NRMLA asks CFPB for new reverse mortgage disclosure framework

The trade group supports integrated reverse mortgage disclosures that would give borrowers clearer information about loan costs, payment options, ongoing responsibilities and consumer protections. It recommended that any changes go through formal notice-and-comment rulemaking and include a lengthy implementation period for lenders, servicers, vendors and other industry participants.

“Reverse mortgages differ from forward mortgage products in ways that make certain generic forward-mortgage disclosure concepts less effective for consumers,” NRMLA President Steve Irwin wrote in the comment letter.

One of the association’s primary recommendations is to supplement or replace the current Total Annual Loan Cost (TALC) presentation with dollar-based illustrations.

NRMLA said TALC calculations rely in part on life expectancy tables that should be updated to reflect more recent demographic data. It also argued that consumers may have difficulty understanding the percentage-based TALC table.

The association pointed to 2010 Federal Reserve Board consumer testing, which found that participants frequently misunderstood the TALC table and sometimes interpreted its percentages as an interest rate that declined over time. NRMLA said dollar-based tables could address that confusion.

The proposed disclosure could show loan balances and home values under multiple scenarios, including a flat home value scenario, allowing borrowers to see how equity could change over time. NRMLA also recommended showing cumulative amounts received, interest and fees added to the loan, and the projected outstanding balance at selected points in time.

The association said TALC percentages could remain as a secondary comparison tool while dollar amounts serve as the primary way of illustrating a reverse mortgage’s potential financial consequences.

One combined disclosure

NRMLA also recommended consolidating the Truth in Lending Act (TILA) reverse mortgage disclosure and Home Equity Conversion Mortgage (HECM) program disclosure into a single document written in simpler language.

The association said the combined form should eliminate generic forward mortgage materials that do not apply to reverse mortgages and replace the existing “Considering a Reverse Mortgage” booklet with a single, tailored disclosure.

The proposed document would explain key terms and roles, loan costs and obligations, interest rate concepts, counseling requirements, and safeguards such as the nonrecourse feature and protections for eligible nonborrowing spouses.

It also would explain available disbursement options, including fixed-rate draws, tenures and term payments, lines of credit and combinations of these options, as well as applicable limits on initial disbursements.

NRMLA said the disclosure should clearly explain circumstances that can cause a loan to become due and payable, including failure to maintain the property as a principal residence, failure to pay required property charges, transferring the property or failing to maintain its condition.

The association also cautioned against creating an overly rigid standardized form. With continued innovation in proprietary reverse mortgages, NRMLA said a framework should establish standardized core information while allowing lenders to supplement disclosures to accurately reflect individual product features and protections.

The group said it expects to provide additional comments if the CFPB proposes specific changes to reverse mortgage disclosure requirements, and it urged the agency to provide industry participants with sufficient time to implement any final rules.

This article was written by Sarah Wolak and generated with the assistance of HousingWire Automation, then reviewed by a HousingWire editor before publication.