 

adviser representatives) to use these so-called senior designations unless the regulator 

has somehow recognized the use of the designation and the accrediting organization 

conferring it.334 State insurance regulators have also issued similar regulations.335 

Community groups have noted the rise of the use of the similar so-called senior 

designations, including the “Certified Senior Adviser” title, in the marketing and sale of 

reverse mortgages.336

As recently as late 2011, consumers reported to the CFPB that they had received 

direct-mail solicitations from reverse mortgage lenders claiming to offer government 

benefits and displaying the seal of a federal agency.337 

6.2.2b The Federal Reserve Board’s proposal

On September 24, 2010, the Board proposed a rule that would have imposed new 

restrictions on reverse mortgage advertisements. The Board’s proposed rule would 

have required advertisements to disclose clarifying information if the advertisement 

used statements similar to those identified as potentially misleading by the GAO or 

other problematic statements identified by the Board. 

The Board’s proposed rule would have required clarifying disclosures for the following 

types of statements: 338

1. A reverse mortgage is a “government benefit.” 

Clarification: A reverse mortgage is a loan that must be repaid.
117 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

2. A reverse mortgage provides payments “for life” or a consumer need 

not repay a reverse mortgage “during your lifetime.”

Clarification: Explain the circumstances under which payments or access to a 

line of credit may end or a consumer would be required to repay a reverse 

mortgage during the consumer’s life (e.g., the borrower sells the home).

3. A consumer “cannot lose his or her home” or there is “no risk” to a 

consumer’s home with a reverse mortgage.

Clarification: Foreclosure may occur if the consumer (1) lives somewhere other 

than the home longer than allowed by the loan agreement; or (2) does not pay 

property taxes or insurance premiums. 

4. Payments are not required for a reverse mortgage.

Clarification: Consumers must make payments for taxes and insurance during 

the term of the reverse mortgage. 

5. Government fee limits apply to a reverse mortgage.

Clarification: Reverse mortgage costs may vary among creditors and loan types. 

Less expensive options may be available.

6. A reverse mortgage does not affect a consumer’s eligibility for, or 

benefits under, a government program.

Clarification: A reverse mortgage may affect eligibility for some government 

programs. Specifically, SSI and Medicaid may be affected.

7. A consumer or a consumer’s heirs “cannot owe” or will “never repay” 

more than the value of the consumer’s home.

Clarification: In order to retain the home when the reverse mortgage becomes 

due, (1) the consumer or the consumer’s heirs or estate must pay the entire 

loan balance and (2) the balance may be greater than the value of the 

consumer’s home.x

 

x These types of advertising statements may be less problematic today as a result of HUD’s rescission of FHA Mortgagee 

Letter 2008-38, which required the borrower’s estate to pay off the entire reverse mortgage loan balance in order to retain 

ownership of the home. See Section 6.7.2. 
118 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

The advertising provisions of the Board’s proposed rule were designed to assist 

consumers in understanding potential risks associated with taking out a reverse 

mortgage. The authority for future rulemaking on reverse mortgage advertising under 

the Truth in Lending Act (TILA) transferred to the CFPB on July 21, 2011. 

6.2.3 CONCLUSIONS

Given the complex nature of reverse mortgages, consumers may be particularly 

susceptible to misleading advertisements. Such statements can create confusion about 

fundamental features of reverse mortgages, leading consumers to make poor product 

choices.

The CFPB remains concerned about the consumer harm caused by misleading 

advertisements. The CFPB plans to consider the Board’s 2010 proposal and other 

potential means of combating misleading advertisements in this area. Additionally, the 

CFPB currently has authority to take supervisory and enforcement actions against 

deceptive practices.339

6.3 CROSS-SELLING

The fundamental purpose of a reverse mortgage – to generate cash for the borrower –

has the inevitable side effect of making reverse mortgage borrowers especially 

susceptible to unscrupulous or aggressive salespeople selling investment and/or 

insurance products. Egregious stories of seniors who were convinced to take out lumpsum reverse mortgages and use the proceeds to purchase deferred annuities have made 

headlines and formed the basis of several consumer advocacy campaigns.340 These 

annuities typically accrued interest at less than the interest rate on the loan and often 

did not provide any cash flow to the senior for 10 years or more. 

In response, numerous prohibitions against cross-selling have been enacted. Crossselling occurs when a lender (a) requires the consumer to purchase financial or 

insurance products with the proceeds from a reverse mortgage, or (b) convinces a 

consumer to make such a purchase with the proceeds.341 In general, cross-selling is 

prohibited for the HECM program.342 Some state laws also address this issue with 

respect to proprietary reverse mortgages.343 As in any industry, however, bad actors 

willing to violate the law still persist. 

6.3.1 RISKS TO CONSUMERS

Cross-selling can harm consumers if they are required or persuaded to purchase 

products that are overly expensive or otherwise inappropriate for their needs. Crossselling can not only result in consumers being persuaded to purchase a product they do 
119 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

not need, but also in consumers paying far more for the product than they would if 

they purchased it outside of a reverse mortgage context. When a borrower uses 

reverse mortgage proceeds to purchase another financial product, the fees for the 

products compound. Consumers pay fees and interest to take out a reverse mortgage 

and then pay fees to purchase the other product. 

The cross-selling of annuities is particularly harmful to consumers because an annuitylike monthly payment stream is one of the payment options available with a reverse 

mortgage. A consumer who uses a reverse mortgage to purchase an annuity pays a 

hefty fee for the annuity and receives no additional benefit, since the reverse mortgage 

itself could have been set up to provide an annuity-like stream of payments. Crossselling can also be particularly harmful when borrowers are tapping a large portion of 

their home equity with a lump-sum draw. If borrowers then funnel most or all of their 

proceeds into an illiquid investment or insurance policy, borrowers lose the flexibility 

of being able to access the equity in their home when they need it. 

Numerous government investigations of the reverse mortgage market, as well as 

consumer advocacy groups, have identified the inappropriate cross-selling of financial 

and insurance products with reverse mortgage loans as an important consumer 

protection concern.344 

6.3.2 POLICY RESPONSE

In response to widespread concern about harmful cross-selling, prohibitions on crossselling have been enacted at both the federal and state levels.

6.3.2a HERA prohibitions on cross-selling

In the Housing and Economic Recovery Act of 2008 (HERA), Congress adopted rules 

restricting the sale of other products or services with a HECM mortgage. HERA 

prohibits a reverse mortgage lender from requiring a borrower or any other party to 

purchase an insurance annuity or other similar product as a condition of obtaining a 

HECM mortgage.345 HERA also generally prohibits a HECM mortgage originator or 

any other party that participates in the origination of a HECM mortgage from

participating in, being associated with, or employing any party that participates in or is 

associated with any other financial or insurance activity. However, an exception to this 

general provision applies if the originator establishes “firewalls and other safeguards”

designed to ensure that “(i) individuals participating in the origination of a HECM 

mortgage have no involvement with, or incentive to provide the mortgagor with, any 

other financial or insurance product; and (ii) the mortgagor shall not be required, 

directly or indirectly, as a condition of obtaining a mortgage under this section, to 

purchase any other financial or insurance product.”346
120 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

6.3.2b State regulation

Patterns of aggressive and abusive sales tactics led states to pass laws and issue 

guidance restricting cross-selling with respect to all reverse mortgages, not just 

HECMs.347 These laws and restrictions are designed to both ban business practices

that would make senior citizens purchase unsuitable products and provide recourse for 

reverse mortgage borrowers against individuals and entities employing aggressive and 

unfair, deceptive or abusive acts or practices.

Some states have gone beyond the provisions in HERA that require appropriate 

firewalls between reverse mortgage originators and company divisions selling other 

products. Maryland, Rhode Island, Vermont, and Washington have further separated

the reverse mortgage transaction from the sale of other financial products by 

prohibiting lenders from referring consumers to anyone for the purchase of an annuity 

or other financial or insurance product within certain time periods of the reverse 

mortgage transaction.

348

6.3.2c FFIEC guidance to prohibit cross-selling

As discussed in Section 5.4, the federal banking agencies, through the FFIEC, issued 

guidance on cross-selling and other issues to institutions offering reverse mortgages. 

The FFIEC guidance provides that institutions should avoid any appearance of a 

conflict of interest by (1) adopting clear written policies prohibiting cross-sales of 

products that appear to be linked to the decision to provide a reverse mortgage,

and (2) adopting clear compensation policies to guard against inappropriate 

incentives to make a reverse mortgage loan. This guidance applies equally to 

HECMs and proprietary reverse mortgages.

6.3.2d Anti-tying laws that bar cross-selling by depository institutions

Certain laws applicable to banks and other depository institutions contain anti-tying 

rules that would bar tying a reverse mortgage loan to the borrower’s purchase of 

certain other types of financial products. Specifically, the Bank Holding Company Act 

and the Home Owners’ Loan Act generally prohibit banks, savings associations, and 

savings and loan associations from conditioning the price or availability of a product, 

including a reverse mortgage, on the borrower’s purchase of insurance or an annuity 

from the bank or its affiliate.349 Further, the Gramm-Leach-Bliley Act required the 

federal banking agencies to prescribe regulations prohibiting “a depository institution 

from engaging in any practice that would lead a customer to believe an extension of 

credit is conditional upon— (1) the purchase of an insurance product from the 

institution or any of its affiliates; or (2) an agreement by the consumer not to obtain, or 

a prohibition on the consumer from obtaining, an insurance product from an 

unaffiliated entity.”350
121 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

6.3.2e The Board’s proposed rule barring cross-selling

Importantly, the cross-selling prohibitions in HERA only apply to HECMs and the 

anti-tying provisions only apply to reverse mortgages originated by depository 

institutions. There are no express federal rules currently prohibiting cross-selling of 

other financial and insurance products with proprietary reverse mortgages originated 

by nonbanks. 

Because of this regulatory gap, the Board’s 2010 proposed rule included a provision to 

bar creditors or loan originators from cross-selling certain other financial and insurance 

products with all reverse mortgages, including both HECMs and proprietary 

products.351 

Notably, the Board’s proposed rule included a regulatory safe harbor. The Board’s 

proposed safe harbor provided that if (a) a consumer received a copy of a disclosure 

(provided in the proposed rule) regarding key questions to ask about a reverse 

mortgage and (b) the reverse mortgage was obtained at least ten calendar days before 

the consumer purchased the financial or insurance product, a creditor or loan 

originator will not be found to have violated the prohibition against cross-selling. 

While industry groups supported this safe harbor,352 several consumer groups 

commented that the Board should eliminate the safe-harbor provision prior to 

finalizing the proposed rule.353

6.3.3 CONCLUSIONS

The current combination of state and federal regulations provides significant consumer 

protections against inappropriate cross-selling for most types of reverse mortgages. 

The only reverse mortgages not subject to rules prohibiting cross-selling are 

proprietary products originated by nonbanks. Today, this segment constitutes only a 

handful of loans, but nearly all of the remaining large reverse mortgage originators are 

nonbanks, and the proprietary market could expand again in the future. The CFPB will 

consider this regulatory gap in its future efforts in this area.

Given the prohibitions already in place, protecting consumers from inappropriate 

cross-selling is largely a matter of appropriate supervision and enforcement. The CFPB 

has identified cross-selling as an issue in its supervision manual, and will work to 

ensure that reverse mortgage lenders and related companies are complying with 

existing laws. Consumer advocates interviewed for this study indicated that they have 

not encountered many cases of cross-selling since the passage of HERA. 

However, there is some anecdotal evidence that some annuity salespeople are still 

targeting reverse mortgage borrowers as a method for generating clients. Multiple 

HECM counselors interviewed for this study reported occasionally encountering 

clients who had decided to use a reverse mortgage to purchase an annuity after having 
122 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

attended an information seminar co-hosted by a reverse mortgage loan originator and 

an annuity salesperson. 

6.4 COUNSELING 

When the HECM program was created, the statute included a mandate to provide 

information about loan details and costs to borrowers prior to their obtaining a 

HECM.354 To meet this objective, HUD developed a counselor training program in 

collaboration with AARP and other nonprofit organizations. The training program 

eventually developed into a national network of HUD-approved HECM counselors. 

The HECM counseling session is composed of a series of modules designed by HUD 

and contained in the HUD HECM Counseling Protocol. Under the Protocol, a 

counseling session may be in person or over the telephone. Counselors are required to 

send information packets to clients in advance of the session for their review. Agencies 

are required to set counseling fees at a “reasonable and customary” level, and must 

waive fees for clients whose incomes are less than twice the poverty level.355 The 

counseling component of the HECM product is critical to ensure product 

understanding, alternatives, and compatibility between potential borrowers and loans. 

HUD’s HECM Counseling Protocol currently requires counselors to cover the 

following general topics in depth for each session: 356

1. Reverse Mortgage Basics

2. HECM Costs and Benefits

3. Alternatives to a Reverse Mortgage

4. Financial Interview Tool (FIT)

6.4.1 RISKS TO CONSUMERS

Reverse mortgage counseling should be effective, impartial, and accessible. Anything 

that threatens the effectiveness, impartiality, or accessibility of counseling can put 

consumers at risk. 

• Counselor efficacy: Ineffective counseling may be a result of counselor 

noncompliance with the established HUD protocol. However, as discussed in 

Section 6.1.1, consumer research and interviews with counselors suggest that 

consumers may struggle to understand reverse mortgages even if counselors 

follow the HECM protocols. The increased variety of product options may 

also be overwhelming borrowers with information, making decision-making 

more difficult.
123 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

• Counselor impartiality and accessibility: Maintaining an adequate cadre of 

well-trained, impartial, and accessible counselors often comes down to 

funding. Without an adequate and stable funding source, accessibility to 

counselors becomes more limited. Counseling agencies may have to start 

charging fees, which can deter seniors in need of counseling. Agencies that 

defer the fee until closing may struggle to maintain impartiality. 

Borrowers reported to the CFPB frustration that certain topics either were not 

addressed in the counseling process, not adequately explained, or not understood.357

Borrowers commonly cited issues surrounding when the loan becomes due and 

payable, taxes and insurance, costs and fees, and whether family members would be 

able to pay off the mortgage after the borrower passed away. Family members of 

prospective reverse mortgage borrowers reported that prospective borrowers who 

were hard of hearing had received counseling over the phone and were physically 

incapable of processing the information and understanding the product.358 

6.4.1a Counselor noncompliance

The 2009 GAO report raised concerns over counselor compliance with the HUD 

Protocol.359 GAO staff posed as prospective HECM borrowers for 15 counseling 

sessions at 11 separate agencies. The evaluation found that none of the counselors 

consistently complied with HECM counseling requirements. The GAO concluded that 

HUD should tighten controls over the HECM Protocol so that noncompliance does

not diminish counseling efficacy.

The information most frequently omitted from the counseling sessions was:

• Alternative financial options. Many counselors did not discuss financial 

options beyond the HECM, such as alternative living arrangements, meal 

programs, or other social services that might be available to help meet 

financial needs.

• Alternative home equity products. Many counselors neglected to discuss 

alternative ways to access home equity, such as state or local governmentsponsored home equity loans.

• Financial implications. Most counselors only partially met the requirement 

to fully explain the financial implications of entering into a HECM loan. 

• Impact on eligibility for assistance. Many counselors did not adequately 

explain how a HECM may affect eligibility for federal or state assistance 

programs. A borrower can become ineligible for Supplemental Security 

Income, for example, by depositing too much money from a HECM loan 

into a bank account.

• Estate planning. Most counselors did not explicitly ask if the borrower had 

signed a contract or agreement with an estate-planning service. Such third-
124 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

party services may take advantage of borrowers by charging for arranging a 

meeting with HECM counselors.

Based on its findings, the GAO recommended that HUD implement the following:360

• Checks to verify length and content of HECM counseling sessions

• Guidance to counselors for accurately recording counseling time

• Procedures for counseling providers to assess counselee’s ability to pay

6.4.1b Other challenges to counselor efficacy

Counselors interviewed for this study reported that many prospective borrowers did 

not take the sessions seriously. According to counselors, these prospective borrowers 

viewed counseling not as an opportunity to learn about the product and make a better 

decision, but as a hurdle between them and their goal. Counselors stressed that 

prospective borrowers needed to allow themselves the time to learn about the product 

and the options without rushing toward a desired conclusion.

HUD’s HECM protocol contains prohibitions against counselors recommending one 

product option over another.361 While this prohibition is designed to ensure that 

counselors remain unbiased, the sheer number of options available and factors to 

consider in making a decision means that prospective borrowers may struggle to sort 

through all of the relevant information and may make decisions based more on gut 

feelings than on careful evaluation of tradeoffs.362

Some consumer groups have raised concerns about the prevalence of telephone 

counseling and the possibility that telephone counseling may be less effective than 

face-to-face counseling. In particular, consumer groups have claimed that many 

telephone-based counselors spend less than an hour per session on the material.363 The 

issues of impaired hearing in the older population must also be considered. 

6.4.1c Counselor impartiality and access

While impartiality and access are separate issues, they both relate to counselor funding.

Without adequate and stable funding, it is more difficult for counseling agencies to 

maintain high quality, impartial counseling and to offer their services to the widest 

range of clients. 

In the absence of appropriated funds for the counseling program, many counseling 

agencies have begun to charge their clients.364 However, HUD regulations state that 

counseling agencies may not turn clients away because of an inability to pay.

365 HUD 

also allows the cost of counseling to be paid using the reverse mortgage proceeds.366

The ability to defer the fee until closing may increase access to counseling. If it 
125 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

becomes the counseling agency’s standard business practice, however, the agency will 

only be able to collect fees if the loan actually closes. This could create an incentive for 

the counselor to encourage counselees to take out loans. 

The issue of telephone versus face-to-face counseling has potential implications for 

access to counseling as well. While face-to-face counseling could improve the 

effectiveness of counseling, requiring all counseling sessions to be conducted face-toface would make it difficult for consumers in rural areas to get counseling without 

having to travel long distances. Such requirements could also increase the cost of 

providing counseling, which could reduce the number of agencies that are able to offer 

the service under the current fee structure.

6.4.2 POLICY RESPONSE

In response to the concerns raised by the GAO report, HUD has increased its 

oversight of the HECM counseling program and introduced additional content. Some 

states have also passed legislation requiring face-to-face counseling and/or additional 

information. 

6.4.2a Increased compliance effort & expanded HUD protocol

In response to the 2009 GAO report, the FHA redoubled its efforts to ensure that 

HUD-approved HECM counselors are knowledgeable about program requirements 

and comply with the HECM protocol. 

Effective October 2, 2009, HUD adopted testing standards for certifying HECM 

counselors.367 Counselors must pass the exam to be included on a national HECM 

Counseling Roster and must be retested every three years.368

Subsequently, HUD implemented an addition to the HECM protocol known as the 

Financial Interview Tool (FIT) in 2010.369 The FIT is a 25-question instrument 

designed to help clients discuss their income, debt and expenses, health status, and 

future plans with counselors. This discussion helps clients and counselors assess how 

the mortgage might assist borrowers in meeting their needs and goals. 

6.4.2b State regulations

State regulation of reverse mortgage counseling includes requirements for additional 

information to be provided to the consumer and, in some cases, requirements about 

the form of the counseling. California and Maryland require lenders to give consumers

a checklist of items they should discuss with the housing counselor prior to completion 

of an application.370 Illinois, New York, South Carolina, and other states require a 

statement to be given to all consumers at the time of the inquiry about the advisability 

and availability of independent counseling.

371
126 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Some states have passed additional regulations recommending or requiring counseling 

for prospective borrowers of proprietary reverse mortgages. Colorado requires 

counseling unless the prospective proprietary borrower waives it in writing.372

Louisiana requires that a mortgage lender seeking to pay a prospective proprietary 

borrower’s counseling fees must disclose, in writing, that this may create a conflict of 

interest and also disclose any other payment arrangements or business affiliations

between the lender and counseling agency.

373 

While many states and consumer groups recommend face-to-face counseling, 

Massachusetts, North Carolina, and Vermont are the only states to have passed 

statutes requiring it.374 North Carolina has required in-person counseling for all 

borrowers since 1991.375 Vermont does allow borrowers who cannot or choose not to 

travel to a counselor and cannot be visited by one in their home to receive counseling 

by phone.376 Effective August 1, 2012, the Massachusetts in-person counseling 

requirement will apply to borrowers making less than 50 percent of the area median 

income and have assets worth less than $120,000 outside of their home.377 California 

and other states have also proposed legislation requiring in-person counseling.378 

6.4.3 CONCLUSIONS

The existing concerns related to HECM counseling can be reduced to three essential 

topics: (1) compliance and efficacy, (2) impartiality, and (3) access. Any changes to the 

counseling program should carefully weigh potential tradeoffs in each of these areas. 

6.4.3a Continued need for improvements in counseling practice

Counseling remains a critical tool for helping borrowers understand reverse mortgages. 

Counselors provide a line of defense, dispelling misconceptions and explaining 

fundamental concepts underpinning these products. Their services become 

increasingly important as borrowers face more complex choices as a result of new 

product offerings, such as the HECM Saver and the fixed-rate, lump-sum product. 

On the other hand, research indicates that confusion on certain topics persists even 

after counseling. With the increased array of products to choose from, consumers may 

find themselves having too much information at their disposal. While it is unclear just 

how much counseling can do to alleviate these difficulties, there appears to be room 

for improvement. Continued innovation and enhanced counseling tools should focus 

on areas that remain difficult for consumers to understand.

The CFPB will continue to learn from stakeholders and counselors to better 

understand the primary obstacles to good consumer decision-making regarding reverse 

mortgages. The CFPB will explore improved methods and approaches for helping 

consumers compare products, understand costs and risks, and evaluate tradeoffs.
127 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

6.4.3b Funding

The unpredictability of counselor funding remains a concern. Ideally, funding 

mechanisms would provide a stable, predictable source of sufficient funding for 

counseling without creating misaligned incentives. If such a funding method could be 

devised, it would benefit counseling agencies and borrowers. Counseling agencies 

would benefit from the added workforce stability. At the same time, they could 

potentially offer their clients increased access to counselors. Borrowers would also 

benefit if new funding mechanisms enabled ways for counselors to improve efficacy.

One possible funding mechanism worth considering is a lender-funded pool. Lenders 

could contribute funds to a central pool, which would then be disbursed to counseling 

agencies according to need or client volume. The pool could be administered either by 

HUD or by a neutral third party. A mechanism of this sort has the potential to provide 

a more stable funding source for counseling while mitigating any conflict of interest.

However, this type of funding mechanism currently appears to be prohibited by 

HERA, which prohibits lenders from funding counseling directly or indirectly.379

6.5 COSTS & FEES

As discussed in Section 2.6, reverse mortgages include several different types of 

upfront and ongoing costs and fees. These costs and fees may be difficult for 

consumers to effectively evaluate and in many cases may be higher than alternative 

products.

6.5.1 RISKS TO CONSUMERS

Costs and fees reduce the principal amount initially available to HECM borrowers, and 

can increase the amount owed throughout the life of the loan. Upfront costs include 

origination, closing, and insurance fees, some of which may be financed into the loan. 

Monthly servicing and insurance fees are added to the loan balance as they accrue.

These fees compensate mortgage professionals for services they provide, and also help 

FHA offset the risk it takes on when insuring HECM loans. However, the high fees 

may incentivize loan originators to steer seniors into reverse mortgages even when 

lower fee alternatives, such as HELOCs or home equity loans, may be more 

appropriate credit products. 

Consumer groups and personal finance commentators have expressed concern that 

reverse mortgages are high-cost products.380 A 2006 survey conducted by the AARP 

found that the main reason consumers decided against taking out a reverse mortgage

was because of high costs.

381 In the same survey, nearly 70 percent of consumers who 

did opt for a reverse mortgage did so despite believing that the costs and fees were 
128 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

high.382 One consumer reported to the CFPB believing that origination and interest 

fees must be fraudulent because they were so high.383

6.5.2 POLICY AND MARKET RESPONSE

HERA placed a $6,000 limit on origination fees in 2008, which helped reduce costs for 

owners of higher value homes.384 During 2010, both market pricing and FHA policies 

further reduced HECM costs and fees. Lenders first began waiving origination fees on 

fixed-rate products in April 2010.385 Some lenders have also begun offering discounted 

origination fees on adjustable-rate products. These waivers or discounts are offered 

with slightly higher interest rates than the rates paid by the few borrowers who choose 

to pay the origination fee upfront. Lenders have also incorporated servicing fees into 

the interest rate. Doing so eliminates the upfront reduction in a borrower’s net 

proceeds, but it does not actually eliminate the fee.386

On September 21, 2010, FHA responded to consumer concerns about high costs by 

releasing the HECM Saver option.387 The HECM Saver charges a significantly lower 

upfront insurance fee of 0.01 percent of appraised home value (or FHA loan limit, 

whichever is less).388 FHA offset this lower fee by lowering the amount of funds 

available under HECM Saver in comparison to HECM Standard loans.389 However, 

the same Mortgagee Letter increased monthly HECM insurance premiums from 0.5

percent to 1.25 percent of the outstanding loan balance in an effort to improve the 

sustainability of the insurance fund.390 This policy change reduced upfront fees for 

consumers choosing the Saver product (6.0 percent in FY 2011) but increased ongoing 

fees for all consumers. 

Both the market reduction in fees and the HECM Saver option have helped ease 

concerns that upfront costs and fees are too high.391 However, at least some of these 

upfront fees have been converted into ongoing monthly fees in the form of higher 

ongoing mortgage insurance premiums and higher interest rates than would otherwise 

be the case. The HECM Saver is emerging as a comparable alternative to other home 

equity products such as a home equity line of credit (HELOC). HELOCs have been 

much less costly than reverse mortgages in the past because they require minimal 

closing costs, no insurance premiums, and no servicing fees. However, HELOCs may 

not be a viable alternative for some borrowers because they require monthly interest 

payments and do not provide nonrecourse protection. The HECM Saver option and 

reduced lender fees make reverse mortgages a relatively more competitive home equity 

product than it has been in the past.
129 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

6.5.3 FUTURE CONCERNS

Market conditions enabled the elimination or reduction of reverse mortgage 

origination fees. However, lenders may need to bring back these fees if market 

conditions change. FHA has also expressed concern that the HECM program cannot 

support the current level of defaults within its existing book of business.392 As FHA 

continues to look toward the sustainability of the HECM program and its threat to the 

Mutual Mortgage Insurance Fund, it may need to further increase insurance fees.

6.6 TAX AND INSURANCE DEFAULTS

As discussed in the Product chapter, HECM loans require borrowers to remain current 

on all property taxes and homeowner’s insurance.393 This requirement protects FHA’s 

collateral interest in the property and ensures that borrowers are fulfilling their 

mortgage obligations. If borrowers fail to pay these property-related charges, the 

servicer may pay the charges using any remaining available proceeds from the loan. In 

these instances, servicers pay the outstanding charges directly, add them to the 

borrower’s loan balance, and notify the borrower.394 This option is not available to 

fixed-rate borrowers, because fixed-rate HECMs require borrowers to withdraw all of 

their proceeds upfront as a lump-sum payment. 

As of the end of February 2012, 9.4 percent of active HECM loans were in default on 

taxes and/or insurance.395 This proportion has increased from 8.1 percent in July 

2011.396

6.6.1 RISKS TO CONSUMERS

Tax and insurance defaults can lead to foreclosure, though in practice both FHA and 

HECM lenders and servicers would prefer to avoid foreclosing on elderly borrowers.397 

Tax and insurance defaults are more likely in reverse mortgages than in traditional 

mortgages for several reasons. Unlike traditional mortgages, HECM borrowers do not 

have the option of an escrow account maintained by the lender or servicer where they 

can pay taxes and insurance premiums on a monthly basis. HECM borrowers may opt 

to set aside funds for payment of taxes and insurance, but few borrowers use this 

option because it reduces the amount of principal available.398 Therefore, instead of 

having a small monthly payment that is automatically set aside, borrowers must plan 

for tax and insurance payments that may only come due once a year.

