Reflections on CFPB’s “Report to Congress on Reverse Mortgages, June 2012”

In formal debate there is a fallacy called cum hoc ergo propter hoc. Roughly interpreted, this phrase describes the flawed assumption that because there is a correlation between two events, one event has caused the other.

An example of such a fallacy might be the following:

No one in Smithville shopped at Walmart in 2008. In 2009 Walmart opened in Smithville. Conclusion: the construction of a Walmart in Smithville is largely responsible for increasing the number of consumers wanting to shop at Walmart.

No one shopped at Walmart in 2008 because there was no Walmart to shop at; this is different from saying no one had wanted to shop there in 2008. Once the option was there, consumers availed themselves of that option. More than that cannot be concluded from the given information.

In its “Report to Congress on Reverse Mortgages, June 2012,” the Consumer Financial Protection Bureau authors make a number of cum hoc ergo propter hoc propositions, as in the following:

… [A]s shown in Figure 25, the market adoption of the fixed-rate, lump-sum product in early 2009 coincides with a 32 percentage point in the proportion of borrowers taking 90 percent of 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. (, page 61, viewed 7/8/12, emphasis added.)

Once the fixed-rate, lump-sum product became available, borrowers availed themselves of the option. From data currently available it cannot be concluded the product caused changes in borrower preferences. Though further analysis may show this to be the case, the assertion seems oddly biased given the paucity of targeted studies.

The CPPB report is a useful compendium of HECM data, and may prove a useful industry and consumer resource. It may also serve as a foundation of helpful and healthy debate. However, the report is also rife with faulty conclusions, relatively alarmist diction, and issues addressed imperfectly to the point of implying malfeasance, as in the following: 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. (page 105, emphasis added.)

No direct mention is made of the fact that typical inter- and intra-bank reverse mortgage referrals are so-called “forward” turn-downs. Instead, the report states, “[T]he 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” (page 127). Absent supporting datasets, this postulate motivation is inflammatory.

Altogether, the CFPB’s report is broad, largely accurate, and perhaps even guardedly supportive. However, extensive cautionary caveats and unsupported statements create an overall negative tone, and I suspect the report provides a treasure trove of ammunition for reverse mortgage adversaries.


Laurie MacNaughton [NMLS# 506562] · Reverse Mortgage Consultant · Middleburg Mortgage, a Division of Middleburg Bank · 20937 Ashburn Road, Suite 115 ·Ashburn, Virginia 20147 · 703-477-1183 Direct · ·

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