mortgages

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Earlier this year, the CFPB issued one of its regular bulletins, announcing a range of financial rules that financial institutions may sometimes “ignore” or outright defy, to the detriment of the public they serve. Just by knowing the rules, you can learn how to take care of yourself. Below are some of the highlights.

Regulation Z Reins in Mortgage Originators

This regulation “prohibits a loan originator from receiving compensation based, directly or indirectly, on the terms of a consumer credit transaction secured by a dwelling.” This isn’t new; it’s been around since 2011. But recently government investigations have found evidence that some institutions have ignored this.

Regulation Z is one of the homeowner’s best friends, requiring lenders to reveal a range of details about a loan.

Getting Serious on Good-Faith Estimates

And then there is Regulation X, which requires loan originators to generally stick to the settlement charges and terms listed on the good-faith estimate provided to the borrower, unless it issues a revised GFE before settlement. And it has to document a reason for that second GFE. Again, investigations uncovered situations where poorly trained lenders with inadequate compliance procedures overcharged.

There’s a timing issue as well. Lenders have only three business days after they receive an application to provide a GFE. Lenders don’t always correctly log in the correct day an application is received, thus improperly extending the time they have to provide the GFE. So homeowners should keep records of what they send and when.

Take a Close Looks at Ads

The fine print is serious. You have a right to see the details — the essential disclosures — in any advertised loan product. This is true even with social media posts. Again, investigators found instances where “loan originators advertised the length of payment, amount of payments, numbers of payments and finance charges without providing the required disclosures, a violation of Regulation Z.”

For further advice, you can access the full CFPB document online.

You’ve seen the television commercials. A well-known actor sings the praises of reverse mortgages and promises fast debt relief if you agree to one. But what is a reverse mortgage? Do you qualify for one? When should homeowners consider a reverse mortgage?

What Is a Reverse Mortgage?

A reverse mortgage is a loan available to homeowners who are age 62 or older. A lender agrees to pay you an amount each month based upon a portion of the equity in your home. Each month, you receive a payment based on this amount. As long as the borrower remains in the home, the loan doesn’t have to be repaid. However, when the borrower moves from the home, the loan must be repaid. Typically, the home is sold and the proceeds repay the loan.

Who Might Benefit From a Reverse Mortgage?

Reverse mortgages are available to people age 62 or older for a reason: many of them face high medical bills. Some people facing terminal or chronic illnesses have only the equity in their homes as their primary asset. For these people, a reverse mortgage may provide the cash needed to pay outstanding medical bills — while letting them remain in their homes.

Reverse mortgage payments, according to the Federal Trade Commission, do not affect Social Security or Medicare coverage. You can still receive both even if you are tapping into a loan based on your home’s equity.

What Are the Drawbacks of Reverse Mortgages?

Banks need to make money off of the transaction, so they charge fees and interest for reverse mortgages. These amounts are added to the loan amount; consequently, when the final repayment is due, it may be considerable. Additionally, the interest rate is variable instead of fixed. Over time, rising interest rates may add greatly to the cost of a reverse mortgage.

Because you’ll still own the title to your home, you’re responsible for its upkeep and maintenance. Bills for repairs must be paid and the home must be kept in good condition to satisfy the loan.

How Does a Reverse Mortgage Impact Estate Planning?

When the borrower dies, some reverse mortgages allow the surviving spouse to remain in the property without penalty. Others do not. It’s important to check the fine print to make sure your spouse isn’t going to be left homeless after you pass away.

If you’re single, divorced or widowed, your estate must repay the entire cost of the loan, including the accumulated interest. Usually the home must be sold to cover these costs. If you are hoping to leave your home to someone, a reverse mortgage may make that impossible.

There are several types of reverse mortgages, each with its own rules and requirements. Be sure to read everything in the documents presented to you by the lender and discuss the situation with your spouse and a financial professional. Reverse mortgages offer financial relief to some, nightmares to others. Consider your options and choose wisely.

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What’s the Deal on Reverse Mortgages?

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