With a traditional mortgage, underwriting rules are used to determine whether a 

borrower can be expected to make the mortgage payments. Since reverse mortgages do 

not require payments for the mortgage itself, lenders are not required to assess a 

borrower’s income or creditworthiness. However, this also means that lenders do not 
130 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

assess a borrower’s ability to pay taxes and insurance when they underwrite the loan.399

Therefore, borrowers may be able to take out a reverse mortgage even if they are 

unlikely to be able to pay the associated taxes and insurance on the property.

Finally, reverse mortgages require no payments for the mortgage itself. Therefore, 

borrowers are more likely to forget that tax and insurance payments are required, or 

they may not fully understand the implications of failing to pay these charges. 

Borrowers have reported confusion about the need to pay taxes and insurance to the 

CFPB. Some borrowers report that they did not understand the need to make the 

payments or the potential consequences of not making the payments. Several 

borrowers expressed frustration and distress after having difficulty receiving 

clarification about the tax and insurance bills.400 In one instance, the borrower reported 

that the loan had gone into technical default by the time the borrower received 

clarifying information. The Federal Trade Commission received three complaints in 

which consumers acknowledged that they had not paid taxes and insurance but did not 

understand that this nonpayment was grounds for foreclosure.401 

6.6.2 GUIDANCE FROM FHA

HECM regulations state that if a loan becomes due and payable because the borrower 

failed to pay taxes or insurance, the servicer must request permission from FHA’s 

National Servicing Center before the loan can progress to the default phase.402

Property charge defaults leave a servicer in a vulnerable position. These “due and 

payable” regulations are ambiguous as to how the servicer must handle the outstanding 

property charges before it submits an insurance claim to FHA. If a servicer allows a

property to stay uninsured or delinquent on taxes, it risks losing the mortgage 

collateral. If a servicer pays these property charges on behalf of the borrower, it risks 

incurring charges that might not be reimbursed by FHA.403 

Between 2007 and April 30, 2009, FHA informally instructed servicers to defer 

foreclosure on borrowers with property charge defaults.404 Servicers paid the property 

charges for these mortgages despite the fact that borrowers had already withdrawn 

their entire authorized loan proceeds and did not have any mortgage loan funds left. 

These payments are known as “corporate advances.” Servicers continued to service the 

loans but did not proceed with foreclosure unless some other due-and-payable event 

occurred (e.g., the borrower died or sold the home). The servicers expected to be 

reimbursed for these corporate advances through the claim filing process with FHA.

On May 20, 2009, FHA informed HECM servicers that it would no longer accept 

foreclosure deferral requests for mortgages in default due to nonpayment of property 

charges.405 This guidance was issued through an informal email and stated that the 

denial policy would be effective retroactively starting April 30, 2009.406 Some servicers 

interpreted this limited guidance to mean that FHA was waiving the requirement to 
131 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

report property charge defaults.407 Accordingly, servicers continued to make corporate 

advances to pay the property charges associated with the loans but did not notify FHA 

of these defaults.408 The informal 2009 guidance resulted in servicers continuing the 

same practice as before, except that they no longer asked FHA for permission to delay 

foreclosure.

This ambiguous guidance and concern about increasing property charge defaults 

prompted the HUD Office of the Inspector General (OIG) to conduct an internal 

audit of the HECM program in 2010.409 The OIG contacted four out of the 16

HECM servicers and discovered that they were holding approximately 13,000 loans in 

default due to nonpayment of property charges.410 These four servicers alone had paid 

over $35 million in corporate advances to cover unpaid property charges between May 

2009 and March 2010.411 These advances were added to the principal balance on the 

loans, even though the loans had already reached the principal limit.412 The OIG 

concluded that the foreclosure delay on these properties, accumulating corporate 

advances, and increasing number of mortgages in default for property charges 

threatened the FHA’s Mutual Mortgage Insurance Fund.413

6.6.3 CORRECTIVE ACTION

FHA issued formal guidance on property charge defaults in a January 3, 2011 

Mortgagee Letter.414 The Letter clarified the servicer’s obligations to pay outstanding 

property charges, to use loss mitigation to help bring the loan out of default, and to 

pursue foreclosure if loss mitigation proved unsuccessful.415

Under this Letter, a borrower’s nonpayment of property charges triggers several 

servicer obligations.416 Servicers must send delinquent borrowers a “Property Charge 

Delinquency Letter” that provides a 30-day period to cure the delinquency.417 They 

must report such cases to FHA within five calendar days prior to the end of the month 

in which the delinquencies occur. In order to protect FHA’s collateral interest in the 

property, servicers are required to pay the outstanding property charges on the 

borrower’s behalf. The servicer can seek reimbursement on these advances from the 

borrower.418

In addition to contacting the borrower, reporting the delinquency, and paying the 

outstanding charges, servicers must try to cure the borrower’s default through loss 

mitigation strategies.419 These strategies may include: (a) establishing a repayment plan 

for the outstanding property charges; (b) contacting a HUD-approved counseling 

agency for free assistance to the borrower; and (c) refinancing the delinquent HECM 

into a new HECM if there is sufficient equity remaining in the property.420 The Letter 

provides a table of repayment plans, with no plans exceeding 24 months.421 Borrowers 

who repay the servicer’s advances and become current on property charges will

become compliant with their mortgage terms.422
132 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

After all loss mitigation options have proved unsuccessful, the servicer may submit a 

due-and-payable request to FHA.423 Servicers have to attach documentation of their 

loss mitigation efforts to these requests. If the request is denied, the servicer must 

continue attempts at loss mitigation.424 If the request is approved, the servicer must 

proceed with foreclosure.425

FHA has developed a network of specialized HECM counselors to work with 

delinquent borrowers and identify ways to help the borrowers become current on their 

obligations and avoid foreclosure.426 A pilot program is also being developed in 

Philadelphia that will assist the most distressed borrowers – those whose mortgages 

have been declared due and payable and are facing imminent foreclosure – in resolving 

their situation. The program will help borrowers evaluate options for avoiding 

foreclosure and, if the foreclosure cannot be averted, attempt to find alternative 

housing.427

6.6.4 CONCLUSIONS

As of February 2012, approximately 54,000 borrowers are at risk of losing their homes 

due to property charge defaults.428 These default cases account for 9.4 percent of active 

HECM loans.429 Some borrowers may not realize that they risk losing their home if 

they cannot make payments for taxes and insurance.430 Borrowers who take most or all 

of their available funds upfront at closing are particularly at risk. Stricter underwriting 

requirements and increased emphasis on property charge obligations during HECM 

counseling sessions would help ensure that borrowers are prepared for the obligations 

that come with the reverse mortgage loan and help avoid foreclosures. Other options, 

such as monthly escrow payments or a tax and insurance “set aside” from loan funds,

could also reduce the likelihood that borrowers fall into default.

Voluntary efforts to introduce underwriting standards have so far proved unsuccessful. 

The industry has asked FHA to provide a baseline underwriting requirement, and FHA 

is working on new policy. FHA has indicated that it is evaluating all policy options, 

including underwriting, escrow requirements, and tax and insurance set asides, and it 

expects to publish a proposal in the fourth quarter of 2012.431 The CFPB supports 

FHA and the industry in this effort. 

6.6.4a Stricter underwriting criteria and enhanced counseling

More thorough underwriting requirements and an increased focus on property charge 

obligations during counseling could help ensure that borrowers are able to meet their 

obligation to pay property charges. For example, underwriting requirements could 

compare borrowers’ monthly income with monthly property charges. Although this 

practice may prevent some borrowers from obtaining a HECM loan, initial 
133 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

disqualification may be a better outcome than getting a HECM only to be foreclosed 

upon later. 

Acting FHA Commissioner Carol Galante issued a letter on October 5, 2011 

explaining that the HECM regulations do not prohibit lenders from conducting more 

thorough financial and credit assessments of borrowers.432 Given that individual 

lenders may suffer a competitive disadvantage if they implement a stricter financial 

assessment, market practices are unlikely to change without a mandate that applies to 

all providers. For example, MetLife implemented a financial assessment in November 

2011 but stopped after other industry originators failed to adopt a similar policy.433

These stricter assessment requirements could be coupled with an emphasis on property 

charge obligations during HECM counseling sessions and closing.434 

Many borrowers may not be used to paying their taxes and insurance themselves

because they paid them through an escrow arrangement with their traditional 

mortgage. Monthly escrow payments are another option that could help reverse 

mortgage borrowers remember and budget for these expenses. However, escrow 

arrangements could increase the costs of servicing the loan.

6.6.4b Risks of fixed-rate, lump-sum product

The number of HECM borrowers at risk for property charge default appears to be 

increasing. Borrowers with higher initial draws are more likely to default on property 

charges.435 Currently, about 70 percent of borrowers choose a fixed-rate, lump-sum 

product. Borrowers who choose a fixed-rate, lump-sum product by definition do not 

have any additional reverse mortgage funds available to use to pay the property 

charges. Without remaining available funds, borrowers who do not pay their property 

charges will be immediately placed in default. Therefore, options such as a limited tax 

and insurance set aside – to be used only in the event of a default – may offer 

protection against foreclosure, particularly for lump-sum borrowers.

6.7 NON-BORROWER PROTECTIONS

Consumer advocates have expressed concerns regarding whether the interests of nonborrower spouses and other family members are properly protected in connection with 

HECM reverse mortgage loans. Spouses of reverse mortgage borrowers who are not 

themselves named as borrowers are often unaware that they are at risk of losing their 

homes. If the borrowing spouse dies or needs to move, the non-borrowing spouse 

must sell the home or otherwise pay off the reverse mortgage at that time. Other 

family members (children, grandchildren, etc.) who live with reverse-mortgage 

borrowers also are at risk of needing to find other living arrangements when the 

borrower dies or needs to move.
134 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

6.7.1 RISKS TO NON-BORROWERS

Typically, couples will include both spouses/partners as borrowers on a reverse 

mortgage. Therefore, if one spouse dies, the other spouse can continue to live in the 

home as long as no other circumstances prompt repayment. Sometimes, however, the 

reverse mortgage is taken out in the name of only one spouse. This may happen 

because (1) the other spouse was younger than 62 when the reverse mortgage was 

originated and therefore could not qualify as a borrower; (2) the younger spouse was 

left off the reverse mortgage contract so that the older borrower could receive higher 

proceeds from the loan; or (3) the couple married after the reverse mortgage was 

originated. 

In these cases, the non-borrower spouse is at risk of needing to sell the home to pay 

off the reverse mortgage when the borrowing spouse dies or needs to move. A reverse 

mortgage can jeopardize the living situation of any other non-borrowers living in the 

home, such as children, grandchildren, or other relatives.

Several borrowers reported to the CFPB that they did not understand the 

consequences of not having a spouse on the deed and the reverse mortgage. Borrowers 

reported that brokers promised lower rates, additional funds, or a more favorable deal

if spouse’s names were not on the deed or reverse mortgage, and promised that 

borrowers would be able to add a spouse or family member when they reached a 

certain age. Instead, when borrowers later reached out to lenders, they reported that 

the lender did not allow them to add the name to the mortgage, causing frustration and 

difficulties when the spouse passed away. In particular, consumers reported an inability 

to pay off the loans in full, which resulted in foreclosure. Family members reported 

trying to refinance or seek other means of modifying the reverse mortgage into another 

type of loan without success. Others believed the borrower would not have taken out 

the loan if they knew it meant relatives could not keep the home.436

6.7.1a Legal response

Consumer advocates and HUD are currently engaged in a legal dispute regarding 

whether non-borrower spouses must be considered “borrowers” in connection with 

HECM reverse mortgage transactions. The AARP is assisting three non-borrower 

spouses of reverse mortgage borrowers to assert claims on the basis that HUD has 

insured mortgage loans that do not provide required protections to non-borrower 

spouses of reverse mortgage borrowers.437

The HECM Statute states that HUD “may not insure a [HECM] . . . unless such 

mortgage provides that the Homeowner’s obligation to satisfy the loan obligation is 

deferred until the homeowner’s death, the sale of the home, or the occurrence of other 

events specified in regulation of the Secretary” and that “[f]or purposes of this 

subsection, the term homeowner includes the spouse of the homeowner.”438
135 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

HUD’s regulations that implement this provision refer to the borrower rather than the 

homeowner. Essentially, HUD, through FHA, will insure reverse mortgages so long as 

the payment obligation is deferred until a due and payable event occurs with respect to 

the borrower without regard to any non-borrower spouse.439 

HUD stated that any interpretation of the HECM Statute that deferred repayment of a 

reverse mortgage to the length of a non-borrower spouse’s life would eviscerate the 

actuarial soundness of the HECM program. HUD fears a borrower “could even marry 

a much younger person after taking out the mortgage, thus requiring the lender to wait 

decades more than anticipated for repayment while interest continues to accrue beyond 

the value of the house.” The losses then could be passed on to HUD as an insurance 

claim.440 In at least one case, reverse mortgage borrowers have attempted to 

circumvent HECM restrictions in an attempt to obtain a reverse mortgage and 

preserve ownership of the property by a non-borrower spouse that does not meet the 

age requirements.441

Courts have not directly addressed the meaning of the HECM Statute. The AARPsupported action was dismissed on the basis that HUD’s rules for insuring HECMs 

would not impact the challenged foreclosures affecting the plaintiffs. One court, 

however, has allowed a plaintiff to assert a claim for reformation of a contract based 

upon the borrower’s understanding of the HECM Statute.442 The court observed that 

“[t]he statute suggests that HECM loans, by default, apply to both spouses and that 

any reference to homeowner is, again, by default, a reference to the couple,”443 and 

could be a factor in favor or reforming the contract to match the party’s 

understanding. 

6.7.1b Policy response

On August 26, 2011, HUD issued new guidance stating that all spouses of prospective 

borrowers and all co-owners of the property must receive reverse mortgage counseling 

in addition to the borrower.444 

6.7.1c Conclusions

Consumers and counselors should be aware of the risks reverse mortgages pose to 

non-borrower spouses. Consumers can be harmed if they are told (or otherwise 

assume) that non-borrowers will be allowed to stay in the home for the length of the 

non-borrower’s life. The new guidance requiring non-borrower spouses and co-owners 

to attend counseling is an important step forward. However, some consumers 

considering borrowing in one name only may not share these plans with their 

counselor. Thus, counselors must be certain to emphasize the importance of including 

both spouses on the mortgage to all couples. Additional consumer education regarding 

the impacts of a reverse mortgage on a non-borrower spouse or other family member 
136 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

may still be needed. The CFPB is considering this issue and will work with HUD to 

explore additional ways to strengthen consumer protection.

6.7.2 RISK OF OWING MORE THAN THE VALUE OF THE HOME

Recently, there has been uncertainty regarding the extent to which borrowers and their 

heirs are responsible for repaying reverse mortgage loan amounts that exceed the value 

of the property encumbered by the mortgage.

Consumer advocates allege that in 2008, FHA fundamentally changed the protections 

applicable to reverse mortgages by issuing Mortgagee Letter 2008-38. The Letter stated 

that in the event a consumer or a consumer’s heirs wished to retain a property when a 

reverse mortgage became due and payable, they were required to pay the outstanding 

balance of the reverse mortgage in full, even when that balance exceeded the value of 

the property. This requirement changed the prior rule that a borrower or the 

borrower’s estate could sell the secured property to anyone for the lesser of the unpaid 

mortgage balance or 95 percent of the appraised value. As a result of FHA Mortgagee 

Letter 2008-38, the property could be sold for the lesser of the unpaid mortgage 

balance or 95 percent of appraised value only in an arm’s length transaction.

6.7.2a Policy response

FHA Mortgagee Letter 2008-38 was rescinded by FHA Mortgagee Letter 2011-16 on

April 5, 2011. 445 

6.7.2b Conclusions

FHA has rescinded the guidance that indicated that a borrower or the borrower’s heirs 

would have to pay the entirety of the loan balance in order to retain the property. 

However, it has not yet provided new guidance in its place. FHA’s current position is 

that properties subject to a reverse mortgage may be sold anyone, including a 

borrower’s heir, for the lesser of the unpaid mortgage balance or 95 percent of the 

appraised value. 

6.8 FRAUD

Fraud is especially troublesome in the reverse mortgage context given the vulnerability 

of senior borrowers. Victims of reverse mortgage fraud are at risk of losing their home 

and may have few other financial resources. 
137 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

6.8.1 RISKS TO CONSUMERS

Reverse mortgage fraud includes bad actors who target reverse mortgage consumers.446 

Unsuspecting consumers are at risk of losing their home equity in several ways. A 

trusted adviser or imposter can take out a reverse mortgage without their knowledge, 

or the borrower can be drawn into a property-flipping scheme. Reverse mortgage 

borrowers are further at risk of losing their home equity to fraud perpetrators who 

manipulate the loan application and closing process to inflate appraisals and siphon off 

the borrower’s funds.

6.8.1a Power of attorney and third-party imposters

Some scams involve taking out a HECM without the borrower’s knowledge. 

Individuals could use power of attorney to close the HECM loan, or third parties may 

target senior homeowners and take out a HECM in their name. Some borrowers 

reported to CFPB that they never intended to take out a reverse mortgage themselves, 

or reported a “cash-out theft” by a family member or other person with power of 

attorney who took out the reverse mortgage in their names and then absconded with 

the proceeds.447 In a recent Brooklyn, New York case, the victim responded to a 

television advertisement for debt assistance.448 The defendant worked for the 

marketing company and collected the victim’s information. The defendant had another 

individual pose as the borrower during closing and took out a HECM in the victim’s 

name. Age is a protected status in New York, and this case is being charged as a hate 

crime.

6.8.1b Property flipping

Another common type of reverse mortgage fraud targeting unsuspecting consumers 

involves straw buyers and property flipping.449 Fraud perpetrators convince a 

borrower to take out a reverse mortgage to buy a lower-cost, often uninhabitable 

home. After introduction of the HECM for Purchase program, schemes using fake 

down payments appeared. For example, a group of fraud perpetrators in Georgia gave 

a conspiring attorney down payments so that borrowers would qualify to buy a new 

home through HECM for Purchase.450 Seniors were often led to believe that they were 

getting the new properties for free through a government program. The borrowers 

were sold low-value properties at up to 16 times the true acquisition costs. The fake 

down payments were then returned to the fraud participants along with the reverse 

mortgage proceeds. 

6.8.1c Inflated appraisals

Inflated appraisals allow fraud perpetrators to increase the amount of funds available 

to the deceived reverse mortgage borrower, ultimately allowing more money to be 

stolen. They also create a false appearance of high equity, allowing borrowers to obtain 

HECMs who otherwise would not qualify. An organized group in Florida falsified the 
138 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

amount of equity borrowers had in a property.451 Two participants worked as loan 

officers in order to solicit borrowers, while another altered the appraisals to reflect

inflated property values. This appearance of increased equity qualified the borrowers 

for HECMs. The group then submitted these HECMs to the unknowing lender and 

FHA, resulting in over $2.5 million in fraudulent reverse mortgage loans. The group 

took the money on the loans without paying off the borrowers’ first mortgages, and 

provided borrowers with false statements that those mortgages had been paid off. 

6.8.1d Cash-out theft and investment scams

Fraud perpetrators may target borrowers who take all of their HECM proceeds out at 

closing. A borrower may give the proceeds check to a family member or loan officer, 

who co-endorses the payment and places it in a personal account.452 The borrower 

then must rely on this individual in order to receive payments. After receiving several 

payments, the borrower may be told that all funds have been exhausted. The 

perpetrator keeps the remaining HECM funds. In a Michigan case, a loan officer was 

accused of directing a closing agent to write one check for $42,667 to himself, and 

another for $61,325 to the borrower.453 The loan officer allegedly cashed the $42,667 

check and kept the money, while the borrower was left with a loan balance of over 

$131,000.454 Other perpetrators may convince borrowers to invest their HECM 

proceeds in scam investments. These schemes involve the borrower turning over the 

loan proceeds to fraudulent investment pools promising sweepstakes “winnings,” 

partnership in property developments, and investments in gold and silver.455

6.8.2 POLICY RESPONSE

A number of enforcement initiatives and regulatory changes have improved reverse 

mortgage fraud prevention and prosecution. These changes include new state and 

federal laws that have broadened enforcement abilities, mortgage fraud task forces that 

include several federal agencies, and collaborations among federal and state 

enforcement agencies.

6.8.2a Federal and state legislation

Fraud involving reverse mortgages may be prosecuted at the federal level under 18 

USC § 2314, which prohibits the transfer of something worth $5,000 or more that is 

known to have been taken by fraud, or from fraudulently obtaining or attempting to 

obtain a value of $5,000 or more through fraud.456

Reverse mortgage cases may also qualify as federal bank fraud.457 On May 20, 2009, 

President Obama signed the Fraud Enforcement and Recovery Act of 2009 (FERA). 

FERA changed the definition of “financial institution” to including “mortgage lending 

business.”458 This broader definition allows the Department of Justice (DOJ) to 

prosecute mortgage fraud cases as bank fraud, which allows severe penalties in 
139 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

addition to a longer statute of limitations.459 FERA also expands the definition of false 

statements in a mortgage application that can be prosecuted as fraud. Previously, false 

statements could only be prosecuted by DOJ if they were intended to influence federal 

agencies, banks, or credit associations. FERA applies to false statements that are 

intended to influence action by a mortgage lending business.

States have also enacted new fraud laws for mortgage lending activity. Georgia passed 

the Georgia Residential Mortgage Fraud Act in 2010, which prohibits individuals from 

making any “misstatement, misrepresentation, or omission during the mortgage 

lending process” with the intent to defraud the mortgage lender, borrower, or any 

other affiliated party.460 Michigan made mortgage fraud a crime in 2012, punishable 

with up to 20 years in prison and a $500,000 fine.461 Other state initiatives include the 

establishment of a “mortgage lending fraud prosecution account” in Washington State. 

This account is funded by a surcharge on deed-of-trust recordings.462 

6.8.2b Initiatives

The federal government has several ongoing initiatives to centralize enforcement and 

monitoring of mortgage fraud. The Financial Crimes Enforcement Network 

(FinCEN) is a bureau of the U.S. Department of Treasury that seeks to detect and 

deter financial crime.463 FinCEN collects information on suspicious mortgage activity 

by requiring lenders to submit Suspicious Activity Reports (SARs). Realizing the threat 

that reverse mortgage fraud poses to borrowers, FinCEN has reached out to lenders 

with guidance on identifying and reporting HECM fraud.464 

Improved reporting may help enforcement agencies identify fraudulent activity before 

the perpetrator disappears with HECM proceeds and may help target repeat players. 

FinCEN recently published a final rule that requires nonbank mortgage lenders and 

originators to create anti-money laundering programs and file SARs.465 Bank mortgage 

lenders are already required to file SARs with FinCEN under the Bank Secrecy Act.466

This expansion will help improve fraud reporting and will contribute to the centralized 

database of fraudulent activity. The effective date of the rule is April 16, 2012, and the 

nonbank lenders must comply by August 13, 2012.467

FinCEN issued proposed regulations in November 2011 that would also require 

Fannie Mae, Freddie Mac, and the Federal Home Loan Banks to file SARs directly 

with FinCEN.468 These government-sponsored enterprises already file SARs with the 

Federal Housing Finance Agency, which passes the reports along to FinCEN. Direct 

reporting will allow FinCEN to access the data more quickly and allow it to 

immediately track any fraudulent activity within the network. 

Other initiatives include the FBI/ HUD-Office of Inspector General National 

Mortgage Fraud Team, the Financial Fraud Enforcement Task Force (FFETF), and a 
140 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Mortgage Fraud Working Group within FFETF. Operation Stolen Dreams was a 2010 

multi-agency effort to combat mortgage fraud that resulted in more than 500 arrests.469 

6.8.2c Enforcement actions

State and federal reverse mortgage fraud investigations may stem from victims and 

their relatives, prosecutors, self-reporting by lenders and originators, the Federal 

Housing Administration, HUD Office of the Inspector General audits and data 

mining, community liaison offices, and adult protective services.470 Although there is 

limited data on the national prevalence of HECM fraud, instances appear to be 

significant. In 2010, the FBI/ HUD Mortgage Fraud Team spent approximately 25

percent of their time on reverse mortgage fraud investigations.471 The team has 

approximately 1,500 ongoing mortgage fraud investigations nationwide.472 Between 

2011 and March 2012, Region 2 of the HUD Office of Inspector General presented 45 

cases involving reverse mortgage fraud in the New York and New Jersey area.473 

6.8.3 EMERGING CONCERNS

The shift toward fixed-rate, lump-sum HECMs places more borrowers at risk of losing 

their loan proceeds shortly after closing. Borrowers holding a large amount of funds 

may attract fraudsters simply because they are more lucrative targets. In a Houston 

case, a caretaker was accused of having the borrower sign what appeared to be checks 

for bill payments.474 She allegedly made these checks out to herself in order take over 

$18,000 in the borrower’s lump sum reverse mortgage proceeds.475 A caretaker in 

Miami was accused of making ATM withdrawals to take more than $35,000 from the 

victim, including $26,000 in reverse mortgage proceeds.476 

Reverse mortgage counselors need to be aware that lump-sum payments increase the 

vulnerability of a borrower to fraud. They should consider asking who has access to 

the borrower’s financial accounts. Counselors may be able to identify vulnerabilities in 

the borrower’s financial security. They could refuse to issue a HECM counseling 

completion certificate when they have concerns that the borrower plans to provide 

funds to a fraud perpetrator.477 

6.8.4 CONCLUSIONS

Vigorous enforcement is necessary to ensure that older homeowners are not defrauded 

of a lifetime of home equity. Federal and state working groups may consider focusing 

on state prosecutions in some HECM fraud cases. Given strict financial harm 

requirements and limited resources at the federal level, state enforcement actions often 

may be more effective.478 The recent hate crime charge in New York demonstrates 

how state laws allow more flexibility in reverse mortgage fraud prosecutions. The shift 

to fixed-rate products and the heightened risks these products pose is an important 
141 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

consideration in the development of additional reverse mortgage consumer 

protections. 

6.9 EMERGING CONCERNS

The CFPB has identified two emerging consumer protection concerns that pose 

considerable risks to consumers. These are the prevalence of fixed-rate, lump-sum 

products and the business practices of lead generators. 

6.9.1 PREVALENCE OF FIXED-RATE, LUMP-SUM PRODUCTS

As discussed in both the Product and Market chapters, the market share of fixed-rate, 

lump-sum products has increased dramatically, from less than 3 percent in 2008 to an 

average of 68 percent from mid-2009 through the end of 2011. In the first quarter of

2012, fixed-rate, lump-sum market share stood at 67.7 percent.

479

The market, policy, and consumer behavior forces that combined to produce this shift 

are complex and interconnected, as explained in detail in Section 4.5. While there is no 

one cause of the sudden prevalence of fixed-rate, lump-sum products, there are several 

reasons to be concerned that consumers may not be acting in their own best interest 

when taking these loans. 

6.9.1a Risks to consumers

Fixed-rate, lump-sum loans require borrowers to withdraw the entire available 

proceeds at the time of closing – whether or not they actually need all of the funds 

upfront. As several consumer advocacy groups have noted, this requirement 

introduces several possible risks to consumers.480 As discussed in Section 3.4.1, some 

borrowers are refinancing existing traditional mortgages with their lump-sum loans, 

while others are taking large sums in cash. Both types of borrowers face additional 

risks.

