June 16, 2015 1:45 am
“As older consumers consider reverse mortgage loans to tap into their home equity, they need to be careful of those late night TV ads that seem too good to be true,” says CFPB Director Richard Cordray. “It is important that advertisements do not downplay the terms and risks of reverse mortgages or confuse prospective borrowers.”
A reverse mortgage is a special type of home loan that allows older homeowners to access the equity they have built up in their homes and defer payment of the loan until they pass away, sell, or move out. The loan proceeds are generally provided to the borrowers as lump-sum payments, monthly payments, or as lines of credit. Most reverse mortgages today are federally insured through the Federal Housing Authority’s Home Equity Conversion Mortgage program, which carry some regulatory requirements.
While advertisements frequently do not describe all the details of the particular product or service being sold, the incompleteness of reverse mortgage ads raises heightened concerns because reverse mortgages are complicated and often expensive loans intended for older, and frequently vulnerable, homeowners. According to the CFPB, the ads are characterized by:
Ambiguity that reverse mortgages are loans: Some consumers find it difficult to understand from the ads that reverse mortgages are loans with fees and compounding interest, and that the loans need to be repaid. Most ads either do not include interest rates or included interest rates in fine print. Other consumers thought that because the money they received through a reverse mortgage represented home equity they had accrued over time, there was no reason they would have to pay it back.
False impressions about government affiliation: The advertisements leave some older homeowners with the false impression that reverse mortgages are a risk-free government benefit, and not a loan. Consumers often misinterpret the role of the federal government in the reverse mortgage market as providing consumer protections that are not actually offered.
Celebrity endorsements that imply reliability and trust: Many ads feature celebrity spokespeople discussing the benefits of reverse mortgages without mentioning the risks. Most consumers believe TV ads that feature spokespeople are portrayed as reliable and trustworthy.
False impressions about financial security and staying in the home for the rest of the consumer’s life: Many ads imply financial security for the rest of a consumer’s life. A reverse mortgage does not guarantee financial security no matter how long a consumer lives. A consumer can tap into their equity too early and run out of funds to draw on. In addition, borrowers with a reverse mortgage are still responsible for paying property taxes, homeowner’s insurance, and property maintenance. Failing to meet these requirements can trigger a loan default that results in foreclosure. Most advertisements fail to mention such requirements.
Incomplete or inaccurate statements made in advertisements about reverse mortgages can pose serious risks to older Americans. Without more balanced information, consumers may not make the right financial choice and jeopardize their retirement security. This means they could run out of money for their day-to-day expenses or even lose their homes.
When viewing these ads, the CFPB says to keep in mind a reverse mortgage is a home loan, not a government benefit, reverse mortgage ads don’t always tell the whole story, and without a good plan, a consumer could outlive the loan money.
Published with permission from RISMedia.