The CFPB Releases a NEW RM Guide


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EPISODE #661
The CFPB Releases a NEW Reverse Mortgage Consumer Guide

There’s a new guide for reverse mortgage borrowers- entitled “You have a reverse mortgage: Know your rights and responsibilities” courtesy of the CFPB. Here are some of the key takeaways but not a complete summary of the 26-page guide. PLUS…

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4 comments

James E. Veale, CPA, MBT March 16, 2021 at 8:35 pm

As usual the CFPB has entered into an area of mortgages they are shallowly familiar and thus have the propensity to create more problems than they cure.

For example, the CFPB RM (reverse mortgage) booklet claims on Pages 3 and 4, the following: “Your home must be your principal residence, meaning it must be where you spend the majority of the year…. You are away for more than 6 months for nonmedical reasons and there is no co-borrower living in the home…. Your home is no longer your principal residence and your loan must be paid back or satisfied through selling the property or deed-in-lieu of foreclosure.”

The CFPB statements sound ominous but are they accurate? As expected the CFPB may understand advertising to some degree but they have not read the HUD Regs.

Here is how, in part, the HUD Regs define a principal residence at 24 CFR 206.3: “…the dwelling where the borrower and, if applicable, Non-Borrowing Spouse, maintain their permanent place of abode, and typically spend the majority of the calendar year.”

So there are two major problems with the CFPB statements; the booklet does not state that it is where the borrower 1)TYPICALLY spends the majority of the 2) CALENDAR year.

Let us say that the sole unmarried HECM borrower has had the HECM for 5 years. Every summer and early fall she spends four months between her sister’s and her children’s home; the rest of each calendar year she travels for no more than 30 days. Early in year six (calendar year 2021), she and her sister decide that starting on July 4, 2021 they will live in Paris until July 1, 2022. Her children come as well for four of the eleven plus months. The borrower does not leave her home overnight at any other time in either 2021 or 2022 Should that be a problem for the servicer or HUD?

The CFPB would say that the borrower lost her home and the home must be foreclosed upon. Yet HUD and (hopefully) the servicer would say that based on the calendar year, she is just fine. HUD and the servicer would, no doubt, recommend that she informs the lender about her plans in advance of the trip. Otherwise, who cares? Just the CFPB.

Now let us change the scenario and say that the borrower decides to spend three more months in Paris in 2022 and returns home on October 3, 2022. While she is OK for the calendar year 2021, she is not OK in calendar year 2022; however, since the borrower has only violated the “majority of the calendar year” rule once in 7 years, it would seem that she would be OK since she TYPICALLY met the rule (six out of seven years). In this case, it is very important that the borrower updates the servicer about her trip so that she knows upfront that the servicer will recognize her reasoning.

So in conclusion, be very leery of the claims made in this less than accurate CFPB RM booklet and do not provide it unless consumers, prospects, counselees, applicants, or borrowers ask you for one — but even then warn them about possible inaccuracies in the booklet.

Reply
Dan Hultquist March 17, 2021 at 9:36 am

Jim is correct. The CFPB defines principal residence incorrectly. Principal Residence is where they “typically” spend the majority of the calendar year. This caveat is what allows a senior to travel abroad, or to national parks, or on a mission trip, without causing the loan to mature so long as they communicate with the servicer and they don’t establish another principal residence.

The guide went on to imply that the loan matures when “You are away for more than 6 months for nonmedical reasons.” This conclusion is based on their misunderstanding of principal residence. 6 months is not a maturity event listed in any HUD handbook (4235 or 4330). It is also nowhere to be found in the regs (24 CFR 206).

While this guide has some great content and was needed, I’d rather we not frighten seniors to the point they are afraid to travel.

Another misstep is the claim that “[heirs] will have to repay either the full loan balance or 95 percent of the home’s appraised value – whichever is less.”

This is not necessarily true. The 95% option is only available to heirs if there is a “post-death conveyance” of the property. This was clarified by FHA in 2013. That means the home must either sell or be passed on to the heirs through a Will, Trust, or Life Estate. If the heirs are already on title, they will not have the ability to satisfy the HECM at 95%.

Reply
Aaron Aasen March 19, 2021 at 5:40 am

Thank you for the podcast post Shannon. And thank you James and Dan for your insightful observations into the actual regulations. Very helpful and much appreciated!

Reply
Shannon Hicks March 19, 2021 at 5:52 am

Glad to work with our industry’s best minds to help clear the regulatory fog. Thank you for being a loyal listener Aaron!

Reply

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