Risks to borrowers who do not need most of the funds immediately

HEIGHTENED RISK OF SCAMS, ELDER ABUSE, AND UNSUITABLE INVESTMENTS

Seniors who take out large lump sums all at once are naturally more at risk of being 

convinced to part with these funds by scam artists, family members or acquaintances, 

or insurance and annuities salesmen than seniors who do not take out large lump sums 

all at once. According to the National Consumer Law Center, some lenders may even 

be selling lists of recent fixed-rate, lump-sum borrowers to insurance and f inancial 

products firms.481
142 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

BORROWING HIGH, SAVING LOW

Seniors who take out more loan proceeds than they need immediately must do 

something with that money. If they put it in a standard savings account or other liquid, 

safe asset, it cannot possibly earn more than the loan is accruing in interest. In 

contrast, if the borrower were to choose an adjustable-rate, line-of-credit plan instead 

of a fixed-rate, lump-sum product, the borrower would not pay interest on the unused 

funds. Moreover, the unused credit line available to the borrower would grow at the 

same rate (interest + mortgage insurance premium) as the loan. 

UNWISE SPENDING

While any reverse mortgage borrower can make unwise spending choices, withdrawing 

money from a bank account is psychologically different than requesting a draw on a 

loan. It is possible that lump-sum borrowers may be more tempted to spend their 

proceeds less wisely than line-of-credit or monthly payment plan borrowers.482

Risks to borrowers paying off a traditional mortgage

The majority of fixed-rate borrowers use at least a portion of their proceeds to pay off 

a traditional mortgage.483 If the amount of that mortgage is low, most borrowers would 

be better served by choosing an adjustable-rate product for the reasons discussed 

above. If the amount of that mortgage is only slightly less than the borrower’s 

maximum available proceeds, however, a fixed-rate product may make more sense. 

Borrowers trade a higher interest rate at origination for interest rate certainty over the 

life of the loan. An adjustable-rate product may still make more sense for some 

borrowers, depending on the borrower’s time horizon and interest rate expectations, 

but a fixed-rate product is not necessarily a poor choice in this case. 

The more troubling risk in this case is the risk that the overall financial transaction –

using a reverse mortgage to pay off a sizeable traditional mortgage – may be an easy 

way to deal with financial difficulties in the short term but a poor choice in the long 

term. If the only way a borrower can afford to keep the home is to deplete their equity, 

that borrower may want to reconsider moving or downsizing instead of refinancing 

their traditional mortgage with a reverse mortgage. 

Risks to all fixed-rate borrowers, regardless of how they use the funds

HEIGHTENED RISK OF TAX & INSURANCE DEFAULTS

As noted in Section 6.6.4b, FHA and major lenders alike have indicated that the 

incidence of tax and insurance defaults are higher among fixed-rate borrowers. When 

adjustable-rate borrowers fail to pay taxes and insurance, lenders can pay these 

expenses on the borrower’s behalf using the borrower’s available credit line. Fixed-rate 

borrowers, by definition, do not have any available credit line. Any financial shortfall 

that prevents a fixed-rate borrower from paying taxes or insurance is more likely to 
143 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

result in a default and potential foreclosure than an adjustable-rate borrower suffering 

a similar financial shortfall. 

HEIGHTENED RISK OF FINANCIAL VULNERABILITY LATER IN LIFE

Seniors who access the entirety of their available equity upfront have fewer resources 

to draw upon in the future to pay for everyday expenses and unexpected major 

expenses, such as home repairs or medical expenses.

6.9.1b Policy proposals

Consumer advocates have proposed restrictions on fixed-rate, lump-sum reverse 

mortgages. One proposal would require the loan originator to apply a suitability 

standard to borrowers requesting lump sum draws greater than 50 percent of 

maximum loan proceeds.484 The proposal would refrain from requiring loan originators 

to apply the suitability standard if a housing counselor certifies that the withdrawal is 

necessary for (a) keeping the home; (b) medical expenses; or (c) another valid reason 

other than financial planning.485 

6.9.1c Conclusions

This is an area in need of further monitoring and research. Currently, there are no 

published analyses or datasets available on what consumers do with the proceeds of 

their reverse mortgages. The CFPB has obtained limited data from one lender on the 

amounts of reverse mortgage proceeds used to pay off traditional mortgages and the 

amounts paid in cash to the borrower. Data from additional lenders is needed to 

ensure that the information is representative of the entire market. Moreover, this data 

does not provide insight as to what consumers who receive their upfront proceeds in 

cash do with these funds. More research is also needed on the behavioral reasons 

consumers gravitate so heavily towards fixed-rate reverse mortgages and on what types 

of information and tools would enable them to make better decisions. 

6.9.2 LEAD GENERATORS 

Lead generators collect information from consumers directly, such as when they visit a 

website to find a lender, and indirectly through mailing lists and similar sources. Lead 

generators provide lenders and brokers with consumers’ contact information for a fee. 

Lenders or brokers then pursue the consumers with solicitations for reverse 

mortgages. The solicitations range from direct mail marketing campaigns and phone 

calls to door-to-door sales pitches. 

Lead generation can be very lucrative. For “cold leads,” which generally consist of a

consumer’s name and address, lenders and brokers have been willing to pay between 

$15 and $45 per lead.486 Cold leads include consumers that may not have expressed 

any interest in a reverse mortgage. “Hot leads” generally include the name, address, 
144 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

age, phone number, home value, and mortgage balance of a consumer who has 

expressed an interest in obtaining a reverse mortgage, and can cost between $100 and 

$200 per lead.487 A lead generator can sell the contact and personal information for 

each consumer to multiple lenders and brokers. Some lenders have even purchased 

lead generator companies in order to control access to and save on the costs of 

obtaining consumer information.488

6.9.2a Risks to consumers

The purchase and sale of consumer information by lead generators can result in 

consumers receiving aggressive marketing solicitations. Some targeted consumers may 

not be interested at all in reverse mortgages. Faulty lead generators may state that 

unknowing consumers have consented to receiving more information about reverse 

mortgages, when they actually have never been asked for consent. Several loan 

originators complained to the FTC about fake leads where the consumers had not 

agreed to receiving solicitations about reverse mortgages.489 These consumers may be 

unwillingly subjected to in-person visits about entering into a reverse mortgage. 

Other consumers initially may be interested in receiving information about reverse 

mortgages but subsequently receive harassing and repeated solicitations. Several 

complaints submitted to the FTC involve consumers who report that they are 

receiving multiple calls a day for reverse mortgage solicitations.490 One consumer called 

a company about a reverse mortgage but decided to take one with another company. 

She continued to receive calls even after she explained that she had already taken out a 

reverse mortgage. Another consumer called for information about reverse mortgages 

and received constant phone calls for over eight months. 

6.9.2b Policy environment

Lead generation is classified as a mortgage origination activity, and entities are required 

to be licensed by the SAFE Act. The CFPB, FTC, DOJ, and state attorneys general, 

among others, have regulatory and enforcement authority over lead generators. In 

particular, the FTC’s Telemarketing Sales rule491 and the Mortgage Assistance Relief 

Services Rule (MARS Rule) apply to lead generators.492 Lead sales activities can also 

trigger RESPA provisions and prohibitions on unfair, deceptive, or abusive acts or 

practices. The Commonwealth of Massachusetts and several other states have brought 

enforcement actions against lead generators for doing business without licenses, 

deceptive practices, and misuse of personal information.493 The FTC has also taken 

action against lead generators for deceptive advertising.494

6.9.2c Industry concerns

Industry participants may also be taken advantage of by lead generators. Loan 

originators have reported paying for leads they never received, refusals to give refunds, 
145 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

and receiving leads that did not meet the terms of the contract signed with the lead 

generator. The FTC received seven complaints regarding deficient reverse mortgage 

“leads,” all of which involved fake leads and refusal to return funds.495 

6.9.2d Conclusions

This is an area in need of further monitoring and research. Additionally, if the CPFB 

determines that the federal consumer protection laws are being violated, it could 

exercise its supervision and enforcement authorities.
146 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

7. Conclusion

Reverse mortgages are inherently complicated products that are not easy for the 

average consumer to understand. Consumers particularly struggle with the rising 

balance, falling equity nature of the loan. Recent innovation and policy changes have 

increased the complexity of the choices and tradeoffs consumers have to make when 

deciding to take out a reverse mortgage loan. 

Prior to 2009, all but a handful of reverse mortgages were adjustable-rate loans in 

which borrowers could choose a line of credit, monthly disbursements, or a 

combination of the two. Since mid-2009, fixed-rate, lump-sum reverse mortgages, 

which require borrowers to take out all their available proceeds at closing, have 

become the dominant product in the marketplace with around 70 percent market 

share. A complex combination of market forces helps to explain this shift. Since 

October 2010, borrowers have also had a choice between the original HECM Standard 

loan, which provides maximum loan proceeds but carries a high upfront mortgage 

insurance premium, and the new HECM Saver product, which provides lower 

proceeds at a lower upfront cost. 

The choice between a fixed-rate, lump-sum loan or an adjustable-rate loan with a line 

of credit and/or monthly disbursements requires consumers not only to have a firm 

understanding of how they plan to use the funds from their loan, but also to make 

complex economic tradeoffs between costs and risks. The same is true for the choice 

between the HECM Standard, with higher upfront fees and higher proceeds, and the 

new HECM Saver, with lower upfront fees and lower proceeds. 

Today’s prospective reverse mortgage consumers are ill-equipped to make these 

tradeoffs. Revisions to the existing disclosures are needed to make the costs and risks 

of different products more transparent and more easily understandable to the 

consumer. Reverse mortgage counseling could also be improved to help consumers 

think more carefully about tradeoffs between product options. 

Reverse mortgages are designed to give older homeowners access to the wealth stored 

in their homes so that they can live more comfortably in retirement. However, 

because reverse mortgages do not require monthly mortgage payments, the accrued 
147 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

interest and ongoing mortgage insurance premium are added to the loan balance each 

month. Over time, the compounded interest and mortgage insurance can consume a 

large part of the borrower’s home equity. There is a risk – especially in periods of low 

home price appreciation – that there will be little to no equity left when the home is 

sold. 

For borrowers who live in their homes for the rest of their lives, this may be an 

acceptable risk. But most borrowers ultimately sell their homes while they are still 

alive. These borrowers may face increased financial difficulties later in life if they use all 

their home equity while living in the home and have none left to help finance their 

next living arrangement. This risk is especially troubling for younger borrowers, who 

receive less in loan proceeds yet have a longer life expectancy. 

Borrowers who take out all their loan proceeds upfront also face increased risks. There 

are good reasons that borrowers might want to take out a portion of the loan proceeds 

upfront as a lump sum – such as paying off a traditional mortgage or making needed 

repairs to the home. But borrowers who take all of their funds upfront lose the ability 

to access additional funds in the future when emergencies or other pressing financial 

needs arise. Borrowers who do not have an immediate need for all of their proceeds 

are generally better off taking only what they need upfront. The unused amount 

available to the borrower will actually increase in value over time. Borrowers who do

have an immediate need for all (or almost all) of their loan proceeds should carefully 

consider how they will handle future financial needs and whether an alternative course 

of action might be a better choice. 

Overall, borrowers appear to be using reverse mortgages in very different ways and for 

very different purposes than was originally intended when the product was first 

developed. This departure in borrower behavior warrants more research on how loan 

proceeds are used and what happens at the end of the loan. Are borrowers downsizing, 

moving to assisted living, or moving in with family? Do they have enough financial 

resources to make those transitions, or do they face financial difficulties? Did they 

derive enough benefit from the reverse mortgage to offset the lost home equity? Or do 

they wish that they had made the hard decision to downsize or explore other 

alternatives instead of taking out the loan?

The CFPB is tasked with protecting American consumers and empowering them to 

lead better financial lives. In fulfilling this mission, we have three main goals. First, 

consumers need the best possible information – in a form that they can readily 

understand – to enable them to make the best possible decisions for their specific 

situation. Second, when there are incentives in the marketplace or predatory practices 

that create the potential for exploitation of consumers, these practices need to be 

addressed. Third, when consumer decisions, market dynamics, or product designs 
148 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

create unintended consequences that contribute to bad outcomes for consumers, these 

factors also need to be addressed.

The CFPB has identified five key findings from this study that are relevant to our work 

protecting American consumers in the area of reverse mortgages. 

7.1 KEY FINDINGS

1. Reverse mortgages are complex products and difficult for consumers to 

understand.

• Lessons learned from the traditional mortgage market do not always 

serve consumers well in the reverse mortgage market. The rising 

balance, falling equity nature of reverse mortgages is particularly 

difficult for consumers to grasp. 

• Recent innovation and policy changes have created more choices for 

consumers, including options with lower upfront costs. However, 

these changes have also increased the complexity of the choices and 

tradeoffs consumers have to make.

• The tools – including federally required disclosures – available to 

consumers to help them understand prices and risks are insufficient to 

ensure that consumers are making good tradeoffs and decisions.

2. Reverse mortgage borrowers are using the loans in different ways than 

in the past, which increase risks to consumers. 

• Reverse mortgage borrowers are taking out loans at younger ages than 

in the past. In FY2011, nearly half of borrowers were under age 70. 

Taking out a reverse mortgage early in retirement, or even before 

reaching retirement, increases risks to consumers. By tapping their 

home equity early, these borrowers may find themselves without the 

financial resources to finance a future move – whether due to health 

or other reasons.

• Reverse mortgage borrowers are withdrawing more of their money 

upfront than in the past. In FY2011, 73 percent of borrowers took all 

or almost all of their available funds upfront at closing. This 

proportion has increased by 30 percentage points since 2008. 

Borrowers who withdraw all of their available home equity upfront 

will have fewer resources to draw upon to pay for everyday and major 

expenses later in life. Borrowers who take all of their money upfront 

are also at greater risk of becoming delinquent on taxes and/or 

insurance and ultimately losing their homes to foreclosure.
149 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

• Fixed-rate, lump-sum loans now account for about 70 percent of the 

market. The availability of this product may encourage some 

borrowers to take out all of their funds upfront even though they do 

not have an immediate need for the funds. In addition to having 

fewer resources to draw upon later in life, these borrowers face other 

increased risks. Borrowers who save or invest the proceeds may be 

earning less on the savings than they are paying in interest on the 

loan, or they may be exposing their savings to risky investment 

choices. These borrowers also face increased risks of being targeted 

for fraud or other scams.

• Reverse mortgage borrowers appear to be increasingly using their 

loans as a method of refinancing traditional mortgages rather than as a 

way to pay for everyday or major expenses. Some borrowers may 

simply be prolonging an unsustainable financial situation. 

3. Product features, market dynamics, and industry practices also create 

risks for consumers.

• A surprisingly large proportion of reverse mortgage borrowers (9.4 

percent as of February 2012) are at risk of foreclosure due to 

nonpayment of taxes and insurance. This proportion is continuing to 

increase.

• Misleading advertising remains a problem in the industry and 

increases risks to consumers. This advertising contributes to 

consumer misperceptions about reverse mortgages, increasing the 

likelihood of poor consumer decision-making.

• Spouses of reverse mortgage borrowers who are not themselves 

named as co-borrowers are often unaware that they are at risk of 

losing their homes. If the borrowing spouse dies or needs to move, 

the non-borrowing spouse must sell the home or otherwise pay off 

the reverse mortgage at that time. Other family members (children, 

grandchildren, etc.) who live with reverse mortgage borrowers are also 

at risk of needing to find other living arrangements when the 

borrower dies or needs to move.

• The reverse mortgage market is increasingly dominated by small 

originators, most of which are not depository institutions. The 

changing economic and regulatory landscape faced by these small 

originators creates new risks for consumers. 

4. Counseling, while designed to help consumers understand the risks 

associated with reverse mortgages, needs improvement in order to be 

able to meet these challenges.

• Reverse mortgages are inherently complicated, and the new array of 

product choices makes the counselor’s job much more difficult. 

Counselors need improved methods to help consumers better 
150 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

understand the complex tradeoffs they face in deciding whether to get 

a reverse mortgage.

• Funding for housing counseling is under pressure, making access to 

high-quality counseling more difficult. Some counselors may 

frequently omit some of the required information or speed through 

the material.

• Some counseling agencies only receive payment if and when the 

reverse mortgage is closed (the counseling fee is paid with loan 

proceeds), which could undermine counselors’ impartiality.

• Some borrowers may not take the counseling sessions seriously. 

Additional consumer awareness and education may be necessary. 

• Counseling may be insufficient to counter the effects of misleading 

advertising, aggressive sales tactics, or questionable business practices. 

Stronger regulation, supervision of reverse mortgage companies, and 

enforcement of existing laws may also be necessary.

5. Some risks to consumers appear to have been adequately addressed by 

regulation, but remain a matter for supervision and enforcement, while 

other risks still require regulatory attention. 

• Cross-selling, previously a top consumer protection concern, appears 

to have been considerably dampened as a result of federal legislation, 

though some risks remain. Strong supervision and enforcement is 

necessary to ensure that industry participants abide by existing laws.

• The risk of fraud and other scams is heightened for this population.

Vigorous enforcement is necessary to ensure that older homeowners 

are not defrauded of a lifetime of home equity.

• Special disclosures are required for reverse mortgages, but existing 

disclosures are quite difficult for consumers to understand. 

• There are general prohibitions against deceptive advertising, but there 

are no specific federal rules governing deceptive advertising with 

respect to reverse mortgages.

7.2 THE CFPB’S ROLE

Under the Dodd-Frank Act, rulemaking and interpretive authority for consumer 

protection laws and regulations that apply to mortgages transferred to the CFPB on 

July 21, 2011.496 The Dodd-Frank Act authorizes the CFPB to issue regulations it 

determines, as a result of this reverse mortgage study, are necessary or appropriate to 

accomplish the purposes of the Act. These regulations may include providing 
151 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

integrated disclosures and identifying practices as unfair, deceptive, or abusive.497 The 

CFPB also has authority to supervise nonbank reverse mortgage companies and larger 

depository institutions and credit unions for compliance with federal consumer 

financial protection laws. 

The findings of the study reveal several areas where the CFPB can play a role to 

protect consumers from risks posed by reverse mortgages and to help consumers make 

better decisions about reverse mortgages. 

1. The CFPB can issue regulations under the federal consumer protection laws 

addressed specifically to protecting consumers considering a reverse mortgage. 

• The CFPB expects to undertake a project to improve and integrate 

TILA and RESPA disclosure requirements for reverse mortgages so 

that consumers can know before they owe when considering a reverse 

mortgage.

• As part of this project, the CFPB will consider the 2010 proposal by 

the Board of Governors of the Federal Reserve System regarding 

reverse mortgages. The proposal would have placed limits on 

misleading advertising, improved disclosures, and closed regulatory 

gaps related to cross-selling, among other things.498

• The CFPB will also consider whether other regulations are necessary 

and appropriate to protect consumers in the reverse mortgage market.

2. The CFPB can develop improved approaches to engage consumers 

considering a reverse mortgage and empower them to make better informed 

decisions. 

• The CFPB will continue to learn from stakeholders and counselors to 

better understand the primary obstacles to good consumer decisionmaking about reverse mortgages. 

• The CFPB will explore improved methods and approaches for 

helping consumers compare products, understand costs and risks, and 

evaluate tradeoffs.

3. The CFPB can monitor the market for unfair, deceptive, or abusive practices 

and compliance with existing laws.

• The CFPB will take enforcement and supervisory actions if necessary.
152 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

4. The CFPB can accept complaints from consumers and work to resolve

those complaints. 

• The CFPB is currently accepting reverse mortgage complaints 

through the web at www.consumerfinance.gov, phone at 1-855-411-

CFPB, and mail.

• The CFPB’s Consumer Response team works with lenders, servicers, 

and other related companies to resolve consumer complaints and 

answer consumer inquiries.

5. The CFPB can work with the Department of Housing and Urban 

Development (HUD), the parent agency of the FHA, to develop solutions to 

issues identified in this report over which HUD has influence.

• The CFPB welcomes the opportunity to strengthen its partnership 

with HUD and improve outcomes for consumers. 

7.3 AREAS FOR FURTHER RESEARCH

The findings of the study have revealed several areas where additional research would 

help determine if additional consumer education or regulatory action is needed.

1. The factors influencing consumer decisions, particularly the choice between 

fixed-rate and adjustable-rate products. 

2. Consumer use of reverse mortgage proceeds, particularly the ways they are 

using large upfront cash draws.

3. The longer-term outcomes of reverse mortgages, particularly the reasons why 

borrowers typically pay off the loans before they die and the level of 

satisfaction among later-stage or former borrowers.

4. The differences in market dynamics and business practices among the broker, 

correspondent, and retail channels, particularly how these differences affect 

the choices presented to consumers.
153 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Appendix I: The

Proprietary Market

A.1 PROPRIETARY REVERSE MORTGAGE PRODUCTS

Reverse mortgages that are not government-insured are known collectively as 

proprietary reverse mortgages. Proprietary reverse mortgages have existed for decades, 

but the market has never been large. In the product’s early days, proprietary products 

may have enjoyed sizeable market share, but the overall market volume was extremely 

small. By the mid-2000s, when the HECM program achieved moderate scale, 

proprietary market share had fallen to around 5 to 10 percent.

499 Today the proprietary 

market has all but disappeared.

In the 1970s and 1980s, before the HECM program was authorized, private lenders as 

well as state and local agencies were working to develop viable reverse mortgage 

products. The first proprietary reverse mortgages offered a fixed interest rate and 

monthly disbursements to the borrower for as long as the borrower remained in the 

home. This product was similar to the “tenure” disbursement option that would 

ultimately be incorporated into the HECM program.500

As the HECM program slowly expanded throughout the 1990s from a few hundred to 

a few thousand loans per year, private lenders continued to experiment outside the 

HECM program with new product variations. In 1994, Household Finance introduced 

a line-of-credit product known as Ever Yours, which had limited reach.501 In 1997, 

Transamerica HomeFirst introduced an adjustable-rate, line-of-credit proprietary 

product known as the “Cash Account,” among others. Financial Freedom purchased 

Transamerica in 1999 and went on to develop the “Cash Account” brand name (albeit 

with a substantially revised product structure) into one of the most widely originated 

proprietary products.502 

In 1996, Fannie Mae developed its own proprietary Home Keeper reverse mortgage as 

an alternative to a HECM.503 The Home Keeper was designed to address needs unmet 

by the HECM program at the time. It provided options to seniors who wanted to 

purchase a home through the Home Keeper for Home Purchase product, to 
154 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

condominium owners, and to individuals with high property values in areas where 

FHA lending limits were low.504 As of 2005, borrowers could choose from three 

payment plans: a tenure option, line-of-credit option, and a modified tenure plan. The 

Home Keeper had similar counseling, age, and equity requirements to the HECM.505 

Fannie Mae discontinued the Home Keeper in 2008 when the Housing and Economic 

Recovery Act (HERA) increased loan limits for the HECM product, eliminating the 

need for Home Keeper.506

In 2005, Seattle Mortgage introduced the Independence Plan, which sought to offer 

lower rates and fees than other proprietary products. In 2007, Bank of America 

acquired Seattle Mortgage and with it the Independence Plan product. Bank of 

America’s Independence Plan was the second most widely originated product after 

Financial Freedom’s Cash Account.

507

During the heyday of the housing boom, a number of lenders introduced new 

proprietary products. Some were available for as little as six months before the crisis 

or, in some cases, regulatory action forced lenders to cease offering the products. 

Despite the marked increase in proprietary activity, proprietary products’ market share 

actually fell to around 5 to 10 percent during the boom because HECM loan 

production was increasing even more rapidly. 

Today, Generation Mortgage is the only lender currently offering a proprietary 

product. Its Generation Plus loan has a minimum borrower age of 62 and a loan limit 

of $6 million.508 The product is available only as a fixed-rate, lump-sum loan with an 

8.875 percent interest rate and an origination fee of 1.5 percent of the initial principal 

balance.509 In comparison, fixed-rate HECMs are currently available with interest rates 

ranging from 4.5 to 5.0 percent and a low or zero origination fee.510 

The Generation Plus loan offers considerably lower proceeds than the HECM as a 

percentage of home value because it is uninsured and carries a higher interest rate than 

HECMs. Of course, due to FHA’s loan limit of $625,000, homeowners with multimillion dollar homes may still be able to receive a higher dollar amount with the 

Generation Plus than with the HECM. At today’s rates, a 62-year-old borrower could 

get 62 percent of their home’s value (or the product’s loan limit, whichever is less) with 

a HECM standard, 52 percent with a HECM Saver, and only 26 percent with a 

Generation Plus. A 90-year old borrower could get 78 percent with a HECM Standard, 

61 percent with a HECM Saver, and only 49 percent with a Generation Plus. Only 51 

loans totaling about $48 million have been originated since this product was created in 

July 2010.511
155 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

A.2 PRODUCT FEATURES

Proprietary products came in many different forms but nearly all retained the same 

basic structure of a nonrecourse loan in which the amount borrowers qualified for 

varied based on age, home value, and prevailing interest rates. Most line-of-credit 

products also offered some type of guaranteed line-of-credit growth, though the 

precise way of calculating that growth varied by product.

However, because proprietary loans were not insured, lenders had to be very 

conservative in underwriting them. Proprietary products typically carried higher 

interest rates and used lower proceeds-to-home value ratios than HECM loans.512 As a 

result, the dollar amount a typical borrower could qualify for with a proprietary 

product was usually substantially lower than the amount the same borrower could 

qualify for under the HECM program. 

The primary exception to this pattern was borrowers with high home values. Under 

the HECM program, borrowers’ loan proceeds are determined by their home value or 

the applicable FHA loan limit, whichever is less. Borrowers whose home values 

substantially exceeded the FHA loan limits (which were much lower in the 1990s and 

the early to mid-2000s than they are today) could sometimes receive higher loan 

proceeds with a proprietary loan despite the lower proceeds-to-home value ratios used 

by proprietary products. Thus, proprietary products catered primarily to borrowers 

seeking “jumbo” reverse mortgages. 

Proprietary products may also have been attractive to borrowers who needed only a 

small amount of cash and/or borrowers looking to use a reverse mortgage as a shortterm financing strategy rather than a long-term plan to provide income in retirement. 

The HECM program historically was structured with a 2.0 percent upfront mortgage 

insurance premium calculated based on the home value (or applicable FHA loan limit, 

whichever is less) rather than on the amount drawn. This structure resulted in 

particularly high upfront fees for borrowers who did not need all of their authorized 

proceeds and/or borrowers who intended to pay off the loan quickly. Proprietary 

products, which did not charge an upfront insurance premium, may have offered a 

better value to this particular segment of reverse mortgage borrowers. 

Most proprietary products used the same minimum age threshold (62) as the HECM 

program, though a few offered minimum ages as low as 60. Some proprietary products 

offered fewer property restrictions when compared to HECMs, such as the ability to 

take out a reverse mortgage on a second home or condo. Figure A-1 illustrates the key 

differences between HECMs and most proprietary products.
156 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure A-1: Key differences between HECM and proprietary reverse 

mortgages

HECM Proprietary

Eligibility age Borrower (or youngest co-borrower) 

must be at least 62 years old.

Some products offered a minimum age as 

low as 60, but most products used 62. 

Authorized loan 

proceeds 

Generally, a substantially higher

percentage of the value of the home as 

compared to proprietary products.

Generally, a substantially lower

percentage of the value of the home as 

compared to HECM.

Loan limits

All homeowners are eligible, but FHA 

loan limits cap proceeds on homes 

valued more than $625,000 (prior to 

2009, the FHA cap was lower).

Some products may cap proceeds for 

homes valued in excess of a certain 

threshold.

Insurance premium

Upfront insurance premium (2.0% or 

0.1% of home value*, depending on 

product choice) plus ongoing monthly 

insurance premium (1.25% of loan 

balance).

No insurance premium, but generally 

higher interest rates.

Guarantee to 

borrowers

FHA guarantees borrowers that if the 

lender fails to make payments to the 

borrower as agreed, the FHA will make 

those payments on behalf of the lender.

No protection from insolvent lenders, 

though to date, even bankrupt entities 

have honored all payments to reverse 

mortgage borrowers.

Consumer 

protections

Mandatory pre-loan counseling; limits on 

costs and fees.

No federal counseling mandate although 

counseling may be mandated in some 

states; no federal limits on costs and fees, 

although some states have limits.

