CFPB eyes reverse mortgage disclosure overhaul; attorneys warn of costs

Federal regulators are taking a fresh look at reverse mortgage disclosures — and attorneys say the review is long overdue, though they’re urging caution about the cost of any overhaul.

In July, the Consumer Financial Protection Bureau (CFPB) launched a request for information seeking public input on whether mortgage disclosure requirements and other regulations should be revised to reduce compliance burdens and improve access to credit. The move aligns with President Donald Trump’s Executive Order 14393, which directs federal agencies to review rules that may increase the cost of lending and restrict credit access.

What surprised some attorneys: reverse mortgages made the list.

“I was surprised that they included reverse mortgage topics,” said Kris Kully, a partner in Mayer Brown‘s Washington, D.C., office and member of the firm’s Consumer Financial Services group. “However, I appreciate that the agency is attempting to gather some intelligence before making any changes — all changes entail regulatory burden, and often unintended consequences.”

Under current rules, reverse mortgage disclosures are spread across multiple documents — Truth in Lending disclosures, Good Faith Estimates and HUD-1 settlement statements. The product is also carved out of the TRID Rule, which streamlined disclosures for forward mortgages by combining overlapping forms into a single, unified document.

 “Regulations X and Z, implementing RESPA and TILA, require creditors and settlement agents to give consumers who apply for and obtain a reverse mortgage loan different but overlapping disclosure forms regarding the loan’s terms and costs.” 

The CFPB is exploring whether to create a unified, reverse-mortgage-specific disclosure form — similar to what the TRID Rule did for forward mortgages. 

Colgate Selden, a founding member of the CFPB and a shareholder at Baker Donelson, said the bureau simply ran out of time to address the unique features of reverse mortgages during the original TRID rulemaking.

“A completely new disclosure regime specific to reverse is needed for consumers to have a meaningful understanding of them,” Selden said. “Not sure the CFPB can do a lot now in the short term but if they are opening things up for a larger comprehensive reverse mortgage disclosure rulemaking that would be helpful.”

Rethinking cost disclosures

Beyond the structure of disclosures, the CFPB is questioning whether the numbers inside them still make sense.

The bureau is scrutinizing the Total Annual Loan Cost table — the standard tool used to help borrowers understand the cost of a reverse mortgage — which currently relies on three time periods and appreciation rate assumptions of 0%, 4% and 8%. Regulators are considering whether those assumptions still reflect current housing market conditions, or whether updated figures would give borrowers a more realistic picture.

One alternative under consideration is replacing or supplementing the annualized TALC rate table with a dollar-amount chart showing how the reverse mortgage balance grows over time. The rationale is that concrete dollar figures may be easier for borrowers to understand than abstract annualized rates — a meaningful distinction for a product whose borrowers are typically elderly.

While attorneys broadly agree the current framework is due for reform, they’re wary of underestimating what change would require.

Richard J. Andreano and John L. Culhane, senior counsels at Ballard Spahr, said in a blog post that reverse mortgage disclosures were “shoehorned” into disclosure regimes designed for forward mortgages and need to be integrated and streamlined — particularly given the age of the borrowers involved.

But they cautioned that the industry’s experience with TRID should temper expectations about how quickly or cheaply that can happen.

“Based on the enormous amount of money spent by the industry to implement the TRID rule, implementation costs and other burdens need to be considered in connection with any revisions of the reverse mortgage disclosure requirements,” they said.