Search

Beware those Celebrity Studded Reverse Mortgage Ads – CFPB

by devteam June 5th, 2015 | Share

Older Americans are being warned that adsrntouting reverse mortgages “that seem too good to be true” might be just that.  Rather slyly using a tag line from onernpopular reverse mortgage advertisement, the Consumer Financial Protection Bureaurn(CFPB) has released results of a focus group study that found many participantsrnwere left with misimpressions about the product after viewing ads; perhaps thatrnthey are not a loan, are a government benefit, or would ensure they could stayrnin their homes the rest of their lives.</p

CFPB Director Richard Cordray, in a conferencerncall with reporters regarding the study said, “As older consumers considerrnreverse mortgage loans to tap into their home equity, they need to be carefulrnof those late night TV ads that seem too good to be true.  It is important that advertisements do notrndownplay the terms and risks of reverse mortgages or confuse prospectivernborrowers.” </p

The Director talked about the aging populationrnwith more than 10 thousand Americans joining the 45 million who are already overrnage 65 every day.  The average Americanrnis now spending about 20 years in retirement and for many much of their netrnworth is tied up in their homes.  It is difficultrnfor them to access that wealth without selling a home they may wish to remainrnin.  While some turn to a home-equityrnloan, “for others, an option that can seem enticing is a reverse mortgage.”</p

These loans allow seniors to borrow against thernequity in their homes, but without making the monthly payments required for arnhome equity loan.  Instead of paying down the loan, over time the loanrnbalance grows as repayment is deferred until the borrower dies, sells, movesrnout of the house, or defaults on other obligations such as insurance orrntaxes.  Cordray said that the reverse mortgage market today is about 1rnpercent of the size of the traditional mortgage market.  There are about 628,000 outstandingrnloans. </p

Cordray said that the Bureau had done a lot ofrnwork on reverse mortgages including publishing a comprehensive report on thernindustry three years ago.  This new report is about the TV, print, radio,rnonline, and mailing advertisements that are selling this product and thernmisimpressions they create about how a reverse mortgage loan works. </p

CFPB looked at 97 different advertisements andrnthen asked dozens of older homeowners in three different cities what theyrnthought when they saw some of them. They found they left consumers generallyrnconfused. </p

First, consumers found it difficult tornunderstand that reverse mortgages are loans with fees and compoundingrninterest.  Most ads either omitted mention of interest-rate information orrnincluded it in the fine print.  Other consumers assumed that the moneyrnthey received through the mortgages was their equity accrued over time and theyrndid not have to pay it back. </p

They were also left with the false impression</bthat this was a risk-free government benefit, not a loan and that the federalrngovernment was providing consumer protections it does not. "Indeed, even beforernwe conducted our focus group study, we had heard stories about consumers beingrndeceived and misled in this regard,"  Cordrayrnsaid and described a CFPB's enforcement action a few months ago against a lenderrnwhich had created advertisements, complete with an eagle and a header reading "GovernmentrnLending Division" to promote its product.</p

One focus group was shown the many reversernmortgage ads featuring celebrity spokespeople; well-known actors, even a formerrnsenator, who add a false air of credibility to the products.  One focusrngroup participant said, “When it’s a former Congressman endorsing it, it makesrnit sound like a good idea.” </p

Cordray said what was most concerning was adsrnthat left the consumers believing they could “rest assured that they can livernin their homes and enjoy financial security for the rest of their lives” byrntaking the loans while there really are no such guarantees.  The amount ofrnequity may not last and consumers must still pay property taxes, insurance, andrnmaintenance fees, costs which can be significant and if not paid can result inrna foreclosure.</p

Advertisements again either failed to mentionrnthese risks or buried them in the fine print. Indeed, many reverse mortgage adsrndid not even mention interest rates, repayment terms, or other crucialrnrequirements of the loan.  Cordray said that advertisements for manyrndifferent kinds of products often omit the fine details but such incompletenessrncould lead to a determination of being unfair or deceptive when coupled withrnclaims of guarantees or strong statements about the absence of risk. </p

Incomplete information on key points ofrnreverse mortgages raises additional concerns because they are complicatedrnproducts and are being marketed to a population, older homeowners, known to bernvulnerable in some instances and in a position where making a wrong choicernbased on incomplete or inaccurate information could jeopardize their financialrnsecurity. </p

CFPB has previously produced a guide to assistrnconsumers with the pros and cons of reverse mortgages and has offered tips tornthose who already have them on how to plan ahead for potential financialrnhardships. It will also continue to exercise oversight of the program andrnpursue enforcement actions where justified. rn</p

In response to the new study’s findingsrnCordray said the Bureau is issuing a consumer advisory specific to making olderrnAmericans more aware when they view the ads. rn”First, they need to know that a reverse mortgage is a home loan, not arngovernment benefit.  Second, they need to know that these ads may fail torntell the whole story.  Third, they need to have a good plan in place in casernthey outlive the loan money.”

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.

About the Author

devteam

Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

See all blogs
Share

Comments

Leave a Comment

Leave a Reply

Latest Articles

Real Estate Investors Skip Paying Loans While Raising Billions

By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...

Late-Stage Delinquencies are Surging

Aug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...

Published by the Federal Reserve Bank of San Francisco

It was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...