Protection for 

lenders/investors

FHA insurance guarantees that 

lenders/investors will receive repayment 

of the loan in full, subject to certain 

conditions.

Lenders/investors must self-insure 

through conservative underwriting and 

potentially higher interest rates.

* Or FHA loan limit (currently $625,000), whichever is less.

A.3 PRODUCT RISKS

Compared to HECMs, the primary additional risk for the proprietary reverse mortgage 

borrower is the risk that the lender does not fulfill its obligations to make payments to 

the borrower as agreed. This risk may be mitigated somewhat in states where state 

legislation imposes stiff penalties on lenders that fail to honor their obligations.513 In 

practice, even bankrupt lender/investors such as Lehman Brothers and Financial 

Freedom (which went through FDIC receivership while it was owned by failed 

IndyMac bank) have continued to honor payment obligations to proprietary reverse 

mortgage borrowers.514

Perhaps the greater risk to consumers with proprietary products is simply the fact that 

borrowers may not realize that the consumer protections built into the HECM 

program may not be required for proprietary products. Thus, there may be important 

differences in terms between a particular proprietary product and the more familiar 

HECM products. While most proprietary products in practice did mimic most of the 

key features and protections of the HECM program, future products could develop in 

different ways. A proprietary lender could conceivably, for example, slightly change the 

conditions under which the loan may be declared due and payable. 
157 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

With FHA lending limits currently set at $625,500 and private-label mortgage securities 

still dormant, an explosion of proprietary product variations seems a distant future. 

When the proprietary market does rebound, however, regulators will want to monitor 

the market closely. 

A.4 SECONDARY MARKET

In 1999, Lehman Brothers introduced the first private-label reverse mortgage 

securitization. Lehman set standardized terms for the loans included in the 

securitization pool and aggregated the loans. The majority of the loans for the pool 

were originated or aggregated by Financial Freedom or its predecessors. The $317.4 

million issuance constituted perhaps as much as 25 percent of the reverse mortgage 

market that year.515 Lehman later purchased Financial Freedom in October 2000. 

Between 2002 and 2007, Lehman issued four more proprietary reverse mortgage 

securitizations, comprised primarily of Financial Freedom loans. A sixth securitization 

was in progress in 2008 when the housing crisis drove Lehman into bankruptcy.516 

In 2004, IndyMac Bank purchased Financial Freedom from Lehman Brothers. Some 

of the proprietary loans originated during that time were never securitized and 

remained on IndyMac’s balance sheet. Those loans are believed to have since passed to 

One West bank, which purchased the bankrupt IndyMac Bank from FDIC 

receivership.517 As noted earlier, OneWest announced in 2011 that it was winding 

down Financial Freedom and its participation in the reverse mortgage industry. 

Bank of America invested heavily in proprietary reverse mortgage loans, primarily 

during the heady year of 2007 with the acquisition of Seattle Mortgage and its 

Independence Plan product. Bank of America has also exited the reverse mortgage 

business but it still holds $1.1 billion in proprietary reverse mortgages.

518

The proprietary market today is virtually non-existent. Generation Mortgage is the only 

originator offering a proprietary product, and those loans are held by a private 

investor. The exit of the major banks (which are able to hold loans on balance sheet) 

and major proprietary originators of the past (such as Financial Freedom) means there 

are few players in the market with the ability to offer a proprietary product. It is hard 

to imagine that the secondary market for proprietary reverse mortgage securitizations 

will revive before the much larger and more mainstream market for private-label, 

traditional mortgage-backed securities. Despite rumors in the trade press, it seems 

unlikely that we will see many new proprietary products in the near future without a 

ready secondary market for them.
158 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Appendix II: Disclosure 

forms

Figure A-2: Sample TALC Disclosure (Current Law: Appendix K to 

Regulation Z)
159 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

SAMPLE TALC DISCLOSURE

(Current Law: Appendix K to Regulation Z)

TOTAL ANNUAL LOAN COST RATE

Loan Terms Monthly Loan Charges

Age of youngest 

borrower:

75 Service fee: None

Appraised property 

value:

$100,000

Interest rate: 9% Other Charges

Monthly advance: $301.80 Mortgage 

insurance:

None

Initial draw: $1,000 Shared 

appreciation:

None

Line of credit: $4,000 Repayment Limits

Initial Loan Charges Net proceeds estimated at 93% of projected 

home sale

Closing costs: $5,000

Mortgage insurance 

premium:

None

Annuity cost: None

Assumed Annual 

Appreciation

2-year loan 

term

[6-year loan 

term]

12-year loan 

term

17-year loan term

0% 39.00% [14.94%] 9.86% 3.87%

4% 39.00% [14.94%] 11.03% 10.14%

8% 39.00% [14.94%] 11.03% 10.20%

The cost of any reverse mortgage loan depends on how long you keep the loan and how much your house appreciates in value. 

Generally, the longer you keep a reverse mortgage, the lower the total annual loan cost rate will be.

The table above shows the estimated cost of your reverse mortgage loan, expressed as an annual rate. It illustrates the cost for three 

[four] loan terms: two years, [half of life expectancy for someone your age], that life expectancy, and 1.4 times that life expectancy. 

The table also shows the cost of the loan, assuming the value of your house appreciates at three different rates: 0 percent, 4 percent, 

and 8 percent.

The total annual loan cost rates in this table are based on the total charges associated with this loan. These charges typically include 

principal, interest, closing costs, mortgage insurance premiums, annuity costs, and servicing costs (but not disposition costs—costs 

when you sell the home).

The rates in this table are estimates. Your actual cost may differ if, for example, the amount of your loan advances varies or the 

interest rate on your mortgage changes.

SIGNING AN APPLICATION OR RECEIVING THESE DISCLOSURES DOES NOT REQUIRE YOU TO COMPLETE THIS LOAN.
160 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure A-3: Federal Reserve Board proposed consumer information sheet 

to be provided at application
161 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

FEDERAL RESERVE BOARD CONSUMER PROTECTION RESOURCES 

Key Questions to Ask about Reverse Mortgage Loans

Page 1 of 2 

When you are shopping for a reverse mortgage loan, consider the questions below.

Ask your lender about other loan products, such as a traditional home equity loan or home 

equity line of credit. For more information, go to: www.frb.gov.

1) What is a Reverse Mortgage Loan? 

A reverse mortgage loan is available to seniors (usually age 62 and older) who own all or almost 

all of the equity in their home. This loan allows you to exchange equity in your home for cash. 

With a reversHPRUWJDJHORDQ\RXW\SLFDOO\GRQ¶WSD\EDFNWKHORDQIRUDVORQJDV\RXOLYHLQ

your home. Instead, the loan must be repaid in full when the last living borrower dies, sells the 

home, or moves out of the home for 12 months or more. Repaying the loan in full includes the 

amount of the original loan plus all interest and any other fees and charges. Most borrowers (or 

their heirs) repay a reverse mortgage by selling the home. 

2) How is a reverse mortgage loan different from a traditional mortgage? 

x Traditional mortgages are loans generally used to buy a home or to borrow against your 

home equity for bills or other expenses. When you take out a traditional mortgage, typically 

the lender owns most of the equity in your home. As you pay back the loan over time (usually 

through monthly payments), you get that equity back from the lender. Once the traditional 

mortgage is paid off, you own all the equity in your home2the lender owns nothing. 

x With a reverse mortgage loan, you already own all or most of the equity in your home, and 

you exchange this equity for cash from a lender. Because you do not pay back this money 

gradually over time, you do not earn equity back from the lender. Instead, the equity you own 

decreases and the amount you owe increases as interest and other fees and charges are 

added to the amount of the original loan. 

3) Is a reverse mortgage loan right for me? 

The advantage of a reverse mortgage is that you can exchange your home equity for cash and 

do not have to make monthly payments. But reverse mortgages have risks: 

x Loan amount increases over time 

The amount you owe increases every month. The younger you are when you take out a 

reverse mortgage, the more time there will be for the interest to grow and the more you will 

owe. 

x Less cushion for emergencies 

By taking out a reverse mortgage now, you will have less home equity later when you may 

need it more, for example, to pay for future emergencies, health care needs, home repairs, 

or everyday living expenses. If you are not facing a financial emergency now, consider 

postponing taking out a reverse mortgage. 

x Costs more than other loan options 

Reverse mortgages are generally more expensive than other home loans, so consider other 

options before taking a reverse mortgage. Reverse mortgages may also have tax 

consequences or may affect your eligibility for federal or state assistance. Talk with a HUDapproved reverse mortgage counselor or financial advisor to learn more. 
162 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Key Questions to Ask about Reverse Mortgages 

Page 2 of 2 

4) What fees and charges are added to a reverse mortgage loan? 

Fees and charges can vary in amount and type from one reverse mortgage loan to another. 

Most borrowers choose to have these costs added to their loan balance. If you choose to add 

these costs to your loan balance, you will be charged interest on these costs each month in 

addition to the interest charged on the cash you receive. Reverse mortgage loan fees and 

charges typically include: 

x Closing costs, which are charged once, at closing 

x Reverse mortgage insurance premium, which is charged in two parts: once at closing and 

each month as a percent of your outstanding loan balance 

x Interest, which is charged on your outstanding loan balance each month 

x Servicing fee, which is charged each month. 

5) What if my lender wants me to use money from my reverse mortgage to buy 

an annuity or make another investment? 

Under federal law, you cannot be required to use your reverse mortgage money to purchase 

any other financial or insurance product (such as an annuity, long-term care insurance, or life 

insurance). If another product is offered to you, make sure you understand: (1) how the product 

works and what its benefits are, (2) how much it costs, (3) whether you need it, and (4) how 

much money the person selling the product makes if you purchase it. Talk with a HUD-approved 

reverse mortgage counselor or financial advisor before you decide. 

6) Does the lender take the title to my home while I have a reverse mortgage? 

No. You continue to own your home while you have a reverse mortgage loan. This means that 

you must still pay for property taxes, insurance, and repairs. 

7) Can I lose my home while I have a reverse mortgage? 

Yes. You could lose your home if you do not pay for property taxes, insurance, and repairs. For 

H[DPSOHLI\RXGRQ¶WSD\\RXUWD[HVWKHOHQGHUFRXOGGHPDQGWKDW\RXUHSD\WKHORDQLQIXOO

You may have to sell your home to repay the loan. Or the lender could take your home through 

foreclosure. Also, if you GRQ¶W live in your home for 12 straight months or more (for example, if 

you are in the hospital or a nursing home), the lender could demand that you repay the loan in 

full, and you may have to sell your home to repay the loan. 

8) What happens at the end of the loan? What if I owe more than my home is 

worth when the loan comes due? 

A reverse mortgage loan is usually repaid by selling the home. If the money earned 

WKURXJKVHOOLQJWKHKRPHLVQ¶WHQRXJKWRrepay the reverse mortgage, almost all lenders will 

absorb the difference. These lenders will not be able to sue you or your heirs for more money. If 

the reverse mortgage is insured by the federal government, the government will absorb the 

difference instead of the lender. However, if you or your heirs want to keep your home, the loan 

must be repaid in full. Ask your lender if this applies to your loan. 

9) What happens if there is money left over after the home is sold? 

Almost all reverse mortgage loans OHWWKHKRPHRZQHURUWKHKRPHRZQHU¶VKHLUVNHHS any 

money left over after the loan is repaid in full. Ask your lender if this applies to your loan. 
163 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure A-4: Federal Reserve Board proposed application disclosure for 

open-end reverse mortgages
164 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

REVERSE MORTGAGE LOAN SUMMARY

LENDER: ABC Bank

LOAN OFFICER: 12345 1234

DATE: April 30, 2010 

Borrower & Property Information

Borrowers’ Names & Ages John Doe (84); Jane Doe (82)

Property Address 123 Ward Street, Jingle Bells, TX 12345

Appraised Value $275,000

x

x

x

x

x

n

About this Loan

You are applying for a reverse mortgage loan on your home that you do not have to repay for as long as you 

live there.

You may get money from this loan paid to you all at once, as a regular monthly advance, or at times and in 

amounts that you choose.

You will continue to own your home so you must pay your property taxes and insurance, and keep the home 

in good repair (see the Risks section).

If the loan balance eventually is greater than the value of the home, you will continue to receive monthly 

payments and have access to your loan funds as long as you remain in the home.

The amount of the loan, plus interest and fees, must be paid back in full if the home is sold or when the last 

surviving borrower dies or does not live in the house for 12 consecutive months.

Payment of Loan Funds

You may receive your funds as follows:

Line of Credit $186,974 available to you at any time while you remain in your home

You may choose to change the type of payments you receive. Your other choices are:

Initial Advance paid to you after you accept the loa

Monthly Advance paid to you each month while you remain in your home

 

 

Annual Percentage Rate

Annual Percentage Rate 

(APR)

2.93%. This is a variable rate that will change annually based on the Treasury 

rate plus 2.5%. Each year, your rate can increase by up to 2.0%.

Maximum APR 7.93%

Historical Changes to 

Treasury Rate

Over the past 15 years, the Treasury rate plus 2.5% has varied between 2.77% 

and 8.90%.

Interest charges will be added to your loan balance each month and collected when the loan is due.
165 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

x

x

x

s

x

x

 

 

 

Fees

We will refund all fees you paid if you tell us that you do not want to open an account:

for any reason within three business days after you receive this statement; or

for any reason within three business days after you receive reverse mortgage counseling; or

any time before your account is opened if any of these terms (other than the APR) change.

Account Opening Fees

Loan Origination $ 4,735

Inspection $ 500

Title Search & Title Insurance $ 595

Appraisal $ 295

Reverse Mortgage Insurance Premium $ 5,500

TOTAL Account Opening Fees $11,625

Monthly Fees (added to your loan balance each month but not collected until the loan is due)

Servicing Fee $35 per month ($420 annually)

Reverse Mortgage Insurance Premium 0.042% monthly (0.5% annually)

Monthly Interest Charges Starts at 2.93% annually but this rate can change.

Other Fees

Other fees may apply. Ask us for additional information about these fees.

How the Loan Balance Grow

The table shows an example of how your loan balance might grow if:

You borrow $186,974 after you accept the loan and do not borrow any more money, and

The APR stays at 2.93%.

 After 1 Year After 5 Years After 10 Years

How much money will you have received? $186,974 $186,974 $186,974

How much will be owed for interest + fees? $18,972 $51,015 $97,764

How much will be owed altogether? $205,946 $237,989 $255,750
166 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

x

x

 

Repayment Options

At the end of the loan, you or your heirs may either:

Pay the loan balance in full and keep the home, or

Sell the home and use the proceeds to pay off the loan. If your home sells for less than you owe, you will not

be required to pay the difference. If your home sells for more than you owe, the difference will be given to 

you or your heirs. 

x

x

x

x

x

x

x

Risks

Your reverse mortgage loan will be secured by your home. If you default on your reverse mortgage loan by:

Allowing the property to deteriorate beyond reasonable wear and tear; or

Failing to pay property taxes or insurance; or

Failing to live in the house for 12 consecutive months; or

Failing to meet any other obligation

 then we may take any or all of the following actions:

Foreclose On Your Home We could foreclose on your property and require that you leave 

the home.

Stop Giving You Money We may stop making payments to you and not allow you to borrow any 

more money from your line of credit, even if you have borrowed less 

than your credit limit.

Terminate Your Loan We may terminate your loan, make you pay the outstanding loan 

balance in one payment, and charge you fees on termination.

We may also make other changes to your loan.

Î You have no obligation to accept these terms. These terms could change before we open your 

account.

Î You may be entitled to a refund of all fees paid if you decide not to open an account. See “Fees” 

section above for more details.

Î Ask questions if you do not understand any part of this form.

Î For more information, go to www.frb.gov/reverse_mortgages/.

By signing below, I acknowledge receipt of this form.

Borrower’s Signature Date
167 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure A-5: Federal Reserve Board proposed account-opening disclosure 

for open-end reverse mortgages
168 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

REVERSE MORTGAGE LOAN SUMMARY 

LENDER: ABC Bank

LOAN OFFICER: 12345 1234

DATE: April 30, 2010

LOAN NUMBER:123-12-1234-567

Borrower & Property Information

%RUURZHUV¶1DPHV	$JHV John Doe (84); Jane Doe (82)

Property Address 123 Ward Street, Jingle Bells, TX 12345

Appraised Value $275,000

About this Loan

x You are applying for a reverse mortgage loan on your home that you do not have to repay for as long as you 

live there. 

x You may get money from this loan paid to you all at once, as a regular monthly advance, or at times and in 

amounts that you choose.

x You will continue to own your home so you must pay your property taxes and insurance, and keep the home 

in good repair (see the Risks section).

x If the loan balance eventually becomes greater than the value of the home, you will continue to receive 

monthly payments and have access to your loan funds as long as you remain in the home.

x The amount of the loan, plus interest and fees, must be paid back in full if the home is sold or when the last 

surviving borrower dies or does not live in the house for 12 consecutive months. 

Payment of Loan Funds

You have chosen to receive your funds as follows:

Initial Advance $12,000 will be paid to you after you accept the loan

Monthly Advance $ 1,287 will be paid to you each month while you remain in your home

Line of Credit $15,000 will be available to you at any time while you remain in your home

You may choose to change the type of payments you receive.

Annual Percentage Rate 

Annual Percentage Rate 

(APR)

2.93%. This is a variable rate that will change annually based on the Treasury 

rate plus 2.5%. Each year, your rate can increase by up to 2.0%. 

Maximum APR 7.93%

Historical Changes to 

Treasury Rate

Over the past 15 years, the Treasury rate plus 2.5% has varied between 2.77% 

and 8.90%.

Interest charges will be added to your loan balance each month and collected when the loan is due.
169 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Fees

Account Opening Fees

Loan Origination $ 4,735

Inspection $ 500

Title Search & Title Insurance $ 595

Appraisal $ 295

Reverse Mortgage Insurance Premium $ 5,500 

TOTAL Account Opening Fees $11,625

Monthly Fees (added to your loan balance each month but not collected until the loan is due)

Servicing Fee $35 per month ($420 annually)

Reverse Mortgage Insurance Premium 0.042% monthly (0.5% annually) 

Interest Charges Starts at 2.93% annually but this rate can change.

Other Fees

Other fees may apply; see your account agreement for details. Ask us for additional information about 

these fees.

How the Loan Balance Grows

The table shows an example of how your loan balance might grow if:

x You never borrow from the Line of Credit, only receiving the initial and monthly advances listed on page 1, and

x The APR stays at 2.93%.

 After 1 Year After 5 Years After 10 Years

How much money will you have received? $27,443.00 $80,208.00 $166,434.00

How much will be owed for interest + fees? $13,166.00 $23,023.00 $56,300.00

How much will be owed altogether? $40,609.00 $103,232.00 $222,733.00

Repayment Options

At the end of the loan, you or your heirs may either:

x Pay the loan balance in full and keep the home, or 

x Sell the home and use the proceeds to pay off the loan. If your home sells for less than you owe, you will not be 

required to pay the difference. If your home sells for more than you owe, the difference will be given to you or 

your heirs. 
170 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Risks

Your reverse mortgage loan will be secured by your home. If you default on your reverse mortgage loan by:

x Allowing the property to deteriorate beyond reasonable wear and tear; or

x

x

x

Failing to pay property taxes or insurance; or

Failing to live in the house for 12 consecutive months; or

Failing to meet any other obligation

«WKHQZe may take any or all of the following actions:

x Foreclose On Your Home We could foreclose on your property and require that you leave 

the home.

x Stop Giving You Money We may stop making payments to you and not allow you to borrow any 

more money from your line of credit, even if you have borrowed less 

than your credit limit.

x Terminate Your Loan We may terminate your loan, make you pay the outstanding loan 

balance in one payment, and charge you fees on termination.

We may also make other changes to your loan.

Billing Rights: Information on your rights to dispute transactions and how to exercise those rights is provided in 

your account agreement. 

Î You have no obligation to accept these terms. Use this statement to confirm that these are the terms for 

which you applied. 

Î

Î

Ask questions if you do not understand any part of this form. 

For more information, go to www.frb.gov/reverse_mortgages/. 

By signing below, I acknowledge receipt of this form. 

%RUURZHU¶V6LJQDWXUH Date
171 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Figure A-6: Federal Reserve Board proposed disclosure for closed-end 

reverse mortgages
172 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

REVERSE MORTGAGE LOAN SUMMARY

LENDER: ABC Bank

LOAN OFFICER NO.: 12345-1234

DATE: April 30, 2010 

x

x

x

 

Borrower & Property Information

Borrowers’ Names & Ages John Marsh (62)

Borrowers’ Account Number 123456789

Property Address 123 Ward Street, Jingle Bells, TX 12345

Appraised Value $120,000

About this Loan

You are applying for a reverse mortgage loan on your home that you do not have to repay for as long as you 

remain in the home.

You will continue to own your home so you must pay your property taxes and insurance, and keep the home 

in good repair (see the Risks section).

The amount of the loan, plus interest and fees, must be paid back in full if the home is sold or when the last 

surviving borrower dies or does not live in the house for 12 consecutive months.

Payment of Loan Funds

You will receive your funds as follows:

Initial Advance $55,242 will be paid to you after you accept the loan

Annual Percentage Rate (APR)

Overall cost of this loan 

including interest and 

settlement charges

7.16 % APR

Rate Type This is a fixed rate

Interest charges will be added to your loan balance each month and collected when the loan is due.
173 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

Fees

Account Opening Fees

Loan Origination $ 2,500

Inspection $ 500

Title Search & Title Insurance $ 590

Appraisal $ 298

Settlement Fee $ 415

Counseling Fee $ 125

Reverse Mortgage Insurance Premium $ 2,400

TOTAL Account Opening Fees $6,828

Monthly Fees (added to your loan balance each month but not collected until the loan is due)

Servicing Fee $30 per month ($360 annually).

Reverse Mortgage Insurance Premium 0.042% monthly (0.5% annually).

Interest Charges 5.56% annually.

How the Loan Balance Grows

The table shows how your loan balance will grow.

 After 1 Year After 5 Years After 10 Years

How much money will you have 

received? $55,242.00 $55,242.00 $55,242.00

How much will be owed for interest + 

fees? $11,068.00 $30,838.00 $63,321.00

How much will be owed altogether? $66,310.00 $86,080.00 $111,600.00

Total Payments If your loan lasted 21 years, you would make one payment totaling $236,165.31. Of 

this amount, $180,923.50 would go to interest and settlement charges. This amount, 

and your amount financed of $55,241.81, is used to calculate your APR.
174 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

x

x

x

x

x

x

x

x

Repayment Options

At the end of the loan, you or your heirs may either:

Pay the loan balance in full and keep the home, or

Sell the home and use the proceeds to pay off the loan. If your home sells for less than you owe, you will 

not be required to pay the difference. If your home sells for more than you owe, the difference will be 

given to you or your heirs.

Risks

Your reverse mortgage loan will be secured by your home. If you default on your reverse mortgage loan by:

Allowing the property to deteriorate beyond reasonable wear and tear; or

Failing to pay property taxes or insurance; or

Failing to live in the house for 12 consecutive months; or

Failing to meet any other obligation;

 then we may take any or all of the following actions:

Foreclose On Your Home We could foreclose on your property and require that you leave 

the home.

Terminate Your Loan We may terminate your loan, make you pay the outstanding loan 

balance in a single payment, and charge you fees on termination.

Î You have no obligation to accept these terms.

Î Ask questions if you do not understand any part of this form.

Î For more information, go to www.frb.gov/reverse_mortgages/. 

By signing below I acknowledge receipt of this form.

Borrower’s Signature Date
175 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Appendix III: 

Methodology

The Bureau had three objectives in designing this study: (1) provide an authoritative 

resource on reverse mortgage products, consumers, and markets; (2) identify and 

assess consumer protection concerns; and (3) explore critical unanswered questions 

and update the public body of knowledge to reflect new market realities. 

The Bureau took a comprehensive approach to its research. We reviewed consumer 

protection laws and regulations applicable to the reverse mortgage market. We also 

reviewed the laws, regulations, FHA Mortgagee Letters, and other guidance that 

governs the HECM program. We read many published reports and articles produced 

by academics, consumer advocacy groups, industry, mainstream journalists, and the 

trade press. 

We conducted extensive original analyses of the public-use, loan-level HECM dataset 

maintained by FHA. This dataset contains detailed information on all HECM loans 

from the inception of the program through November 2011. We also conducted 

original analyses of Survey of Consumer Finances microdata, and consulted published 

tables of Census, American Housing Survey, and other datasets.

To gain insight into the market dynamics of the industry, the factors driving recent 

market changes, and current business practices, we attended two industry conferences 

and conducted extensive interviews with industry participants. We spoke with more 

than 30 people from at least 15 companies involved in reverse mortgages. We spoke 

with lenders, brokers, Ginnie Mae issuers, servicers, consultants, and capital market 

traders. Many of these individuals had been in the industry for many years, often at 

several different companies in different roles, and provided excellent historical 

background in addition to insights on current market conditions. Several lenders 

provided us with rate sheets. We also spoke with staff at Ginnie Mae and FHA, as well 

as former Fannie Mae staff.

To gather information on the challenges consumers face in deciding whether to take 

out a reverse mortgage, we interviewed six HECM counselors from different 
176 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

counseling agencies and parts of the country. Counselors were selected according to 

recommendations from policy experts, consumer advocates, and HECM counseling 

agency staff. A selection of counselors considered most highly recommended for their 

subject matter expertise was finalized. The counselors were asked about borrower 

comprehension of loan details, borrower ability to assess long-term planning, and 

suggestions for improving HECM counseling in general. 

In order to further understand the challenges and concerns faced by reverse mortgage 

consumers, we reviewed consumer submissions to the CFPB as well as consumer 

complaints submitted to the Federal Trade Commission. We utilized raw consumer 

narratives, which provided an insight into consumers’ understanding and perspectives 

that informed various aspects of the report. All information reviewed was received by 

either the CFPB or Federal Trade Commission in 2011 and 2012, and was identified as 

containing discussions of reverse mortgages.

In addition, we interviewed five external consumer advocates for their depth of 

knowledge in the reverse mortgage market. These advocates possessed particular 

expertise in counseling, legislation, and mortgage policy. The consumer advocates were 

asked about consumer protection issues, policy developments, and their overall 

concerns for future reverse mortgage borrowers. We also spoke with several consumer 

advocacy organizations about their overall concerns about the reverse mortgage 

market.
177 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

Appendix IV: Reverse 

Mortgage Consumer 

Guide

The attached consumer guide provides plain language guidance to consumers 

considering reverse mortgages. The guide includes an explanation of how reverse 

mortgages work, important questions to ask if you are considering a reverse mortgage, 

and information about several alternatives to reverse mortgages that seniors may want 

to consider. It will be available on the ConsumerFinance.gov website and will be 

offered to government agencies, nonprofit organizations, and housing counselors 

throughout the country that work with seniors.

To order copies, please contact the Office for Older Americans at 

CFPB_SeniorsInput@cfpb.gov. 

Figure A-7: Reverse mortgage consumer guide 
178 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

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Notes

 

1 CFPB analysis of 2009 Survey of Consumer Finances public use microdata, available at 

http://federalreserve.gov/econresdata/scf/scfindex.htm. [CFPB Analysis of SCF 2009 Data]

2 As of the 2010 Census, there were about 24 million eligible homeowner households. As of 

November 2011, there were about 582,000 HECM loans outstanding. Homeowner population: CFPB 

estimate derived from 2010 U.S. Census Bureau data, Tables QT-H2 and QT-P2, available at

http://factfinder2.census.gov/main.html. HECM loans outstanding: CFPB analysis of FHA public use 

loan-level HECM data, available at 

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/oe/rpts/hecmdata/hecmd

atamenu. [CFPB Analysis of FHA Loan-Level HECM Data] Loan volume figures in this report are based 

on the closing date of the loan and may differ from other published sources that use the FHA 

insurance endorsement date, which lags behind the closing date. The FHA endorsement date is not 

available in the FHA public-use dataset used to prepare this report. 

3 The U.S. Census Bureau defines the baby boom cohort as people born between 1946 and 1964. 

CFPB estimate derived from 2010 U.S. Census Bureau data, Tables QT-H2 and QT-P2, available at 

http://factfinder2.census.gov/main.html.

4 See CFPB Analysis of SCF 2009 Data, endnote 1. Note: Baby Boomers were age 45 to 63 in 2009.

5 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 § 1076, 124 Stat. 

2075 (2010) (codified at 12 U.S.C. § 1076).

6 12 U.S.C. § 1061.

7 12 U.S.C. § 1076(b).

8 75 Fed. Reg. 58539 (2010).
183 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

9 This provision is discussed in more detail in Sections 2.3 and 6.7. 

10 See CFPB Analysis of SCF 2009 Data, endnote 1.

11 A more detailed comparison between reverse mortgages and HELOCs is found in Section 2.7.1.

12 Proprietary (non-government insured) reverse mortgages have all but disappeared today, but a 

range of products existed in the past and could return in the future. 

13 As of the 2010 Census, there were about 24 million eligible homeowner households. As of 

November 2011, there were about 582,000 HECM loans outstanding. Homeowner population: CFPB 

estimate derived from 2010 U.S. Census Bureau data, Tables QT-H2 and QT-P2, available at

http://factfinder2.census.gov/main.html. HECM loans outstanding: see CFPB Analysis of FHA LoanLevel HECM Data, endnote 2. 

14 HECM outstandings: see CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. Traditional 

mortgage and home equity outstandings: Moody’s Analytics data, available with subscription at 

www.economy.com.

15 The U.S. Census Bureau defines the baby boom cohort as people born between 1946 and 1964. 

CFPB estimate derived from 2010 U.S. Census Bureau data, Tables QT-H2 and QT-P2, available at 

http://factfinder2.census.gov/main.html.

16 See CFPB Analysis of SCF 2009 Data, endnote 1. Note: Baby Boomers were age 45 to 63 in 2009.

17 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 § 1076, 124 Stat. 

2075 (2010) (codified at 12 U.S.C. § 1076).

18 Peter Passell, Tapping Home Equity to Cushion Old Age, New York Times (Jan. 30, 1994), available 

at http://www.nytimes.com/1994/01/30/realestate/tapping-home-equity-to-cushion-oldage.html?pagewanted=all&src=pm. 

19 See Deborah Scholar, Reverse Mortgages: Growing Older and Richer by Cashing in the House, 

Government Law Center of Albany Law School, pp. 7-8 (1996) (discussing development of Reverse 

Annuity Mortgages), available at http://www.governmentlaw.org/files/ReverseMortgages.pdf; 

Opportunities in Home Equity Conversion for the Elderly: Hearing Before the Senate Special 

Subcommittee on Aging (July 20, 1982) (statement of Kenneth Scholen, National Center for Home 

Equity Conversion) (reviewing efforts by lenders in San Francisco, New Jersey, and Buffalo to develop 

a reverse mortgage product), available at http://aging.senate.gov/publications/7201982.pdf; Jack 
184 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

Guttentag, Creating a New Financial Instrument: The Case of Reverse Mortgages, Wharton School 

Working Paper No. 19-73 (1975) (discussing why reverse mortgages have not been widely adopted 

despite consumer need), available at http://finance.wharton.upenn.edu/~rlwctr/papers/7319.PDF; 

Economics of Aging: Hearing Before the Senate Special Committee on Aging (Aug. 1, 1969) 

(statement of Yung Ping Chen, University of California), available at 

http://aging.senate.gov/publications/7311969.pdf.

20 See Opportunities in Home Equity Conversion for the Elderly: Hearing Before the Senate Special 

Subcommittee on Aging (July 20, 1982) (statement of Kenneth Scholen, National Center for Home 

Equity Conversion) (“On a simple term product, you could insure the cash flows for the borrower and 

the encumbered equity for the lender. On a long-term reverse mortgage, by contrast, you are pooling 

a number of different risks-mortality, mobility, casualty, appreciation- all in one instrument. That is an 

uncommon combination of risks, and no one knows how it will play out over a period of time.”); id.

(statement of Senator John Heinz) (“What you are saying, in effect, is that the risk associated with a 

single individual arrangement may be so difficult to figure out that, unless you find a way of pooling 

the risks into some kind of insurance pool where there is more of an actuarial certainty, that it is 

difficult or somewhat unlikely that a sufficient number of lenders or investors will come forward.”), 

available at http://aging.senate.gov/publications/7201982.pdf.

21 Anthony DePalma, Tapping Equity for Retirement Income, New York Times (Sept. 16, 1984), 

available at http://www.nytimes.com/1984/09/16/realestate/tapping-equity-for-retirementincome.html?pagewanted=all. [DePalma 1984]

22 See DePalma 1984.

23 S. 825 (100th Congress) (enacted).

24 Housing and Community Development Act of 1987, Pub. L. No. 100-242 § 417, 101 Stat. 1815 

(codified as 12 U.S.C. §§ 1715z-20(g)).

25 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2.

26 Department of Veterans Affairs and Housing and Urban Development, and Independent Agencies 

Appropriations Act of 1999, Pub. L. No. 105-276 § 593, 112 Stat. 2461 (codified as amended at 12 

U.S.C. §§ 1715z-20(g)).

27 CFPB estimate based on known proprietary loan volumes. There is no comprehensive source of 

data on proprietary loan volumes, so the estimate is approximate at best. 
185 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

28 CFPB interviews with industry experts.

29 Generation Mortgage, Generation Plus Loan, http://www.generationmortgage.com/jumbo-reversemortgage.htm.

30 Data provided by Generation Mortgage.

31 Data provided by Generation Mortgage.

32 FHA Mortgagee Letter 2008-08.

33 American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5 § 1204, 123 Stat. 226 (2009).

34 The HECM Statute and published HECM regulations are silent on the question of whether HECMs 

may be closed-end or open-end. However, in the first year of the program, HUD issued a Mortgagee 

Letter stating that “Because a HUD insured reverse mortgage permits the borrower to use a line of 

credit, the mortgage is deemed to be “open-end credit” under the Truth-in-Lending Act's Regulation 

Z (12 C.F.R. § 226) as amended by 54 FR 24670.” FHA Mortgagee Letter 1990-17.

35 FHA Mortgagee Letter 2008-08.

36 FHA Mortgagee Letter 2007-01.

37 Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654 (2008) (codified 

at 12 U.S.C. § 1715z-20) (citing Federal Home Loan Mortgage Corporation Act 305(a)(2) (codified at 

12 U.S.C. 1452(a)(2)).

38 American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5 § 1204, 123 Stat. 226 (2009).

39 Both Congress and HUD have extended the limit, with the most recent extension implemented by 

HUD with FHA Mortgagee Letter 2011-39. See Department of Interior, Environmental, and Related 

Agencies Appropriations Act 2010, Pub. L. No. 111-88 § 168, 123 Stat. 2974 (2009) (Congress 

extending the limit through 2010); Continuing Appropriations Act 2011, Pub. L. No. 111-242 § 144, 

124 Stat. 2614 (2010) (Congress extending the limit through fiscal year 2011); FHA Mortgagee Letter

2011-29 (HUD extending the limit through December 31, 2011); FHA Mortgagee Letter 2011-39

(HUD extending the limit through December 31, 2012). HUD has extended the loan size limit 

pursuant to 255(g) and 255(m) of the National Housing Act. See 12 U.S.C. §§ 1715z-20(g) and 1715z20(m)(2). 
186 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

40 See CFPB Analysis of SCF 2009 Data, endnote 1.

41 See CFPB Analysis of SCF 2009 Data, endnote 1.

42 FHA Mortgagee Letter 2010-34 (effective Oct. 4, 2010); FHA Mortgagee Letter 2009-34 (effective 

Oct. 1, 2009).

43 HUD Presentation, National Reverse Mortgage Lenders Association Eastern Regional Meeting (Mar. 

26, 2012). (Listing both the 2009 and 2010 PLF changes as two of “several policy changes [that] have 

been introduced to manage risk and strengthen the MMI Fund.”); An Actuarial Analysis of FHA Home 

Equity Conversion Mortgage Loans in the Mutual Mortgage Insurance Fund: Fiscal Year 2011, 

Prepared for HUD, p. 4 (Oct. 12, 2011) (“[T]he principal limit factors have become more conservative 

since FY2009... This policy lowers the likelihood and size of claims and reduces FHA’s financial risk 

accordingly, as it reduces the likelihood that the unpaid principal balance will exceed the net 

proceeds from a house sale.”).

44 FHA Mortgagee Letter 2010-34.

45 FHA Mortgagee Letter 2010-34.

46 24 C.F.R. § 206.33.

47 24 C.F.R. § 206.45(a).

48 24 C.F.R. § 39.

49 24 C.F.R. § 206.32.

50 24 C.F.R. § 206.47(a); 24 C.F.R. § 206.47(b).

51 24 C.F.R. § 206.27(c)(2).

52 24 C.F.R. § 206.205(a). 

53 24 C.F.R. § 206.27(c)(2). This obligation, and the steps lenders must take before foreclosing on 

borrowers, is described in more detail in Section 6.6.

54 24 C.F.R. § 206.27(b)(5). 
187 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

55 24 C.F.R. § 206.125(a)(2). 

56 24 C.F.R. § 206.209(a). 

57 24 C.F.R. § 206.41(a). 

58 See 24 C.F.R. § 206.21; 24 C.F.R. § 206.43. 

59 24 C.F.R. § 206.27(c).

60 24 C.F.R. § 206.125(a)(2).

61 24 C.F.R. § 206.125(a)(2) (explaining that the borrower can pay the mortgage balance in full, sell the 

property for at least 95 percent of appraised value, or provide the lender with a deed in lieu of 

foreclosure).

62 24 C.F.R. § 206.125(d). If the lender does not start foreclosure proceedings within the timeframe

established by FHA, the lender may not be able to collect on the insurance claim. 

63 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

64 When interest rates are very low, as they are today, FHA uses an interest rate floor such that rates 

below the floor do not produce any additional proceeds. 

65 Interest rates below 5 percent do not produce any additional proceeds. Interest rates above 10

percent do not produce any proceeds. The minimum age for HECM borrowers is 62, and borrowers 

over 90 do not receive any additional proceeds. See Principal Limit Factor Tables, available at

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/hecm/hecmhomelenders.

66 Unless they pay off the other loan(s) using another source of funds.

67 According to interviews with industry participants, secondary market investors do not pay as highly 

for Saver loans as they do for Standard loans (assuming interest rates are equal) because they are 

concerned that Saver borrowers might pay their loans off more quickly than Standard borrowers, 

reducing investor yield. Thus, lenders typically set interest rates on Saver loans a little higher than the 

rates on Standard loans so as to be able to earn a similar amount in the secondary market. This pricing 

difference is reflected in industry rate sheets obtained by the CFPB.
188 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

68 Beginning in 1996, monthly adjustable loans replaced annually adjustable loans as the dominant 

rate option, though the monthly adjustments were calculated using the same one-year constant 

maturity treasury (CMT) rate used in calculating annually adjustable HECMs. In October 2007, FHA 

published a rule allowing monthly adjustable rates to be calculated using the one-month CMT or the 

one-month LIBOR. See 72 Fed. Reg. 40048 (amending regulations at 24 C.F.R. § 203.49(b)). The new 

rule also allowed the use of the one-year LIBOR index to calculate annually adjustable HECMs, though 

this option did not receive much uptake. Since this policy change in 2007, the monthly adjustable 

LIBOR has become the dominant adjustable-rate option.

69 Historically, all HECMs were structured as open-end loans, meaning that lenders wanting to offer a 

fixed-rate HECM had to be willing to take the interest rate risk of lending new money in the future at 

an interest rate fixed at origination. Very few lenders were willing to take that risk. The HECM Statute 

and published HECM regulations are silent on the question of whether HECMs may be closed-end or 

open-end. However, in the first year of the program, HUD issued a Mortgagee Letter stating that

“Because a HUD insured reverse mortgage permits the borrower to use a line of credit, the mortgage 

is deemed to be "open-end credit" under the Truth-in-Lending Act's Regulation Z (12 CFR 226) as 

amended by 54 FR 24670.” FHA Mortgagee Letter 1990-17. FHA Mortgagee Letter 2008-08, issued 

on March 28, 2008, clarified that fixed-rate HECMs were permitted to be structured as closed-end 

credit, opening the door for the market transition to fixed-rate products that happened in 2009. 

70 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

71 Fixed-rate HECMs are currently structured as closed-end, lump-sum loans. Lenders are unwilling to 

offer an open-end, line-of-credit or monthly payment plan at a fixed rate due to interest rate risk. As 

with all closed-end loans, borrowers are not permitted to partially pay down the loan and then reborrow against their authorized loan amount because this would constitute an open-end, line-ofcredit structure rather than a closed-end structure.

72 FHA Mortgagee Letter 2008-08. This letter states that fixed-rate loans may be structured as openend or closed-end loans. In practice, all or nearly all fixed-rate loans are closed-end loans. CFPB is not 

aware of any lender offering fixed-rate, open-end HECMs. 

73 12 U.S.C. § 1715z-20(d)(9); 24 C.F.R. § 206.19. 

74 See HUD Handbook, Home Equity Conversion Mortgages, 4235.1 REV-1 § 1-6(B) (“With all payment 

plans, the lender must be able to make lump sum payments up to the net principal limit at the 

borrower's request.”).
189 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

75 This is not a regulatory requirement, but rather a result of market forces. According to FHA 

Mortgagee Letter 2008-08, fixed-rate reverse mortgages can be open-end or closed-end. Any lender 

wanting to offer a fixed-rate, open-end HECM would have to be willing to take the interest rate risk of 

lending new money in the future at an interest rate fixed at origination. CFPB is not aware of any 

lenders making open-end, fixed-rate HECMs. 

76 Hui Shan, Reversing the Trend: The Recent Expansion of the Reverse Mortgage Market, Federal 

Reserve Board Working Paper No. 2009-42, Table 2 (Apr. 2009), available at 

http://www.federalreserve.gov/pubs/feds/2009/200942/200942pap.pdf.

77 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2.

78 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

79 Estimates based on industry data obtained by the CFPB. 

80 FHA Mortgagee Letter 2008-33.

81 FHA Mortgagee Letter 2010-34.

82 The allowable origination fee was reduced in 2008. See Housing and Economic Recovery Act of 

2008, Pub. L. No. 110-289, 122 Stat. 2654 (2008) (codified as 12 U.S.C. § 1715z-20(1)(r)(1)). See also

FHA Mortgagee Letter 2008-34.

83 FHA Mortgagee Letter 2011-09.

84 FHA Mortgagee Letter 2010-34. This rate was increased from 0.50 percent on October 4, 2010, as 

part of a package of reforms (including the introduction of the HECM Saver option and an across-theboard reduction of principal limit factors) designed to improve the financial stability of the FHA 

insurance fund. 

85 24 C.F.R. § 206.105 (“Monthly MIP will accrue daily on the mortgage balance at a rate equivalent to 

one-half of one percent per annum and shall be added to the mortgage balance when paid to the 

Secretary.”); 24 C.F.R. § 206.111 (“Each monthly MIP shall be due to the Secretary on the first business 

day of each month except the month in which the mortgage is closed.”).

86 This servicing fee margin is mandated by Ginnie Mae for all Ginnie Mae-securitized HECMs, which 

comprise the majority of HECMs originated today. Lenders wishing to hold loans on balance sheet 

could, in theory, use a different structure. Also embedded into the interest rate for Ginnie Mae-
190 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

securitized loans is a 6 basis point (0.06 percent) guarantee fee paid to Ginnie Mae. See Ginnie Mae 

All Participants Memorandum 11-10, Home Equity Conversion Mortgage Mortgage-Backed Securities 

– Changes to the Servicing Fee Margin (June 10, 2011), available at 

http://www.ginniemae.gov/apm/apm_pdf/11-10.pdf. 

87 CFPB industry research.

88 Oversight of the Federal Housing Administration’s Reverse Mortgage Program for Seniors: Hearing 

before the House Subcommittee on Insurance, Housing, and Community Opportunity (May 9, 2012) 

(statement of Charles Coulter, Deputy Assistant Secretary for Single Family Programs, Office of 

Housing, Federal Housing Administration), available at 

http://financialservices.house.gov/UploadedFiles/HHRG-112-BA04-WState-CCoulter-20120509.pdf.

89 AARP, Reverse Mortgage Loans: Borrowing Against Your Home, p.22 (Oct. 2010), available at 

http://assets.aarp.org/www.aarp.org_/articles/money/financial_pdfs/hmm_hires_nocrops.pdf. [AARP 

2010]

90 For example, the Illinois Department on Aging recently had to cut each Circuit Breaker Tax Grant

awarded in half due to budget cuts for fiscal years 2010 and 2011. See Illinois Department of Aging 

Circuit Breaker Tax Grant, available at http://www.cbrx.il.gov/aging/1rx/cbrx/taxgrant.htm.

91 Mass. Gen. Laws 59 § 5.

92 See AARP 2010 at 22, endnote 89.

93 See, e.g., Wisconsin Deferred Payment Loans, available at 

http://www.cityofmadison.com/planning/cedu/Documents/HRSPTT.pdf. 

94 See, e.g., Joseph Holstead, OLR Research Report, Government Home Improvement Loans and 

Grants (Aug. 21, 2006) (discussing Connecticut Home Solutions program), available at

http://www.cga.ct.gov/2006/rpt/2006-R-0494.htm. 

95 Additional states, including Georgia, Indiana and Iowa, have the statutory authority to implement 

reverse mortgage programs but have not done so. See, e.g., Ga. Code § 50-26-17; Ind. Code § 28-

15-11-9; Iowa Code § 16.53.

96 See Conn. Gen. Stat. § 8-265(i); Connecticut Housing Finance Authority, Reverse Annuity Mortgage 

Program Overview, available at

http://www.chfa.org/Homeownership/for%20Homeowners/ReverseAnnuityMortgageProgram.aspx.
191 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

97 “‘Long -Term Care’ describes a wide range of supportive services provided to individuals who have 

lost some or all capacity to function on their own due to chronic illness, and are expected to require 

such services for an extended period.” State of Connecticut, Aging Servicing Division – State Unit on 

Aging, Reverse Annuity Mortgages Program, available at 

http://www.ct.gov/agingservices/cwp/view.asp?a=2515&q=313094. 

98 See Mont. Code § 90-6-501 et seq; Montana Department of Commerce, Reverse Annuity Mortgage 

Program, available at http://housing.mt.gov/About/MF/ram.mcpx; Montana Department of 

Commerce, Reverse Annuity Mortgage Program Fact Sheet (2011), available at 

http://housing.mt.gov/content/About/MF/docs/LIHTCRAM/2011RAMfactSheet.pdf.

99 See Website for Homeowner Options for Massachusetts Elders, available at

http://elderhomeowners.org/.

100 See Program Highlights, Website for Homeowner Options for Massachusetts Elders, available at 

http://elderhomeowners.org/highlights.htm.

101 Laura Summer, Commonwealth Fund, Increasing Participation in Benefits Programs for LowIncome Seniors (May 2009) (concluding that many eligible low-income seniors do not participate in 

public benefit programs because they are either not familiar with the program or are discouraged by 

complex enrollment processes), available at 

http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2009/May/1266_Su

mmer_increasing_particip_benefit_progs_v3.pdf; April Yanyuan Wu, Why Do So Few Elderly Use 

Food Stamps, University of Chicago Harris School of Public Policy Working Paper No. 10.01, p. 4 (Oct. 

2009) (finding that 60% of eligible seniors who were not receiving food stamps were not aware that 

they were eligible), available at http://harrisschool.uchicago.edu/About/publications/workingpapers/pdf/wp_10_01.pdf.

102 Bonnie Heudorfer, Massachusetts Community and Banking Counsel, Reverse Mortgage Lending 

Project: An Investigation into the Existing State of Consumer Protections, Issues, and Practices Relative 

to Reverse Mortgage Lending in the Commonwealth of Massachusetts (May 1, 2011), available at 

http://www.mcbc.info/files/REVERSE-MORTGAGE-LENDING-PROJECT-REV-B.pdf.

103 Oversight of the Federal Housing Administration’s Reverse Mortgage Program for Seniors: Hearing 

before the House Financial Services Subcommittee on Insurance, Housing and Community 

Opportunity (May 9, 2012) (statement of Barbara Stucki) (using National Council on Aging data from 

the Reverse Mortgage Counseling Toolkit website), available at 

http://financialservices.house.gov/UploadedFiles/HHRG-112-BA04-WState-BStucki-20120509.pdf.
192 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

104 CFPB estimate derived from 2010 U.S. Census Bureau data, Tables QT-H2 and QT-P2, available at 

http://factfinder2.census.gov/main.html.

105 See CFPB Analysis of SCF 2009 Data, endnote 1.

106 NRMLA/Risk Span Reverse Mortgage Market Index, available at 

http://services.nrmlaonline.org/NRMLA_Documents/RMMI_Third_Quarter_2011.pdf.

107 There were 582,000 reverse mortgages outstanding as of November 2011. See CFPB Analysis of 

FHA Loan-Level HECM Data, endnote 2. 

108 See CFPB Analysis of SCF 2009 Data, endnote 1; MetLife Mature Market Institute, Changing 

Attitudes, Changing Motives: The MetLife Study of How Aging Homeowners Use Reverse Mortgages, 

pp. 20-22 (Mar. 2012), available at 

http://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmi-changing-attitudeschanging-motives.pdf. [Metlife 2012]

109 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2.

110 U.S. Census Bureau, Population Division, Table 12: Projections of the Population by Age and Sex 

for the United States: 2010 to 2050 (Aug. 14, 2008), available at 

http://www.census.gov/population/www/projections/files/nation/summary/np2008-t12.xls. 

111 CFPB estimate based on Census population projections, assuming current ratios of population to 

households and current homeownership rates continue. 

112 As of the 2010 Census, there were about 24 million eligible homeowner households. As of 

November 2011, there were about 582,000 HECM loans outstanding. Homeowner population: CFPB 

estimate derived from 2010 U.S. Census Bureau data, Tables QT-H2 and QT-P2, available at

http://factfinder2.census.gov/main.html. HECM loans outstanding: see CFPB Analysis of FHA LoanLevel HECM Data, endnote 2. 

113 Survey results are weighted to be representative of the underlying population. Donald L. Redfoot 

et al., AARP, Reverse Mortgages: Niche Product or Mainstream Solution? Report on the AARP 2006 

National Survey of Reverse Mortgage Shoppers, Appendix D (Dec. 2007), available at 

http://assets.aarp.org/rgcenter/consume/2007_22_revmortgage.pdf. [AARP 2006 Survey]

114 Survey results are weighted to be representative of the underlying population. See AARP 2006 

Survey at Appendix D.
193 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

115 Survey results are weighted to be representative of the underlying population. Natalie Jobity, The 

Harris Poll #70 (July 16, 2007), available at http://www.harrisinteractive.com/vault/Harris-InteractivePoll-Research-Mortgage-Issues-2007-07.pdf.

116 Stephanie Rauterkus et al., The Home Equity Conversion Mortgage: A Study of Attitudes and 

Awareness, Journal of Real Estate Portfolio Management 15:3, p. 267 (2009). [Rauterkus 2009]

117 HUD Presentation, National Reverse Mortgage Association Annual Meeting (Oct. 25, 2011).

118 Survey results are weighted to be representative of the underlying population. Natalie Jobity, The 

Harris Poll #70 (July 16, 2007), available at http://www.harrisinteractive.com/vault/Harris-InteractivePoll-Research-Mortgage-Issues-2007-07.pdf.

119 For these low-income homeowners, downsizing was unlikely to yield much savings – their moving 

options were primarily subsidized or unsubsidized rentals, nursing homes, and moving in with family. 

This study involved reverse mortgage borrowers in a special program run by a Massachusetts 

nonprofit rather than the mainstream HECM program. Roberta Leviton, Reverse Mortgage Decision 

Making, Journal of Aging and Social Policy 13:4 (2001).

120 See AARP 2006 Survey at 24, endnote 113.

121 See Rauterkus 2009 at 267, endnote 116.

122 The borrowers in this study ranged from age 70 to 98 at the time of the study, which was published 

in 2001. For these low-income homeowners, downsizing was unlikely to yield much savings – their 

moving options were primarily subsidized or unsubsidized rentals, nursing homes, and moving in with 

family. This study involved reverse mortgage borrowers in a special program run by a Massachusetts 

nonprofit rather than the mainstream HECM program. Roberta Leviton, Reverse Mortgage Decision 

Making, Journal of Aging and Social Policy 13:4 (2001).

123 David Rodda et al., No Place Like Home: A Report to Congress on FHA’s Home Equity Conversion 

Mortgage Program, p. 44 (2000), available at http://www.huduser.org/Publications/pdf/hecmrpt.pdf. 

[Rodda 2000]

124 Chris E. Anguelov and Christopher R. Tamborini, Retiring in Debt? An Update on the 2007 NearRetiree Cohort, Social Security Bulletin 70:4, p.70 (2010), available at 

http://www.ssa.gov/policy/docs/ssb/v70n4/v70n4p69.pdf. [Anguelov 2010]
194 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

125 Question: Which statement is closer to your own beliefs? A: I hope to leave my children (and heirs) 

some inheritance to make their future lives easier. B: I want to be able to pay all of my expenses while 

I am alive so my children (and heirs) do not have to worry about me. Study conducted by Marttila 

Strategies in October 2010 on behalf of the National Reverse Mortgage Lenders Association, and 

surveyed 600 seniors without reverse mortgages who own their homes with at least 50 percent equity. 

Presentation by Marttila Strategies, Survey for the National Reverse Mortgage Lenders Association, 

National Reverse Mortgage Association Annual Conference (Oct. 24, 2011).

126 MetLife Mature Market Institute, Transitioning into Retirement: The MetLife Study of Baby Boomers 

at 65 (Apr. 2012), available at 

http://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmi-transitioningretirement.pdf.

127 See AARP 2006 Survey at 75, endnote 113.

128 These borrowers gave one of three reasons as the primary reason for not taking out the loan: “The 

reverse mortgage was not necessary given your financial situation” (10 percent); “The reverse 

mortgage would make more financial sense in the future than it would now” (9 percent); and “You 

found another way to meet your financial needs” (9 percent). 

129 See AARP 2006 Survey at 75, endnote 113.

130 See Metlife 2012 at 13, endnote 108.

131 Question: Now that you’ve had a reverse mortgage for at least two years, do you plan to pay off 

your reverse mortgage at some point in the future OR do you plan to stay in your home for the rest of 

your life and use the proceeds your estate will receive from selling the home to pay off the reverse 

mortgage? Presentation by Marttila Strategies, Survey for the National Reverse Mortgage Lenders 

Association, National Reverse Mortgage Association Annual Conference (Oct. 24, 2011).

132 Question: Which statement is closer to your own view? A) I plan to stay in my home for the rest of 

my life or B) I plan/ expect to move away from the house in which I currently live.Presentation by 

Marttila Strategies, Survey for the National Reverse Mortgage Lenders Association, National Reverse 

Mortgage Association Annual Conference (Oct. 24, 2011).

133 Presentation by Marttila Strategies, Survey for the National Reverse Mortgage Lenders Association, 

National Reverse Mortgage Association Annual Conference (Oct. 24, 2011). 

134 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2.
195 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

135 The median age at origination for borrowers taking out loans during the 1990s was 75. The 

average life expectancy of a 75-year-old in 1995 was 11 years. See CFPB Analysis of FHA Loan-Level 

HECM Data, endnote 2; Centers for Disease Control and Prevention, Vital Statistics of the United 

States, Mortality, 2:A, Table 6-3 (1995), available at 

http://www.cdc.gov/nchs/data/lifetables/life95_2.pdf.

136 See AARP 2006 Survey at 75, endnote 113.

137 Presentation by Marttila Strategies, Survey for the National Reverse Mortgage Lenders Association, 

National Reverse Mortgage Association Annual Conference (Oct. 24, 2011).

138 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

139 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2.

140 To facilitate comparisons with the reverse mortgage borrowers in the first three charts, 

percentages in the fourth chart (2010 Population) are calculated as a percentage of people age 62 

and older – not as a percentage of people 60 and older.

141 These statistics compare averages of 1990-1999 with 2005-2010. 2011 is an anomalous year in 

which the marital status is unreported on 10% of loans. See CFPB Analysis of FHA Loan-Level HECM 

Data, endnote 2.

142 See Rodda 2000 at 17, endnote 123.

143 See Rodda 2000 at 17, endnote 123.

144 See AARP 2006 Survey, endnote 113.

145 Notice of Hearings, Federal Reserve Board, Home Mortgage Disclosure Act (June 15, 2010), 

available at http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20100617a1.pdf.

146 California Community Groups, Comment Letter to Federal Reserve Board Proposed Rule to 

Amend Regulation C, Docket No. OP-388, 12 C.F.R Part 203: Home Mortgage Disclosure Act (Aug. 4, 

2010) (letter submitted on behalf of 64 nonprofit civil rights and community groups across the State of 

California), available at http://www.insightcced.org/uploads/CRWG/LettertoFederalReserveHMDA.pdf; Woodstock Institute, Comment Letter to Federal Reserve Board Proposed Rule to Amend 

Regulation C, Docket No. OP-388, 12 C.F.R Part 203: Home Mortgage Disclosure Act (Sept. 2, 2010), 

available at http://www.federalreserve.gov/communitydev/files/geoff_smith_remarks.pdf; 
196 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

Neighborhood Economic Development Advocacy Project, Comment Letter to Federal Reserve Board 

Proposed Rule to Amend Regulation C, Docket No. OP-388, 12 C.F.R Part 203: Home Mortgage 

Disclosure Act (Aug. 20, 2010), available at 

http://www.nedap.org/resources/documents/HMDANEDAPCommentLetter8-20-10.pdf; Credit Union 

National Association, Comment Letter to Federal Reserve Board Proposed Rule to Amend Regulation 

C, Docket No. OP-388, 12 C.F.R Part 203: Home Mortgage Disclosure Act (Aug. 20, 2010), available at 

http://www.cuna.org/reg_advocacy/comment_letters/cl_082010.html; National Fair Housing Alliance, 

Comment Letter to Federal Reserve Board Proposed Rule to Amend Regulation C, Docket No. OP388, 12 C.F.R Part 203: Home Mortgage Disclosure Act (Sept. 8, 2010), available at 

http://www.nationalfairhousing.org/Portals/33/NFHA%20HMDA%20Comments.pdf; New York 

Banking Department, Comment Letter to Federal Reserve Board Proposed Rule to Amend Regulation 

C, Docket No. OP-388, 12 C.F.R Part 203: Home Mortgage Disclosure Act (Aug. 6, 2010), available at 

http://www.federalreserve.gov/SECRS/2010/August/20100810/OP-1388/OP1388_080610_52157_586078122944_1.pdf; Federal Trade Commission, Comment Letter to Federal 

Reserve Board Proposed Rule to Amend Regulation C, Docket No. OP-388, 12 C.F.R Part 203: Home 

Mortgage Disclosure Act (Dec. 3, 2010), available at 

http://www.ftc.gov/os/2010/12/101217federalreserveregulation.pdf; Lending Schools First Federal 

Credit Union, Comment Letter to Federal Reserve Board Proposed Rule to Amend Regulation C, 

Docket No. OP-388, 12 C.F.R Part 203: Home Mortgage Disclosure Act (Aug. 20, 2010), available at 

http://www.federalreserve.gov/SECRS/2010/August/20100825/OP-1388/OP1388_082010_53000_543166582938_1.pdf. But see Independent Alliance Banks, Comment Letter to 

Federal Reserve Board Proposed Rule to Amend Regulation C, Docket No. OP-388, 12 C.F.R Part 203: 

Home Mortgage Disclosure Act (Sept. 20, 2010) (“I do not believe the Board should require lenders to 

report on home-secured loans [such as reverse mortgages] in addition to home purchase, home 

improvement, and refinancing loans.”), available at

http://www.federalreserve.gov/SECRS/2010/September/20100917/OP-1388/OP1388_091010_53974_542630288647_1.pdf. 

147 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 § 1094, 124 

Stat. 2075 (2010) (codified at 12 U.S.C. § 2801).

148 See AARP 2006 Survey at 49, endnote 113.

149 See CFPB Analysis of SCF 2007 Data, endnote 1.

150 The mortgage debt figures are derived by adding the “Mortgage debt only” and “Both mortgage 

and other debt” lines in Figure 17. See Metlife 2012, endnote 108.

151 See CFPB Analysis of SCF 2009 Data, endnote 1.
197 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

152 Due to data constraints, data on existing mortgages paid off is commingled with data on federal 

liens or judgments paid off at closing. Some portion of borrowers included in these figures could have 

owed a federal lien or judgment but not a mortgage, though we assume that portion to be quite 

small. 

153 See Anguelov 2010 at 70, endnote 124. 

154 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2.

155 “Upfront” is defined to mean funds withdrawn within the first year. See CFPB Analysis of FHA LoanLevel HECM Data, endnote 2. 

156 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2.

157 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

158 CFPB analysis of data obtained from a reverse mortgage lender. This analysis covers the two-year 

period after the rise in market share of the fixed-rate product from June 2009 through May 2011.

159 CFPB analysis of data obtained from a reverse mortgage lender. Borrowers who “owned their 

home free and clear or had only a small existing mortgage balance” are defined as borrowers who 

did not pay off a lien at closing or who used less than 25 percent of their available proceeds to pay off 

an existing lien at closing. Existing liens mostly consist of mortgage balances but could include federal 

liens or judgments. This analysis covers the two-year period after the rise in market share of the fixedrate product from June 2009 through May 2011.

160 CFPB analysis of data obtained from a reverse mortgage lender. This analysis covers the two-year 

period after the rise in market share of the fixed-rate product from June 2009 through May 2011.

161 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

162 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

163 The median age at origination for borrowers taking out loans during the 1990s was 75. The 

average life expectancy of a 75-year-old in 1995 was 11 years. Centers for Disease Control and 

Prevention, Vital Statistics of the United States, Mortality, 2:A, Table 6-3 (1995), available at 

http://www.cdc.gov/nchs/data/lifetables/life95_2.pdf.
198 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

164 Syzmanoski et al., Home Equity Conversion Mortgage Terminations: Information to Enhance the 

Developing Secondary Market, Cityscape: A Journal of Policy Development and Research 9:1, p.38

(2007). 

165 Housing prices reached their peak in the first quarter of 2006 and remained at similar levels 

through the first quarter of 2007 before beginning to slide. Case-Shiller National Home Price Index, 

Seasonally Adjusted Q4 2011, available at http://www.standardandpoors.com/indices/sp-case-shillerhome-price-indices/en/us/?indexId=spusa-cashpidff--p-us----.

166 See, Housing and Community Development Act of 1987, Pub. L. No. 100-242 § 417, 101 Stat. 1815 

(codified as 12 U.S.C. §§ 1715z-20(g)) stating that the purpose of the program was “to meet the 

special needs of elderly homeowners by reducing the effect of the economic hardship caused by the 

increasing costs of meeting health, housing, and subsistence needs at a time of reduced income, 

through the insurance of home equity conversion mortgages to permit the conversion of a portion of 

accumulated home equity into liquid assets.” See also U.S. Department of Housing and Urban 

Development, Office of Policy Development and Research, Preliminary Evaluation of the Home Equity 

Conversion Mortgage Insurance Demonstration, pp. 1-8 (Dec. 1992), available at

http://www.huduser.org/Publications/pdf/HUD%20-%206094.pdf; Opportunities in Home Equity 

Conversion for the Elderly: Hearing Before the Senate Special Subcommittee on Aging, p.7 (July 20, 

1982), available at http://aging.senate.gov/publications/7201982.pdf. 

167 According to a 2010 industry poll, 81percent of reverse mortgage borrowers and 79 percent of 

eligible homeowners want to stay in their current home for the rest of their lives. Presentation by 

Marttila Strategies, Survey for the National Reverse Mortgage Lenders Association, National Reverse 

Mortgage Association Annual Conference (Oct. 24, 2011). A 2011 survey conducted on behalf of 

MetLife found that among 65 year olds, 83 percentt had no plans to move. See MetLife Mature 

Market Institute, Transitioning into Retirement: The MetLife Study of Baby Boomers at 65 (Apr. 2012), 

available at http://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmitransitioning-retirement.pdf.

168 The 2011 MetLife survey found that among 65-year-olds who moved in the past three years or were 

planning to move in the future, 52 percent moved or were planning to move to a smaller home. See 

MetLife Mature Market Institute, Transitioning into Retirement: The MetLife Study of Baby Boomers at 

65 (Apr. 2012), available at 

http://www.metlife.com/assets/cao/mmi/publications/studies/2012/studies/mmi-transitioningretirement.pdf.
199 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

169 Department of Veterans Affairs and Housing and Urban Development, and Independent Agencies 

Appropriations Act of 1999, Pub. L. No. 105-276 § 593(c)(1), 112 Stat. 2461 (codified as amended at 

12 U.S.C. §§ 1715z-20(g)).

170 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

171 Importantly, the maximum claim amount represents the maximum future value of the loan to the 

investor that owns the loan. In reality, some loan balances will exceed the calculated maximum claim 

amount at repayment if the borrower keeps the loan for a long time and/or interest rates rise 

significantly (on an adjustable-rate loan). Once the loan value reaches 98 percent or more of the 

maximum claim amount, the loan servicer can assign (sell) the loan to FHA and receive payment for 

the actual value of the loan. The FHA insurance fund owns the loan from that point forward and 

absorbs any losses incurred if the loan balance exceeds the value of the home at repayment. See 24 

C.F.R. § 206.107(a)(1); 24 C.F.R. § 206.123(a); 24 C.F.R. § 206.129(e)(1). 

172 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

173 The initial principal limit is the maximum amount that a borrower could be authorized to borrow. In

practice, it is reduced by closing costs, origination fees, mortgage insurance, and/or other costs and 

fees financed into the loan.

174 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

175 Over the past 23 years since the HECM program’s inception, the secondary market has evolved 

considerably. Previously, both Fannie Mae and Wall Street securitization houses (e.g., Bank of 

America Securities, Deutsche Bank, and RBS Greenwich Capital) participated in the HECM secondary 

market. The evolution of the HECM secondary market is discussed in more detail in Section 4.4.

176 Darryl Hicks, Talking Heads: Insights from a Mortgage Trader, Reverse Mortgage Magazine, 

National Reverse Mortgage Lenders Association (Jan./Feb. 2012), available at 

http://services.nrmlaonline.org/NRMLA_Documents/January-February2012.pdf.

177 As in the traditional mortgage market, reverse mortgage servicers manage all communications 

(monthly statements, customer service call centers, etc.) with the borrower, including collections and 

the foreclosure process. In the reverse mortgage market, servicers also disburse future payments to 

the borrower.

178 Reverse Market Insight, HECM Trends Report (Feb. 2012), available at 

http://www.rminsight.net/wp-content/uploads/2012/04/Trends_201202.pdf.
200 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

179 Press Release, Bank of America, Bank of America Home Loans Shifts Resources to Core Mortgage 

Operations; Exits Reverse Mortgage Origination Business (Feb. 4, 2011), available at 

http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irolnewsArticle&ID=1525144&highlight=; Tara Siegel Bernard, 2 Big Banks Exit Reverse Mortgage 

Business, New York Times (June 17, 2011), available at http://www.nytimes.com/2011/06/18/yourmoney/mortgages/18reverse.html.

180 John Yedinak, OneWest Exits Reverse Mortgage Business, Shuts Down Financial Freedom, Reverse 

Mortgage Daily (Mar. 21, 201l), available at http://reversemortgagedaily.com/2011/03/21/onewestexits-reverse-mortgage-business-shuts-down-financial-freedom/.

181 Press Release, MetLife, Metlife Exits Reverse Mortgage Business (Apr. 26, 2012), available at 

http://www.metlife.com/about/press-room/index.html?compID=80759.

182 CFPB interviews with industry participants.

183 Reverse Market Insight, HECM Originators Report (Feb. 2012), available at 

http://www.rminsight.net/wp-content/uploads/2012/04/Originators_201202.pdf.

184 Reverse Market Insight, HECM Trends Report (Feb. 2012), available at 

http://www.rminsight.net/wp-content/uploads/2012/04/Trends_201202.pdf.

185 CFPB interviews with industry participants.

186 A small handful of banks or private investors could be retaining a small number of loans on their 

balance sheets.

187 The Ginnie Mae program was created in late 2007, but did not gain appreciable market share until 

mid-2009. Royal Bank of Scotland MBS Strategy Primer, GNMA HECM Primer and Relative Value 

(Feb. 28, 2011).

188 Wells Fargo, Bank of America, MetLife, and One West Bank (the parent company of Financial 

Freedom) are no longer active originating issuers, though they are continuing to issue new HMBS 

securities comprised of the “tails” – ongoing servicing fees, mortgage insurance premiums, and 

ongoing borrower draws (for adjustable-rate loans) – from existing loans. Nationstar Mortgage 

recently acquired Bank of America’s servicing portfolio and has begun issuing “tails” pools from Bank 

of America’s former portfolio, but Nationstar has not yet begun issuing pools based on new 

originations. 
201 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

189 See Ginnie Mae All Participants Memorandum 11-01, New Financial Requirements – Home Equity 

Conversion Mortgage-Backed Securities (Jan. 7, 2011), available at

http://www.ginniemae.gov/apm/apm_pdf/11-01.pdf.

190 Elizabeth Ecker, After 3 Year Wait, Live Well Gets GNMA HMBS Approval, Reverse Mortgage Daily 

(Jan. 31, 2012), available at http://reversemortgagedaily.com/2012/01/31/after-3-year-wait-live-wellgets-gnma-hmbs-approval/.

191 John Yedinak, Bank of America Sells $18 Billion of Reverse Mortgage Servicing to Nationstar, 

Reverse Mortgage Daily (Dec. 12, 201l), available at 

http://reversemortgagedaily.com/2011/12/12/bank-of-america-sells-18-billion-of-reverse-mortgageservicing-to-nationstar/; Press Release, MetLife, Metlife Exits Reverse Mortgage Business (Apr. 26, 

2012), available at http://www.metlife.com/about/press-room/index.html?compID=80759.

192 CFPB interviews with industry participants.

193 LIBOR stands for the London Inter-Bank Offer Rate and is one of the most commonly-used interest 

rate indices. The new rule also allowed the use of the one-month CMT or the one-year LIBOR index to 

calculate adjustable-rate HECMs, though these option did not receive much uptake. See 72 Fed. Reg.

40048 (amending regulations at 24 C.F.R. § 203.49(b)). 

194 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. Fannie Mae officially ceased 

accepting the CMT-based product in September 2009. See Fannie Mae Announcement 09-16 (June 

1, 2009), available at https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0916.pdf. 

195 FHA Mortgagee Letter 2008-08.

196 In standard mortgage finance terms, the “dollar price” of the fixed-rate pools has ranged between 

110 and 112.

197 In standard mortgage finance terms, the “dollar price” of the adjustable-rate pools has ranged 

between 106 and 109.

198 Pricing for HECM Savers is lower because the product is new and investors are concerned that 

Saver borrowers may exhibit faster prepayment behavior than HECM Standard borrowers. CFPB 

interviews with industry experts.

199 CFPB interviews and rate sheets provided by industry participants.
202 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

200 CFPB interviews with industry participants.

201 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2; see also HECM Single Family 

Portfolio Snap Shot, public use data, available at

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/oe/rpts/hecmsfsnap/hecm

sfsnap. Note that this data has a lag.

202 CFPB interviews with industry experts.

203 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

204 CFPB interviews with industry participants.

205 CFPB interviews with industry experts.

206 Department of Veterans Affairs and Housing and Urban Development and Independent Agencies 

Appropriations Act of 1999, Pub. L. No. 105-276, § 593, 112 Stat. 2461 (codified as amended at 12 

U.S.C. § 1715z-20(g)).

207 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2.

208 Bank of America Securities issued 6 securities: MECA 2006-SFG1, MECA 2006-SFG2, MECA 2006-

SFG3, MECA 2007-FF1, MECA 2007-FF2, and MECA 2007-FF3. Deutsche Bank issued 2 securities: 

REV 2007-1 and REV 2007-2. RBS Greenwich Capital issued 3 securities: RV HECM TRUST 2007-1, 

RVMLT 2007-3, and RV HECM TRUST 2007-4. RBS Greenwich Capital also issued 2 re-securitizations: 

RV HECM TRUST 2007-4 and RV HECM TRUST 2008-1. Deutsche Bank’s REV 2007-1 was later 

terminated and the loans repurchased.

209 Moody’s recently downgraded these securities, citing possible losses to the trusts due to home 

price declines and the potential difficulty of selling foreclosed properties at the appraised value in a 

timely manner. See, Rating Action (Mar. 7, 2012), available at 

http://www.moodys.com/research/Moodys-downgrades-5-billion-of-HECM-reverse-mortgage-bonds-

-PR_239185. 

210 CFPB interviews with industry experts.

211 CFPB estimate using data from industry sources.
203 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

212 Ginnie Mae’s HMBS program was announced on August 31, 2007 and became effective the 

following day. See Ginnie Mae All Participants Memorandum 07-12, Introducing the Home Equity 

Conversion Mortgage and Mortgage-Backed Securities (Aug. 31, 2007), available at

http://www.ginniemae.gov/apm/apm_pdf/07-12.pdf.

213 Ginnie Mae Mortgage-Backed Securities Handbook 5500.3, Rev.1, Ch. 35-10(B)(1) (July 1, 2011) 

(“Mandatory Purchase Event: The Issuer is required to purchase all Ginnie Participations related to a 

HECM loan when the outstanding principal balance of the HECM loan is equal to or greater than 98% 

of the Maximum Claim Amount.”).

214 CFPB interviews with industry participants.

215 24 CFR § 206.107(a)(1)(iv).

216 FHA Mortgagee Letter 2011-01. Specialty servicers are available to provide customer service on a 

subcontracted basis if the issuer prefers not to service loans itself. However, under Ginnie Mae 

requirements, the issuer remains the servicer of record and bears financial responsibility for buying 

the loan out of the pool when it reaches 98 percent of the maximum claim amount. See Ginnie Mae 

Mortgage-Backed Securities Handbook 5500.3, Rev.1, Ch. 35-10(B)(1) (July 1, 2011). Once bought 

out of the pool, the loan is no longer subject to Ginnie Mae requirements though it remains subject to 

FHA requirements. If the loan is not assignable to FHA due to a default situation and the issuerservicer did not want to hold the loan until maturity, the issuer-servicer could conceivably sell the loan 

to another FHA-approved lender-servicer – if a willing buyer and a mutually agreeable price can be 

found.

217 The HECM Statute and published HECM regulations are silent on the question of whether HECMs 

may be closed-end or open-end. However, in the first year of the program, HUD issued a Mortgagee 

Letter stating that “Because a HUD insured reverse mortgage permits the borrower to use a line of 

credit, the mortgage is deemed to be ‘open-end credit’ under the Truth-in-Lending Act's Regulation Z 

(12 CFR 226) as amended by 54 FR 24670.” FHA Mortgagee Letter 1990-17.

218 Fannie Mae Reverse Mortgage Lender Letter 2008-2 (Aug. 1, 2008) (“Introduction of the Fixed-Rate 

HECM. Effective November 3, 2008, Fannie Mae will accept for purchase closed-end, fully drawn 

fixed rate HECMs that comply with all relevant Housing and Urban Development regulations and 

guidance.”).

219 FHA Mortgagee Letter 2008-08.

220 CFPB interviews with industry participants.
204 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

221 This securitization consisted of adjustable-rate loans and was offered by Goldman Sachs. Goldman 

was unable to sell the security to investors. Goldman eventually repurchased the loan participations 

(funded portions) from the securitization trust, terminated the security, and is believed to have re-sold 

the underlying loans to Fannie Mae. CFPB interviews with industry experts.

222 Royal Bank of Scotland MBS Strategy Primer, GNMA HECM Primer and Relative Value (Feb. 28, 

2011).

223 Today, all adjustable-rate loans use the one-month LIBOR as the interest rate index and the 10-year 

LIBOR Swap Rate as the index for the “expected rate.” Historically, the one-year Constant Maturity 

Treasury (CMT) was used as the interest rate index and the 10-year CMT was used as the index for the 

expected rate. FHA authorized the switch to LIBOR in October 2007 with FHA Mortgagee Letter 

2007-13. Adoption of the LIBOR index was slow at first but picked up dramatically in January 2009 

and had reached more than 90 percent market share by May 2009 and nearly 100 percent market 

share by August 2009. See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2. 

224 One reason that lower underlying interest rates would lead to higher margins has to do with the 

FHA underwriting floor, discussed in greater detail in Section 4.5.1. In early 2009, the “expected rate” 

for underwriting purposes had fallen below this floor, which meant that lenders could increase 

margins without affecting the proceeds that borrowers received. See John Yedinak, Financial 

Freedom Eliminates HECM 150, Reverse Mortgage Margins Trend Higher, Reverse Mortgage Daily 

(Aug. 12, 2008), available at http://reversemortgagedaily.com/2008/08/12/financial-freedomeliminates-hecm-150-reverse-mortgage-margins-trend-higher/; John Yedinak, New Year Brings 

Higher Reverse Mortgage Margins, Reverse Mortgage Daily (Jan. 12, 2009), available at 

http://reversemortgagedaily.com/2009/01/12/new-year-brings-higher-reverse-mortgage-margins/;

Edmund Andrews, U.S. Details $800 Billion Loan Plan, New York Times (Nov. 25, 2008), available at

http://www.nytimes.com/2008/11/26/business/economy/26fed.html?_r=1&ref=quantitativeeasing.

225 John Yedinak, Fannie Mae Pricing Change Brings Higher Margins for Reverse Mortgages, Reverse 

Mortgage Daily (Mar. 27, 2009), available at http://reversemortgagedaily.com/2009/03/27/fanniemae-pricing-change-brings-higher-margins-for-reverse-mortgages/.

226 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2.

227 CFPB interviews with industry experts.

228 The re-securitizations are known as H-REMICs and allow for a wider range of cash flow structures 

and risk profiles to be created from a set of underlying HMBS pools. The first H-REMIC was issued in 

November 2009, but the program was announced in April 2008. See Ginnie Mae All Participants 
205 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

Memorandum 08-06, Inclusion of Home Equity Conversion Mortgage-Backed Securities as Eligible 

Collateral for the Ginnie Mae Multiclass Securities Program (Apr. 29, 2008), available at 

http://www.ginniemae.gov/mpm/mpm_pdf/08-06.pdf; Royal Bank of Scotland MBS Strategy Primer, 

GNMA HECM Primer and Relative Value (Feb. 28, 2011).

229 Royal Bank of Scotland MBS Strategy Primer, GNMA HECM Primer and Relative Value (Feb. 28, 

2011).

230 Fannie Mae, 10-Q filing with the Securities and Exchange Commission (Nov. 5, 2009).

231 CFPB interviews with industry participants.

232 The floor rate is applicable to the interest rate used to underwrite for proceeds, not the interest 

rate on the loan. For fixed-rate loans, these are the same thing. For adjustable-rate loans, the higher 

“expected” rate is used for proceeds underwriting purposes. See Section 4.4.4.

233 Proceeds are inversely proportional to interest rates, so a floor on interest rates creates a ceiling on 

proceeds.

234 FHA Mortgagee Letter 2010-34.

235 Lenders, counselors, and others interviewed for this study agree that this is true of reverse 

mortgage borrowers when taken as a whole. As discussed in Section 3.3, certain subgroups, 

particularly the oldest borrowers and those with higher home values, may be less sensitive to the 

dollar amount of proceeds than the overall borrower population. 

236 CFPB interviews with industry participants.

237 CFPB interviews with industry participants.

238 CFPB interviews with industry participants; see also John Yedinak, Security One Lending Releases 

New HECM Fixed Product Without SFSA, Reverse Mortgage Daily (Mar. 17, 2010), available at 

http://reversemortgagedaily.com/2010/03/17/security-one-lending-releases-new-hecm-fixedproduct-without-sfsa/; John Yedinak, Genworth Eliminates Servicing Fee for Fixed Rate Mortgage, 

Reverse Mortgage Daily (Mar. 22, 2010), available at 

http://reversemortgagedaily.com/2010/03/22/genworth-eliminates-servicing-fee-for-fixed-ratereverse-mortgage/.

239 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2.
206 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

240 John Yedinak, Wells Fargo Eliminates Servicing and Origination Fee for Adjustable Rate HECM, 

Reverse Mortgage Daily (Apr. 13, 2010), available at

http://reversemortgagedaily.com/2010/04/13/wells-fargo-eliminates-servicing-and-origination-feefor-adjustable-rate-hecm/.

241 See CFPB Analysis of FHA Loan-Level HECM Data, endnote 2; see also John Yedinak, Bank of 

America Rolls Out No Servicing Fee Adjustable Rate HECM for Wholesale, Reverse Mortgage Daily 

(Sept. 7, 2010), available at http://reversemortgagedaily.com/2010/09/07/bank-of-america-rolls-outno-servicing-fee-adjustable-rate-hecm-for-wholesale/.

242 John Yedinak, No Reverse Mortgage Origination Fee Trend, Will it Last?, Reverse Mortgage Daily 

(Apr. 1, 2010), available at http://reversemortgagedaily.com/2010/04/01/no-reverse-mortgageorigination-fee-trend-will-it-last/.

243 John Yedinak, Bank of America Paying Entire Upfront Mortgage MIP on Fixed Rate Reverse 

Mortgages, Reverse Mortgage Daily (May 6, 2010), available at 

http://reversemortgagedaily.com/2010/05/06/bank-of-america-paying-entire-upfront-mip-on-fixedrate-reverse-mortgages/.

244 The expected rate is the lender’s margin plus the 10-year LIBOR swap rate.

245 See Section 2.4.2 and Section 6.9.1 for more discussion.

246 CFPB interviews with industry participants.

247 CFPB interviews with industry participants.

248 As explained in Section 4.5.1, as underlying interest rates have continued to slide, the “expected” 

rate used to underwrite adjustable-rate securities fell below the floor in late 2011. In response, lenders 

were able to increase the margin without decreasing proceeds. Higher margins fetch higher 

premiums in the secondary market. 

249 Royal Bank of Scotland MBS Strategy Primer, GNMA HECM Primer and Relative Value (Feb. 28, 

2011).

250 According to interviews with industry experts, this is one of the reasons given for lower secondary 

market premiums on adjustable-rate loans. As discussed in Section 3.4.1, there is an emerging 

segmentation among fixed-rate borrowers and adjustable-rate borrowers, and investors are 
207 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

concerned that today’s adjustable-rate borrowers may not exhibit the same prepayment behavior as 

fixed-rate borrowers.

251 CFPB interviews with major lender-issuers.

252 CFPB interviews with industry participants.

253 As of April 2012, wholesale lenders and aggregator-issuers paid their brokers and correspondent 

lenders a premium of between 7 percent and 9 percent of the loan balance on fixed-rate loans, and a 

premium of between 3 percent and 5 percent of the (lower) loan balance on adjustable-rate loans.

254 CFPB interviews with industry participants.

255 Unless it becomes a standard market practice to pay brokers and correspondent lenders based on 

a metric that is less sensitive to loan balance at time of closing, issuers that do so risk becoming the 

issuer of choice for low-balance loans (because they pay comparatively better than other issuers) and 

the issuer of last resort for high-balance loans (because they pay comparatively worse than other 

issuers which reward high loan balances more richly). 

256 CFPB interviews with industry participants.

257 12 C.F.R. § 1026.36(d)(2).

258 CFPB interviews with industry participants; industry rate sheets obtained by the CFPB.

259 However, steering borrowers based on which type of loan yields greater compensation could 

implicate the MLO compensation rule. See 12 C.F.R. § 1026.36(e). Further, it could implicate the MLO 

compensation rule for a loan originator to receive or a person to pay a loan originator, directly or 

indirectly, compensation for originating a closed end reverse mortgage that is based on any of the 

transaction's terms or conditions. See 12 C.F.R. § 1026.36(d)(1).

260 CFPB interviews with industry participants.

261 Many reverse mortgage lenders are also subject to enforcement actions by the CFPB under the 

unfair, deceptive, or abusive acts or practices provision of the Dodd-Frank Act § 1031. Some reverse 

mortgage lenders may also be subject to enforcement actions by the FTC under the unfair and 

deceptive acts or practices provision of the Federal Trade Commission Act, 15 U.S.C § 45.

262 12 C.F.R. § 1026.19(b)(1).
208 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

263 12 C.F.R. § 1026.40(e).

264 12 C.F.R. § 1026.5b(b).

265 12 C.F.R. § 1026.6.

266 The HELOC Brochure is available online at 

http://www.federalreserve.gov/pubs/equity/equity_english.htm.

267 15 U.S.C. § 1648 (2011); 12 C.F.R. § 1026.33; 12 C.F.R. § 1026, App K. A sample of the model form 

in Appendix K to Regulation Z is appended to this report in Appendix II.

268 12 C.F.R. § 1026.33.

269 75 Fed. Reg. 58544.

270 75 Fed. Reg. 58544.

271 75 Fed. Reg. 58544.

272 75 Fed. Reg. 58509.

273 75 Fed. Reg. 58535.

274 12 C.F.R. § 1026.36(d)(1)(i).

275 12 C.F.R. § 1026.36(d)(1)(ii).

276 12 C.F.R. § 1026(d)(2).

277 However, steering borrowers based on which type of loan yields greater loan originator 

compensation could implicate the MLO compensation rules See 12 C.F.R. § 1026.36(d)(1); 12 C.F.R. 

§ 1026.36(e).

278 12 C.F.R. § 1024.7.

279 12 C.F.R. § 1024.8.
209 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

280 The RESPA Rule FAQs were last updated January 28, 2010 and are available online at 

http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf. 

281 12 C.F.R. § 1024.2. 

282 12 C.F.R. § 1024.14.

28312 C.F.R. pt. 1002, Supp. I, § 1002.6, ¶ 6(b)(2)-4 (allows creditors to offer reverse mortgages that 

require the borrower to be age 62 or older, and to consider age in evaluating a pertinent element of 

creditworthiness, such as the amount of credit or monthly payments the borrower will receive).

284 See Bennett v. Donovan, No. 11-cv-00498 (ESH), 2011 U.S. Dist. LEXIS 76470 (D.D.C. July 15, 2011) 

(finding that plaintiffs lacked standing to pursue claims that lenders’ failure to comply with the HECM 

statute (Pub. L. No. 100-242, 101 Stat. 1815 (1988); 12 U.S.C. 1715z-20 subjected the plaintiffs to 

foreclosure actions that would not have been permissible if the lenders complied with the statute 

because a decision that HUD did not properly insure the reverse mortgages would not necessarily 

redress the harm suffered by the plaintiffs); see also Gass v. Wells Fargo & Co., No 15713/11, 2012 

N.Y. Misc. LEXIS 1335 (Sup. Ct., Queens Cty., Mar. 22, 2012) (dismissing claims brought under the 

HECM Statute on the basis that the statute does not include language creating a private right of action 

and provides no basis on which the court can imply a private right of action).

285 Pub. L. No. 100-242, 101 Stat. 1815 (1988); 12 U.S.C. 1715z-20 (HECM Statute).

286 Department of Veterans Affairs and Housing and Urban Development, and Independent Agencies 

Appropriations Act of 1999, Pub. L. No. 105-276 § 593(c)(1), 112 Stat. 2461 (codified as amended at 

12 U.S.C. §§ 1715z-20(g)).

287 Department of Defense Appropriations Act 2007, Pub. L. No. 109-289 §131 (2006).

288 Consolidated and Future Continuing Appropriations Act 2012, HR 2112 – 147 (Jan. 5, 2011), 

available at http://www.gpo.gov/fdsys/pkg/BILLS-112hr2112enr/pdf/BILLS-112hr2112enr.pdf.

289 12 U.S.C. § 1715z-20; 24 C.F.R. § 206.1, et seq.

290 12 U.S.C. § 1715z-20(c).

291 Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654 (2008) (codified 

at 12 U.S.C. § 1715z-20). [HERA]
210 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

292 See HERA (codified at 12 U.S.C. § 1715z-20(o)).

293 See HERA (codified at 12 U.S.C. § 1715z-20(n)).

294 Cal. Assembly Bill No. 329 (introduced Feb. 18, 2009); La. House Bill 792 (introduced May 4, 2010).

295 See 12 U.S.C. 5101, et seq.; 12 CFR 1008, et seq.

296 Iowa Code § 528.6.

297 Mass. Gen. Laws. ch. 167E § 7(d).

298 Wash. Rev. Code 31.04.525. 

299 Vt. Stat. Ann. tit. 8 § 10704. Allowances for other federal reverse mortgage programs created by 

the government similar to the HECM program are made.

300 Texas was the last to allow reverse mortgage lending programs. See First Gibraltar Bank, FSB v. 

Morales, 42 F.3d 895, 897 (5th Cir. 1995).

301 Massachusetts Division of Banks, Reverse Mortgage Products: Guidance for Managing Compliance 

and Reputation Risks, Regulatory Bulletin 5.1-106 (Dec. 15, 2010), available at 

http://www.mass.gov/ocabr/government/oca-agencies/dob-lp/division-of-banks-issues-regulatorybulletin.html; Maryland Commissioner of Financial Regulation Reverse Mortgage Guidance Advisory 

(Jan. 12, 2010), available at http://www.dllr.maryland.gov/finance/advisories/advisoryjan122010.shtml.

302 75 Fed. Reg. 50801. The FFIEC guidance is publicly available online at 

http://www.ffiec.gov/pdf/FFIEC_Reverse_Mortgages_FR_notice_081610.pdf.

303 75 Fed. Reg. 58539.

304 Copies of the proposed disclosures are appended to this report in Appendix II.

305 75 Fed. Reg. 58550.

306 75 Fed. Reg. 58645. A copy of the TALC rate table is appended to this report in Appendix II.
211 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

307 Nearly a quarter of Americans aged 71 and over have a mild cognitive impairment. Financial 

capacity is one of the first abilities to wane as cognitive impairment encroaches – but often goes 

undetected. Another concern for those with mild cognitive impairment is that the ability to maintain 

the judgment to act prudently gradually declines. See Brenda L. Plassman et al., Prevalence of 

Cognitive Impairment without Dementia in the United States, Archives of Internal Medicine 148: 6

(2008); Eric Widera et al., Finances in the Older Patient with Cognitive Impairment: He Didn’t Want 

Me to Take Over, Journal of the American Medical Association 305: 7 (2011); Naomi Karp and Ryan 

Wilson, Protecting Older Investors: The Challenge of Diminished Capacity, AARP Public Policy 

Institute (Nov. 4, 2011), available at 

http://www.aarp.org/content/dam/aarp/research/public_policy_institute/cons_prot/2011/rr2011-

04.pdf. 

308 See, e.g., Tara Twomey and Rick Jurgens, National Consumer Law Center, Subprime Revisited: 

How Reverse Mortgage Lenders Put Older Homeowners’ Equity at Risk (Oct. 2009), available at 

www.nclc.org/images/pdf/pr-reports/report-reverse-mortgages-2009.pdf [NCLC 2009]; Norma Paz 

Garcia et al., Consumers Union, Examining Faulty Foundations in Today’s Reverse Mortgages (Dec. 7, 

2010), available at http://www.consumersunion.org/pdf/reverse-mortgage-report-2010.pdf. 

309 United States Government Accountability Office, Product Complexity and Consumer Protection 

Issues Underscore Need for Improved Controls over Counseling for Borrowers, p. 11 (June 2009). 

[GAO 2009]

310 See AARP 2006 Survey, endnote 113.

311 See GAO 2009 at 11, endnote 309 (“Because HECM borrowers do not make monthly payments to 

the lender, borrowers are responsible for the total amount of servicing fees, interest charges, and 

monthly mortgage insurance premiums accrued over the life of the loan, as well as any financed 

origination fees and up-front insurance premiums, when the loan becomes due.Therefore, the longer 

the borrower has the loan, the longer the borrower benefits from access to home equity without 

experiencing any of the costs.”); id. at 14 (discussing how some borrowers did not understand 

monthly servicing charges and that interest rates on the loan was variable and could increase over 

time).

312 Oren Bar-Gill, The Law, Economics and Psychology of Subprime Mortgage Contracts, Cornell Law 

Review 94:1073, p. 1079 (2009) (discussing subprime mortgage contracts). [Oren Bar-Gill 2009]
212 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

313 See Oren Bar-Gill 2009 (“Imperfectly rational borrowers will not be able to effectively aggregate 

multiple price and nonprice dimensions and discern from them the true total cost of the mortgage 

product.”); David Laibson, Golden Eggs and Hyperbolic Discounting, Quarterly Journal of Economics

112:2, pp. 444-445 (May 1997) (explaining that it is difficult to realize immediate benefits from longterm investments like a home or savings bond); Richard H. Thaler, Anomolies: Saving, Fungibility, and 

Mental Accounts, Journal of Economic Perspectives 4:1 (1990) (explaining that consumers have 

different marginal propensities to consume for different assets); Shlomo Benartzi and Richard H. 

Thaler, Heuristics and Biases in Retirement Savings Behavior, Journal of Economic Perspectives 21:3 

(2007) (finding that retirement savings plan consumers with many choices use shortcuts rather than 

determining the most valuable choice).

314 High costs appear to be a determining factor in whether an individual decides to take out a reverse 

mortgage. AARP surveyed potential borrowers who received HECM counseling and decided against 

taking out a reverse mortgage. They found that the number one reason counseled individuals 

decided against obtaining a reverse mortgage was the high cost. See AARP 2006 Survey at 74, 

endnote 113.

315 See GAO 2009 at 11, endnote 309.

316 See GAO 2009 at 3, endnote 309.

317 See GAO 2009 at 22-23, endnote 309.

318 See, e.g., Ark. Code § 23-54-104; Cal. Civ. Code § 1923.2; La. Rev. Stat. § 6:1101.

319 See Ark. Code § 23-54-104; Cal. Civ. Code § 1923.2; Colo. Rev. Stat. § 11-38-109; Minn. Stat. § 

47.58; N.C. Gen. Stat. § 53-264; Tenn. Code § 47-30-109.

320 See Mass. Gen. Laws 167E § 7; Mass. Gen. Laws 171 § 65C; Mo. Rev. Stat. § 443.903; SC ST § 29-4-

30; SD ST 54-12-21; W. Va. Code § 47-24-4.

321 Ariz. Rev. Stat. § 6-1703.

322 Md. Code § 12-1207; Mass. Gen. Laws § 167E § 7; Mont. Code § 90-6-505; N.Y. RPP. Law § 280; 

Tenn. Code § 47-30-109.

323 In the Matter of American Advisors Group, Irvine, California, No. 2008-22 (Oct. 21, 2008), Exhibit A,

available at http://www.mass.gov/ocabr/docs/dob/aagexhibit1.pdf.
213 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

324 People of Illinois v. Illinois v. American Advisors Groups, Inc., No. 2010-CH-158, Complaint for 

Injunctive and Other Relief (Feb. 8, 2010).

325 In the Matter of American Advisors Group, Irvine, California, No. 2008-22 (Oct. 21, 2008), available 

at http://www.mass.gov/ocabr/business/banking-services/banking-legal-resources/enforcementactions/2008-enforcement-actions/american-advisors-group-irvine-ca-.html.

326 In the Matter of American Advisors Group, Irvine, California, No. 2008-22-CO (Oct. 21, 2008), 

available at http://www.mass.gov/ocabr/business/banking-services/banking-legalresources/enforcement-actions/2008-enforcement-actions/american-advisors-group-irvine-caconsent.html.

327 People of Illinois v. American Advisors Group, No. 2010-CH-158, Agreed Order and Consent 

Decree (Feb. 7, 2011).

328 People of Illinois v. American Advisors Group, No. 2010-CH-158, Agreed Order and Consent 

Decree (Feb. 7, 2011). 

329In the Matter of Eldervantage, LLC and Reversemortgagepage.com, Cease Directive (Aug. 23, 

2011), available at http://www.mass.gov/ocabr/business/banking-services/banking-legalresources/enforcement-actions/2011-dob-enforcement-actions/eldervantage-llc-andreversemortgagepagecom.html; 

In the Matter of Lender 411, LLC, Cease Directive (Aug. 23, 2011), available at

http://www.mass.gov/ocabr/business/banking-services/banking-legal-resources/enforcementactions/2011-dob-enforcement-actions/lender-411-llc-orange-ca-cease-directive.html;

In the Matter of Senior Reverse Mortgage Online, Cease Directive (Aug. 23, 2011), available at 

http://www.mass.gov/ocabr/business/banking-services/banking-legal-resources/enforcementactions/2011-dob-enforcement-actions/senior-reverse-mortgage-online-houston-tx-.html;

In the Matter of Reverse Mortgage Helpdesk, Cease Directive (Aug. 23, 2011), available at 

http://www.mass.gov/ocabr/business/banking-services/banking-legal-resources/enforcementactions/2011-dob-enforcement-actions/reverse-mortgage-helpdesk-las-vegas-nv-.html. 

330In the Matter of Eldervantage, LLC and Reversemortgagepage.com, Cease Directive (Aug. 23, 

2011), available at http://www.mass.gov/ocabr/business/banking-services/banking-legalresources/enforcement-actions/2011-dob-enforcement-actions/eldervantage-llc-andreversemortgagepagecom.html; 

In the Matter of Lender 411, LLC, Cease Directive (Aug. 23, 2011), available at 

http://www.mass.gov/ocabr/business/banking-services/banking-legal-resources/enforcementactions/2011-dob-enforcement-actions/lender-411-llc-orange-ca-cease-directive.html;
214 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

In the Matter of Senior Reverse Mortgage Online, Cease Directive (Aug. 23, 2011), available at 

http://www.mass.gov/ocabr/business/banking-services/banking-legal-resources/enforcementactions/2011-dob-enforcement-actions/senior-reverse-mortgage-online-houston-tx-.html;

In the Matter of Reverse Mortgage Helpdesk, Cease Directive (Aug. 23, 2011), available at 

http://www.mass.gov/ocabr/business/banking-services/banking-legal-resources/enforcementactions/2011-dob-enforcement-actions/reverse-mortgage-helpdesk-las-vegas-nv-.html. 

331 In the Matter of Eldervantage, LLC and Reversemortgagepage.com, Cease Directive (Aug. 23, 

2011), available at http://www.mass.gov/ocabr/business/banking-services/banking-legalresources/enforcement-actions/2011-dob-enforcement-actions/eldervantage-llc-andreversemortgagepagecom.html. 

332 In the Matter of Lender 411, LLC, Cease Directive (Aug. 23, 2011), available at

http://www.mass.gov/ocabr/business/banking-services/banking-legal-resources/enforcementactions/2011-dob-enforcement-actions/lender-411-llc-orange-ca-cease-directive.html.

333See 950 Mass. Code Regs. § 12.204(2)(i); 950 Mass. Code Regs. § 12.205(9)(c)(15); Administrative 

Record from the Commonwealth of Massachusetts Securities Division, available at 

http://www.sec.state.ma.us/sct/sctpropreg/adminrec.pdf (discussing reasons for and objectives of 

new regulations regarding use of senior designations); NCLC 2009, endnote 308.

334 See, e.g., 950 Mass. Code Regs. § 12.204(2)(i); 950 Mass. Code Regs. § 12.205(9)(c)(15); N.H. Rev. 

Stat. § 421-B:6; NCLC 2009, endnote 308.

335 See, e.g, Minn. Stat. § 72A.204; Utah Admin. Code R590-252-1 et. seq.

336 See NCLC 2009, endnote 308.

337 Consumer submissions to the CFPB, 2011-2012.

338 75 Fed. Reg. 58655. The Board’s proposed rule also states that a reverse mortgage advertisement 

that refers to housing or credit counseling must state a telephone number and website for housing 

counseling resources maintained by HUD.

339 Many reverse mortgage lenders are also subject to enforcement actions by the CFPB under the 

unfair, deceptive, or abusive acts or practices provision of the Dodd-Frank Act § 1031. Some reverse 

mortgage lenders may also be subject to enforcement actions by the FTC under the unfair and 

deceptive acts or practices provision of the Federal Trade Commission Act § 5.
215 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

340 See, e.g., NCLC 2009, endnote 308; Reverse Mortgages: Polishing not Tarnishing the Golden 

Years Senate: Hearing Before the Senate Special Committee on Aging (Dec. 12, 2007), available at

http://aging.senate.gov/publications/12122007.pdf.

341 For examples of definitions and restrictions on cross-selling, see 12 U.S.C. 1715z-20(n)(1); Md. 

Code § 12-1206(b); R.I. Gen. Laws § 34-25.1-7(7); Vt. Stat. tit. 8 § 10703; Wash. Rev. Code § 

31.04.515(7).

342 Housing and Economic Recovery Act of 2008, Pub. L. 110-289, 122 Stat. 2837 (2008) (codified at 

12 U.S.C. § 1715z-20(n)(1)).

343 See, e.g., Md. Code § 12-1206(b); R.I. Gen. Laws § § 34-25.1-7(7); Vt. Stat. Ann. tit. 8 § 10703; 

Wash. Rev. Code § 31.04.515(7).

344 See, e.g., GAO 2009 at 25-29, endnote 309; Reverse Mortgages: Polishing not Tarnishing the 

Golden Years Senate: Hearing Before the Senate Special Committee on Aging (Dec. 12, 2007), 

available at http://aging.senate.gov/publications/12122007.pdf; Building Sustainable 

Homeownership: Responsible Lending and Informed Consumer Choice, Public Hearing on the Home 

Equity Lending Market before the Federal Reserve Bank of San Francisco (June 2006).

345 Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654 (2008) (codified 

as 12 U.S.C. § 1715z-20(o)). HERA excludes from the prohibition against requiring the purchase of 

other products “title insurance, hazard, flood, or other peril insurance, or other such products that are 

customary and normal[.]”

346 Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654 (2008) (codified 

as 12 U.S.C. § 1715z-20(n)); FHA Mortgagee Letter 2008-24.

347 Cal. Civ. Code § 1923.2(i); Cal. Ins. Code § 785.1(a)(1); Massachusetts Division of Banks, Reverse 

Mortgage Products: Guidance for Managing Compliance and Reputation Risks, Regulatory Bulletin 

5.1-106 (Dec. 15, 2010), available at http://www.mass.gov/ocabr/government/oca-agencies/doblp/division-of-banks-issues-regulatory-bulletin.html.

348 Md. Code § 12-1206(b); R.I. Gen. Laws § 34-25.1-7(7); Vt. Stat. Ann. tit. 8 § 10703; Wash. Rev. Code 

§ 31.04.515(7).

349 Subject to certain exception for certain bank products, such as deposits or trust services.

350 12 U.S.C. § 1831(x).
216 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

351 75 Fed. Reg. 58666. The Board’s proposed rule excluded from the definition of “financial or 

insurance product” two types of products and services: “(1) transaction accounts and savings deposit 

accounts . . . that are established to disburse the reverse mortgage proceeds; and (2) products and 

services customarily required to protect the creditor’s interest in the collateral or otherwise mitigate 

the creditor’s risk of loss” such as appraisals or other property evaluation services, title insurance, 

flood, homeowner’s insurance, and mortgage insurance.

352See Conference of State Bank Supervisors, American Council of State Savings Supervisors, and 

American Association of Residential Mortgage Regulators, Comment Letter to Federal Reserve Board 

Proposed Rule to Amend Regulation Z, Docket No. R-1390, 12 C.F.R. Part 226: Truth in Lending 73 

(Dec. 22, 2010) (supporting the safe harbor but purporting that the 10 day period is too short); 

National Reverse Mortgage Lenders Association, Mortgage Bankers Association, and American 

Bankers Association, Comment Letter to Federal Reserve Board Proposed Rule to Amend Regulation 

Z, Docket No. R-1390, 12 C.F.R. Part 226: Truth in Lending 73 (Dec. 22, 2010) (suggesting that in 

addition to the safe harbor protection, creditors should not have to provide annuity cost disclosures if 

the borrower indicates that they will not use reverse mortgage proceeds to purchase an annuity).

353 See National Community Reinvestment Coalition, Comment Letter to Federal Reserve Board 

Proposed Rule to Amend Regulation Z, Docket No. R-1390, 12 C.F.R. Part 226: Truth in Lending 73 

(Dec. 21, 2010) (“The safe harbor will completely undermine the ban. It would seem that all an 

unscrupulous lender has to do is wait for the 11th day and then aggressively cross sell a problematic 

product.”); National Consumer Law Center, Comment Letter to Federal Reserve Board Proposed Rule 

to Amend Regulation Z, Docket No. R-1390, 12 C.F.R. Part 226: Truth in Lending 73 (Dec. 23, 2010) 

(“[T]he safe harbor proposed for cross-selling products is unjustified and purports to make some 

predatory creditor behavior legal when it is already illegal under other law.”); AARP, Comment Letter 

to Federal Reserve Board Proposed Rule to Amend Regulation Z, Docket No. R-1390, 12 C.F.R. Part 

226: Truth in Lending 73 (Dec. 23, 2010) (“AARP strongly opposes the inclusion of a ‘safe harbor’ that 

would effectively open the door for the ‘cross-selling’ of any financial or insurance products to a 

reverse mortgage borrower so long as it is done 10 days after the loan has been made.”).

354 Housing and Community Development Act of 1987, Pub. L. No. 100-242 § 593, 101 Stat. 1815.

355 FHA Mortgagee Letter 2011-09.

356 See HECM Counseling Protocol, Housing Counseling Handbook, 7610.1 REV-5, Appendix 4, 

available at http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/7610.1/76101HSGH.pdf.

357 Consumer submissions to the CFPB, 2011-2012.
217 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

358 Consumer submissions to the CFPB, 2011-2012.

359 See GAO 2009, endnote 309.

360 See GAO 2009 at 48, endnote 309.

361 FHA HECM Counseling Protocol, available at 

http://portal.hud.gov/hudportal/documents/huddoc?id=7610-0_COMBINED.PDF.

362 See Shlomo Benartzi and Richard H. Thaler, Heuristics and Biases in Retirement Savings Behavior, 

Journal of Economic Perspectives 21:3 (2007).

363 Oversight of the Federal Housing Administration’s Reverse Mortgage Program for Seniors: Hearing 

Before the House Subcommittee on Insurance, Housing, and Community Opportunity (May 9, 2012) 

(statement of Lori Trawinski, Senior Strategic Policy Advisor, AARP Public Policy Institute).

364 CFPB interviews with HECM counselors and consumer advocates.

365 FHA Mortgagee Letter 2008-12 (“A client must not be turned away because of an inability to pay.”).

366 FHA Mortgagee Letter 2008-12 (“The cost of HECM counseling can be paid out of a HECM 

borrower’s loan proceeds.”).

367 See 74 Fed. Reg. 45311; FHA Mortgagee Letter 2009-47; John Yedinak, HUD Implements HECM 

Counseling Roster and Testing Standards, Reverse Mortgage Daily (Nov. 10, 2009), available at 

http://reversemortgagedaily.com/2009/11/10/hud-implements-hecm-counseling-roster-and-testingstandards/.

368 These requirements were codified in the HECM regulations. See 24 CFR § 206.300 et seq.

369 Housing Counseling Handbook, HECM Counseling Protocol 7610.1 REV-5, Appendix 4, available 

at http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/7610.1/76101HSGH.pdf; HUD Letter, 

Mortgage Counseling Toolkit (Aug. 27, 2010), available at 

http://www.hud.gov/offices/hsg/sfh/hcc/msgs/20100827.txt.

370 Cal. Civ. Code § 1923.2 and § 1923.5 Form 2; Md. Code § 12-1207.

371See, e.g., Ill. Comp. Stat. 205 § 5/6.1; N.Y. Real Prop. § 280-a; S.C. Code § 29-4-60.
218 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

372 Col. Rev. Stat. § 11-38-111.

373 La. Rev. Stat § 6:1102.

374 N.C. Gen. Stat. § 53-264; N.C. Gen. Stat. § 53-269; 24 N.C. Admin. Code 1N.0202; Mass. Gen. Laws 

167E § 7A; 8 V.S.A. § 10702.

375 N.C. Gen. Stat. § 53-264; N.C. Gen. Stat. § 53-269; 24 N.C. Admin. Code 1N.0202.

376 8 V.S.A. § 10702.

377 Mass. Gen. Laws 167E § 7A.

378 Cal. Assembly Bill No. 2010 (introduced Feb. 23, 2012); Georgia Assembly Bill No. 338 

(introduced Feb. 24, 2012).

379 Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, 122 Stat. 2654 (2008) (codified 

at 12 U.S.C. § 1715z-20).

380See AARP 2010 at 1, endnote 89 (“[D]ue to high upfront costs, reverse mortgages can be especially 

costly if you sell and move just a few years after taking one out.”); Norma Paz Garcia et al., Consumers 

Union, Examining Faulty Foundations in Today’s Reverse Mortgages, p. 6 (2010) (citing “reverse 

mortgages are expensive” as a reverse mortgage drawback), available at 

http://www.consumersunion.org/pdf/reverse-mortgage-report-2010.pdf; Kenneth Harney, Proposed 

Guidelines for Reverse Mortgages Spell Out Potential Pitfalls for Homeowners, Los Angeles Times 

(Dec. 27, 2009) (cautioning that “reverse mortgages often entail high upfront fees and substantial 

insurance and servicing charges”); Jonathan Clements, The Costly, Restrictive Mortgage That Could 

Save Your Retirement, Wall Street Journal (Dec. 17, 2003) (“One glance at these loans, and you will 

likely suffer severe sticker shock. Reverse mortgages, which allow those aged 62 and up to borrow 

against their home's value without making any repayments during their lifetime, are pretty darnn 

expensive.”); id. (citing a financial planner’s comments that “[t]he fees are just exorbitant. But if you 

don't have any other choice, you don't have any other choice”).

381 See AARP 2006 Survey at 107, endnote 113.

382 See AARP 2006 Survey at 80, endnote 113.

383 Consumer submissions to the CFPB, 2011-2012.
219 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

384 Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, 122 Stat. 2838 (2008); FHA 

Mortgagee Letter 2008-34. 

385 See John Yedinak, Wells Fargo Eliminates Servicing and Origination Fee for Adjustable Rate 

HECM, Reverse Mortgage Daily (Apr. 13, 2010), available at 

http://reversemortgagedaily.com/2010/04/13/wells-fargo-eliminates-servicing-and-origination-feefor-adjustable-rate-hecm/; John Yedinak, No Reverse Mortgage Origination Fee Trend, Will it Last?, 

Reverse Mortgage Daily (Apr. 1, 2010), available at http://reversemortgagedaily.com/2010/04/01/noreverse-mortgage-origination-fee-trend-will-it-last/; John Yedinak, Bank of America Paying Entire 

Upfront Mortgage MIP on Fixed Rate Reverse Mortgages, Reverse Mortgage Daily (May 6, 2010), 

available at http://reversemortgagedaily.com/2010/05/06/bank-of-america-paying-entire-upfrontmip-on-fixed-rate-reverse-mortgages/.

386 CFPB interviews with industry participants; see also John Yedinak, Security One Lending Releases 

New HECM Fixed Product Without SFSA, Reverse Mortgage Daily (Mar. 17, 2010), available at

http://reversemortgagedaily.com/2010/03/17/security-one-lending-releases-new-hecm-fixedproduct-without-sfsa/; John Yedinak, Genworth Eliminates Servicing Fee for Fixed Rate Mortgage, 

Reverse Mortgage Daily (Mar. 22, 2010), available at 

http://reversemortgagedaily.com/2010/03/22/genworth-eliminates-servicing-fee-for-fixed-ratereverse-mortgage/.

387 FHA Mortgagee Letter 2010-34; Press Release, Department of Housing and Urban Development, 

HUD Announces New Reverse Mortgage Option (Sept. 22, 2010) (“Despite the popularity of our 

HECM loan product, we have noted concerns that some senior citizens find that our fees are too high 

for them. . . . In response, we created HECM Saver which will provide seniors with a reverse mortgage 

option that significantly lowers costs by almost eliminating the upfront Mortgage Insurance Premium 

that is required under the standard HECM option.”), available at 

http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2010/HUDNo.10-

205.

388 FHA Mortgagee Letter 2010-34.

389 HECM Savers are subject to lower Principal Limit Factors. See discussion in Section 2.4.1 and FHA 

Mortgagee Letter 2010-34.

390 FHA Mortgagee Letter 2010-34.

391 Kelly Green, Reverse Mortgages Now Look Cheaper, Wall Street Journal (Apr. 17, 2010) (“Reverse 

mortgages have long been considered one of the most expensive ways to extract cash from your 
220 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

house. But that is changing as some of the country's biggest reverse-mortgage lenders are slicing 

closing costs[.]”).

392 HUD Presentation, National Reverse Mortgage Association Annual Meeting (Oct. 25, 2011).

393 24 C.F.R. § 206.205(a) (“The mortgagor shall pay all property charges consisting of taxes, ground 

rents, flood and hazard insurance premiums, and special assessments in a timely manner and shall 

provide evidence of payment to the mortgagee as required by the mortgage.”); 24 C.F.R. §

206.27(b)(5) (“The mortgagor must keep the property in good repair.”).

394 24 C.F.R. § 206.205(c) (“If the mortgagor fails to pay the property charges in a timely manner, and 

has not elected to have the mortgagee make the payments, the mortgagee may make the payment 

for the mortgagor and charge the mortgagor’s account.”).

395 HUD Presentation, National Reverse Mortgage Lenders Association Eastern Regional Meeting 

(Mar. 26, 2012) (estimating that there are now 54,000 HECM loans in default on taxes and/or 

insurance).

396 HUD Presentation, National Reverse Mortgage Lenders Association Eastern Regional Meeting 

(Mar. 26, 2012).

397 FHA Mortgagee Letter 2011-11 (stating that one of its goals is “to avoid foreclosures as a result of 

unpaid property charges”).

398 24 C.F.R. § 206.205(f). According to FHA, lenders sometimes require a set-aside for upcoming 

property tax or insurance bills when the bill is due shortly after closing, but it is uncommon for 

borrowers to use, or lenders to require, the use of the property charge set-aside for charges occurring 

more than one year from the date of closing.

399 The requirements also do not consider credit history other than delinquent federal debts. See

HUD Handbook, Home Equity Conversion Mortgages, 4235.1 REV-1 § 4-3(a) (“If the borrower is 

presently delinquent on any Federal debt...the borrower is not eligible under the delinquent account 

is brought current, paid or otherwise satisfied[.]”).

400 Consumer submissions to the CFPB, 2011-2012.

401 FTC Complaints 2011-2012.

402 FHA Mortgagee Letter 2011-01; 24 C.F.R. § 206.27(c)(2)(iii).
221 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

403 According to FHA, current FHA practice is to reimburse servicers for the corporate advances, so 

long as the total claim submitted to FHA is not more than the FHA maximum claim amount. Because 

the claim submitted to FHA is for the excess loan balance above and beyond the proceeds from the 

sale of the home, in most cases the claim amount, including the corporate advances, will fall within the 

maximum claim amount limit and will be reimbursed to the servicer – so long as the servicer complies 

with other FHA default servicing requirements. FHA has indicated that further clarification of the 

treatment of corporate advances will be forthcoming in the future.

404 Gerald R. Kirkland, HUD Office of Inspector General Audit Report, HUD Was Not Tracking Almost 

13,000 Defaulted HECM Loans With Maximum Claim Amounts of Potentially More Than $2.5 Billion, 

p.6 (Aug. 25, 2010) (“HUD routinely deferred foreclosure through an informal policy because it 

indicated that it was unwilling to foreclose on senior citizen borrowers.”) [OIG Audit Report]; id. at 6, 

n. 9 (“HUD’s policy was issued via e-mail. HUD was unable to provide a copy.”).

405 OIG Audit Report at 6.

406 OIG Audit Report at 6.

407OIG Audit Report at 6; 24 C.F.R. § 206.125(a)(1) (“The mortgagee shall notify the Secretary

whenever the mortgage is due and payable.”)

408 OIG Audit Report at 2.

409 OIG Audit Report at 1.

410 OIG Audit Report at 7.

411 OIG Audit Report at 7.

412 OIG Audit Report at 7.

413 OIG Audit Report at 7-8. The Audit Report also discusses HUD’s evaluation of the property charge 

issue. This evaluation was based on 11,272 loans. It found that for cases where the amount of loss is 

significantly greater at the time of loan termination, regardless of whether the loan was called due and 

payable, the net loss to HUD is $60 million (including 10,865 loans). Id. at 10.

414 FHA Mortgagee Letter 2011-01.

415 FHA Mortgagee Letter 2011-01.
222 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

416 These obligations only apply when a borrower has no remaining principal balance. If a borrower 

has funds remaining, the lender may pay property charges with those funds. The borrower would not 

be considered in default if their own funds are used to pay the charges. HECM Servicing Frequently 

Asked Questions, ML 2011-01 (Mar. 30, 2011) (“If the borrower’s funds are used to pay property 

charges, the loan is not considered delinquent.”), available at 

http://portal.hud.gov/hudportal/documents/huddoc?id=ML11-01HECMIndustryFAQ.pdf.

417 FHA Mortgagee Letter 2011-01.

418 FHA Mortgagee Letter 2011-01.

419 FHA Mortgagee Letter 2011-01.

420 FHA Mortgagee Letter 2011-01.

421 FHA Mortgagee Letter 2011-01.

422 The lender then could assign the mortgage under 24 C.F.R. § 206.107, because the borrower 

would no longer have an unfulfilled obligation. See FHA Mortgagee Letter 2011-01 (“When the 

mortgagor becomes current on all property charges and repays all corporate advances made by the 

mortgagee to cover property charges, the mortgagor will then be considered in compliance with the 

terms of the mortgage and if all other FHA requirements have been satisfied, the mortgagee may 

then request to assign the mortgage to the Department pursuant to 24 C.F.R. § 206.107.”).

423 FHA Mortgagee Letter 2011-01

424 FHA Mortgagee Letter 2011-01 (“HUD shall require mortgagees to continue loss mitigation efforts 

when the documentation provided by the mortgagee does not demonstrate an earnest attempt to 

collaborate with the mortgagor to cure the delinquency.”). This guidance denies mortgagees of the 

option to assign under 24 C.F.R. § 206.107(a)(iv) (“At the mortgagee’s option, the mortgagee may 

forgo assignment of the mortgage and file a claim under any of the circumstances described in 

§206.123(a)(2)-(5).”).

425 FHA Mortgagee Letter 2011-01 (“Where the mortgagor fails to correct the delinquency and does 

not proceed to sell the property or execute a deed in lieu of foreclosure, the mortgagee must initiate 

foreclosure as required under 24 C.F.R. § 206.125(d).”).

426 Oversight of the Federal Housing Administration’s Reverse Mortgage Program for Seniors: Hearing 

before the House Subcommittee on Insurance, Housing, and Community Opportunity (May 9, 2012) 
223 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

(statement of Charles Coulter, Deputy Assistant Secretary for Single Family Programs, Office of 

Housing, Federal Housing Administration).

427 Oversight of the Federal Housing Administration’s Reverse Mortgage Program for Seniors: Hearing 

before the House Subcommittee on Insurance, Housing, and Community Opportunity (May 9, 2012) 

(statement of Charles Coulter, Deputy Assistant Secretary for Single Family Programs, Office of 

Housing, Federal Housing Administration).

428 HUD Presentation, National Reverse Mortgage Lenders Association Eastern Regional Meeting 

(Mar. 26, 2012).

429 HUD Presentation, National Reverse Mortgage Lenders Association Eastern Regional Meeting 

(Mar. 26, 2012).

430 FTC Complaints 2011-2012.

431 Oversight of the Federal Housing Administration’s Reverse Mortgage Program for Seniors: Hearing 

before the House Subcommittee on Insurance, Housing, and Community Opportunity (May 9, 2012) 

(statement of Charles Coulter, Deputy Assistant Secretary for Single Family Programs, Office of 

Housing, Federal Housing Administration), available at 

http://financialservices.house.gov/UploadedFiles/HHRG-112-BA04-WState-CCoulter-20120509.pdf.

432 Acting FHA Commissioner Carol Galante, HECM Program Update (Oct. 5, 2011) (“I want to 

reiterate that HUD’s HECM criteria represent the mandatory baseline requirements for approval of a 

HECM. HUD does not prohibit the inclusion of additional financial capacity and credit assessment 

criteria and processes in the origination and approval of HECM transactions.”).

433 Elizabeth Ecker, MetLife Forced to Suspend Financial Assessment as Others Fail to Follow, Reverse 

Mortgage Daily (Jan. 25, 2012) (discussing how MetLife suspended financial assessment after brokers 

brought their business elsewhere), available at http://reversemortgagedaily.com/2012/01/25/metlifeforced-to-suspend-financial-assessment-as-others-fail-to-follow/.

434 See GAO 2009 at 36-37, endnote 309 (finding that 14 out of 15 housing counselors studied did not 

explain to borrowers that they could have property charges withheld); FTC Complaints 2011-2012

(some borrowers did not understand that failing to pay property charges could result in loss of their 

home). The National Reverse Mortgage Lenders Association has been developing a disclosure form 

that states the borrower’s obligations, and how failure to meet those obligations could result in loss of 

their home.
224 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

435 HUD Presentation, National Reverse Mortgage Lenders Association Annual Meeting (Oct. 25, 

2011).

436 Consumer submissions to the CFPB, 2011-2012.

437 See Bennett v. Donovan, No. 11-cv-00498, 2011 U.S. Dist. LEXIS 76470 (D.D.C. July 15, 2011).

438 12 U.S.C. § 1715z-20(j).

439 24 C.F.R. § 206.27(c). 

440 Bennett v. Donovan, No. 11-cv-00498, Defendant’s Motion to Dismiss Brief, filed April 8, 2011, at 

22 - 23.

441 See, e.g., Ellison v. Wells Fargo Home Mortgage, Inc., No. 09-cv-14175, 2010 U.S. Dist. LEXIS 

108699 (E.D. Mi. Oct. 12, 2010). In Ellison, a reverse mortgage applicant’s spouse who was below the 

age threshold transferred all rights to the property to the qualifying spouse, who then obtained a 

reverse mortgage. The borrowing spouse then attempted to transfer an interest in the premises back 

to the non-borrower spouse. In an action challenging foreclosure of a reverse mortgage, the court 

upheld the foreclosure proceedings on the basis that as of the date of the reverse mortgage, the nonborrower spouse had no interest in the property and the later acquired interest was subject to the 

previously recorded reverse mortgage encumbering the premises. Ellison, 2010 U.S. Dist. LEXIS at 

**10-11.

442 See Kerrigan v. Bank of America, No. 09-02082, 2011 WL 3565121 (C.D. Cal. Aug. 12, 2011).

443 Kerrigan v. Bank of America, 2011 WL 3565121 at *5. In Kerrigan, the court stated that it finds 

“particularly significant that the statute which governs HECMs expressly requires that under the terms 

of the HECM, a ‘homeowner’s obligation to satisfy the loan obligation is deferred until the 

homeowner’s death’ and that the term ‘homeowner’ ‘includes the spouse of a homeowner.’” The 

court concluded that “[u]nder these circumstances, a misunderstanding on the part of [plaintiff] as to 

the terms of the HECM and whether “homeowner” included Plaintiff was reasonable.”

444 FHA Mortgagee Letter 2011-31. “Clarification of Signatures on the Certificate: All owners shown 

on the property deed (or legal representative, in cases involving documented lack of competency) 

and a non-borrowing spouse must personally receive counseling. The Certificate must be signed and 

dated by both the counselor, all owners shown on the property deed (or legal representative for cases 

involving documented lack of competency), and Non-borrowing spouse.”
225 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

445 See FHA Mortgagee Letter 2011-16.

446 This section considers fraud as encompassing any criminal misrepresentations in the reverse 

mortgage context. See, e.g., FBI 2010 Mortgage Fraud Report, p. 5 (Aug. 2011) (“Mortgage fraud is a 

material misstatement, misrepresentation, or omission relied on by an underwriter or lender to fund, 

purchase, or insure a loan. This type of fraud is usually defined as loan origination fraud. Mortgage 

fraud also includes schemes targeting consumers, such as foreclosure rescue, short sale, and loan 

modification.”), available at http://www.fbi.gov/stats-services/publications/mortgage-fraud-2010. 

Sometimes the term “mortgage fraud” may be limited to deceiving financial institutions into entering 

a mortgage contract they may not have otherwise approved. 

447 Consumer submissions to the CFPB, 2011-2012.

448 Press Release, Kings County District Attorney’s Office, One Defendant Charged with a Hate Crime

for Targeting an Elderly Victim (Mar. 7, 2012), available at 

http://www.brooklynda.org/press_releases/2012/Press%20Releases%2003-12.html.

449 Interview with HUD Inspector General Kenneth Donohue, Reverse Review Magazine (Mar. 3, 2010), 

available at http://www.reversereview.com/index.php/magazine/features/1897-interview-with-thehecm-fraud-unit.html.

450 Press Release, Department of Justice, Fraudsters Sentenced to Prison for “Reverse Mortgage’’ 

Scheme (Feb. 23, 2011), available at http://www.justice.gov/usao/gan/press/2012/02-23-12b.html.

451 Press Release, Department of Justice, Two Individuals Sentenced in Connection with $2.5 Million 

Reverse Mortgage and Loan Modification Scheme (Nov. 4, 2011), available at 

http://www.justice.gov/opa/pr/2011/November/11-civ-1457.html.

452 FinCEN, Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Home 

Equity Conversion Mortgage Fraud Schemes (Apr. 27, 2010), available at 

http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2010-a005.pdf.

453 Press Release, Wayne County Office of the Prosecuting Attorney, Prosecutor Worthy Charges in 

Connection with Reverse Mortgage Fraud Scheme (June 14, 2006), available at 

http://www.co.wayne.mi.us/documents/061406-

REVISEDWCPChargesinConnectionwithReverseMortgageFraudScheme.pdf.
226 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

454 The defendant was convicted of six counts of larceny and is currently serving a state prison 

sentence. See Michigan Offender Tracking Information System, 

www.state.mi.us/mdoc/asp/otis2profile.asp?mdocNumber=633246.

455 FTC Complaints 2011-2012.

456 18 USC § 2314. “Whoever transports, transmits, or transfers in interstate or foreign commerce any 

goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to 

have been stolen, converted or taken by fraud; or [w]hoever, having devised or intending to devise 

any scheme or artifice or defraud, or for obtaining money or property by means of false or fraudulent 

pretenses, representations, or promises, transports or causes to be transported, or induces any 

person or persons to travel in, or to be transported in interstate or foreign commerce in the execution 

or concealment of a scheme or artifice to defraud that person or those persons of money or property 

having a value of $5,000 or more . . . [s]hall be fined until this title or imprisoned not more than 10 

years, or both.”

457 18 USC § 1344 (“Whoever knowingly executes, or attempts to execute, a scheme or artifice – (1) to 

defraud a financial institution; or (2) to obtain any of the moneys, funds, credits, assets, securities, or 

other property owned by, or under the custody or control of, a financial institution, by means of false 

or fraudulent pretenses, representations, or promises; shall be fined not more than $1,000,000 or 

imprisoned not more than 30 years, or both.”).

458 “Mortgage lending business” is defined as “an organization which finances or refinances any debt 

secured by an interest in real estate, including private mortgage companies and any subsidiary of 

such organization, and whose activities affect interstate or foreign commerce.” 18 USC § 27.

459Under FERA, convictions for mortgage fraud allow up to a 30-year maximum prison sentence, or a 

maximum $1 million fine, or both. The statute of limitation is expanded to 10 years, as opposed to the 

five-year limit for other fraud cases. See mail fraud and wire fraud statutes, 18 USC § 1341; 18 USC §

1343.

460 Ga. Code § 16-8-102 (2010).

461 Michigan Public Act 205 of 2011; Mich. Comp. Laws § 750.219(d).

462 Wash. Rev. Code § 43.320.140.

463 FinCEN, Annual Report (2011).
227 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

464 FinCEN, Advisory to Financial Institutions on Filing Suspicious Activity Reports Regarding Home 

Equity Conversion Mortgage Fraud Schemes (Apr. 27, 2010), available at 

http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2010-a005.pdf.

465 Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for 

Residential Mortgage Lenders and Originators, 77 Fed. Reg. 8148 (finalized Feb. 14, 2012) (to be 

codified at 31 C.F.R. pts. 1010 and 1029), available at http://www.gpo.gov/fdsys/pkg/FR-2012-02-

14/pdf/2012-3074.pdf.

466 12 C.F.R. § 21.11 (requiring banks to file SARs); Bank Secrecy Act of 1970, Pub. L. No. 91-508 

(codified at 31 USC § 5318(g)) (giving Secretary of Treasury authority to require financial institutions to 

file SARs).

467 Anti-Money Laundering Program and Suspicious Activity Report Filing Requirements for 

Residential Mortgage Lenders and Originators, 77 Fed. Reg. 8148 (finalized Feb. 14, 2012) (to be 

codified at 31 C.F.R. pts. 1010 and 1029).

468 Anti-Money Laundering Program and Suspicious Activity Reporting Requirements for Housing 

Government Sponsored Enterprises, 76 Fed. Reg. 69205 (proposed Nov. 8, 2011) (to be codified at 

31 C.F.R. pts. 1010 and 1030), available at http://www.gpo.gov/fdsys/pkg/FR-2011-11-08/pdf/2011-

28820.pdf.

469 Press Release, Federal Bureau of Investigation, Operation Stolen Dreams: Hundreds Arrested in

Mortgage Fraud Sweep (June 17, 2010), available at 

http://www.fbi.gov/news/stories/2010/june/mortgage-fraud-sweep.

470 Presentation by Jason Abend, HUD Office of the Inspector General, National Reverse Mortgage

Lender Association Conference (Mar. 28, 2012).

471 Interview with HUD Inspector General Kenneth Donohue, Reverse Review Magazine (Mar. 3, 2010), 

available at http://www.reversereview.com/index.php/magazine/features/1897-interview-with-thehecm-fraud-unit.html.

472 Interview with HUD Inspector General Kenneth Donohue, Reverse Review Magazine (Mar. 3, 2010).

473 Presentation by Jason Abend, HUD Office of the Inspector General, National Reverse Mortgage

Lender Association Conference (Mar. 28, 2012).
228 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

474 Investigators: Caretaker Stole $18K from Blind, Elderly Houston Woman, KHOU.com (Dec. 15, 

2011), available at http://www.khou.com/news/local/Investigators-Caretaker-stole-18K-from-blindelderly-Houston-woman-135669233.html. [KHOU.com 2011]

475 KHOU.com 2011.

476 Edward Colby, Caretaker Stole $35,000 From North Miami Beach Woman Who Spent Life Taking 

Care of the Elderly, NBC Miami (Feb. 15, 2012), available at

http://www.nbcmiami.com/news/local/Caretaker-Stole-35000-From-North-Miami-Beach-WomanWho-Spent-Life-Taking-Care-of-Elderly-Police-139403418.html.

477 Reverse Mortgages: Leaving Seniors and Taxpayers on the Hook: Hearing Before the United States 

Senate Special Committee on Aging (June 29, 2009) (statement of Anthony G. Medici, HUD Office of 

the Inspector General) (“The HECM counselor could be a valuable first line of defense against fraud. 

We have asked HUD officials to require that HECM counselors report suspected fraud to FHA and the 

OIG. We have also recommended that FHA instructs counselors to withhold certificates of counseling 

in suspected fraud cases that would allow borrowers to proceed with the loan process.”).

478 Presentation by Jason Abend, HUD Office of the Inspector General, National Reverse Mortgage

Lender Association Conference (Mar. 28, 2012).

479 CFPB analysis of FHA HECM Characteristics Report data, available at 

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/oe/rpts/hecm/hecmmenu. 

480 National Consumer Law Center, Comment Letter to Federal Reserve Board Proposed Rule to 

Amend Regulation Z, Docket No. R-1390, 12 C.F.R. Part 226: Truth in Lending 73 (Dec. 23, 2010)

[NCLC Comment Letter 2010]; AARP 2006 Survey, endnote 113.

481 See NCLC Comment Letter 2010.

482 Richard H. Thaler, Mental Accounting Matters, Journal of Behavioral Decision Making 12:3, p.196 

(1999) (proposing a behavioral life-cycle model where consumers are more likely to spend current 

assets, like cash and checking account funds, and less likely to spend i) current wealth like savings 

accounts, stocks and bonds, and mutual funds, or ii) future income funds such as retirement accounts).

483 CFPB interviews with industry experts; CFPB analysis of data obtained from a reverse mortgage 

lender.

484 See NCLC Comment Letter 2010, endnote 480.
229 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

485 See NCLC Comment Letter 2010, endnote 480.

486 Darryl Hicks, Grabbing the Lead: Who You Can Count On for Quality Prospects in a Crowded 

Marketplace, Reverse Mortgage Magazine 2:2, p.16 (Mar./Apr. 2009), available at 

http://media.nrmlaonline.org/RMMag/March-April09.pdf. [Hicks 2009]

487 See Hicks 2009.

488 In 2010, Genworth Financial purchased ReverseMortgageGuides.org and Reverse.org. See John 

Yedinak, Genworth Acquires Reverse Mortgage Lead Provider’s Websites, Reverse Mortgage Daily 

(Nov. 21, 2010), available at http://reversemortgagedaily.com/2010/11/21/genworth-acquiresreverse-mortgage-lead-provider-websites. 

489 FTC Complaints 2011-2012.

490 FTC Complaints 2011-2012.

491 16 C.F.R. § 310.

492 12 C.F.R. § 1015.1 et seq; 75 Fed. Reg. 75124 n.373; 75 Fed. Reg. 75124 n.382.

493 See Section 5.3.2a.

494 See e.g., FTC v. Dominant Leads, LLC, No. 1:10–cv–0997 (D.D.C. filed Jun. 15, 2010); see also

United States v. Ryan, No. 09–00173–CJC (C.D. Cal. filed July 14, 2009) (criminal complaint against 

lead generator named as defendant in FTC action); FTC v. Ryan, No. 1:09–00535 (HHK) (D.D.C. filed 

Mar. 25, 2009); FTC v.Cantkier, No. 1:09–cv–00894 (D.D.C. Am. Complaint filed July 10, 2009).

495 FTC Complaints 2011-2012.

496 12 U.S.C. § 1061.

497 12 U.S.C. § 1076(b).

498 75 Fed. Reg. 58539 (2010).

499 CFPB estimate based on available data.
230 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

500 American Homestead offered this product starting in 1984, with other companies emulating the 

model in the late 1980s. Total volume for these products was likely around 5,000 loans according to 

industry experts.

501 Industry experts estimate that volume for the Ever Yours product was likely around 1,000 loans.

502 CFPB interviews with industry experts.

503Report of the Special Committee on Aging to the United States Senate, Developments in Aging: 

2001 and 2002, p. 211, Vol. 1 (Feb. 26, 2003) available at http://www.gpo.gov/fdsys/pkg/CRPT108srpt265/pdf/CRPT-108srpt265-vol1.pdf.

504 Fannie Mae Home Keeper Mortgage Lender Fact Sheet (Apr. 2005), available at 

https://www.efanniemae.com/sf/mortgageproducts/pdf/homekprlenderfactsheet.pdf.

505 Fannie Mae Home Keeper Mortgage Consumer Fact Sheet (Aug. 2004), available at 

http://www.fanniemae.com/global/pdf/homebuyers/homekeeperstriper.pdf.

506 John Yedinak, Fannie Mae Discontinues Home Keeper Reverse Mortgage Product, Reverse 

Mortgage Daily (Sept. 3, 2008), available at http://reversemortgagedaily.com/2008/09/03/fanniemae-discontinues-home-keeper-reverse-mortgage-product/.

507 Bank of America currently holds $1.1 billion in Independence Plan and other proprietary reverse 

mortgages.

508 Generation Mortgage website. http://www.generationmortgage.com/jumbo-reversemortgage.htm.

509 Data provided by Generation Mortgage.

510 CFPB interviews and rate sheets provided by industry participants.

511 Data provided by Generation Mortgage.

512 As an example, the proprietary loans securitized by Lehman Brothers were priced at LIBOR + 5

percent in the early securitizations and LIBOR + 3.5 percent in the later securitizations. HECMs at the 

time were priced at CMT + 1.5 percent. Proprietary borrowers could expect to receive between 16

and 60 percent of their home value in the early securitizations and between 34 and 55 percent in the 
231 REPORT TO CONGRESS ON REVERSE MORTGAGES, JUNE 2012

 

later securitizations, depending on age. HECM borrowers could expect to receive between 60 and 90

percent of home value.

513 Several states have enacted stiff penalties against lenders who fail to make the payments to 

borrowers as scheduled in a proprietary reverse mortgage product. In North Carolina, Tennessee, 

and other states, for example, the lender forfeits their right to collect any interest on the loan. See, 

e.g., N.C. Gen. Stat. § 53-266; Colo. Rev. Stat. § 11-38-106; S.C. Code § 29-4-30; Tenn. Code § 47-30-

111; S.D. Codified Laws § 54-12-21; W. Va. Code § 47-24-4. In South Dakota and West Virginia, a 

lender’s failure to make payments not only results a forfeiture of interest but further subjects the 

lender to administrative penalties. See S.D. Codified Laws § 54-12-21; W. Va. Code § 47-24-4. Other 

states provide that a default may result in damages to the borrower, sometimes triple the amount 

wrongfully withheld. See e.g., Ark. Code § 23-54-109; Cal. Civ. Code § 1923.2; Wash. Rev. Code § 

31.04.535. To date, these regulations have mainly served to provide borrowers with recourse against 

lender failures to make payments and as a deterrent to prevent undercapitalized lenders from 

offering proprietary products, as there are no documented instances of a lender failing to make 

payments to the borrower as agreed.

514 CFPB interviews with industry experts. CFPB research produced no documented cases of a lender 

failing to meet payment obligations.

515 The market share estimate is derived by comparing the securitization issuance of $314.7 million 

with total HECM production for 1999 of approximately $960 million (on a maximum claim amount 

basis). These two figures of volume are not strictly comparable, but provide a rough estimate of 

proprietary market share in the absence of more accurate data. This calculation also ignores nonsecuritized proprietary products. There is no comprehensive data source of non-securitized, 

proprietary reverse mortgage originations but industry experts believe the volume contributed by 

these products to be trivial.

516 CFPB interviews with industry experts.

517 CFPB interviews with industry experts.

518 CFPB analysis of Bank Call Report data (via SNL Financial LC).