CFPB warns consumers of pitfalls of reverse mortgages
WASHINGTON (6/5/15)--Consumers should be wary of enticing advertisements for reverse mortgages, the Consumer Financial Protection Bureau (CFPB) warned in a Consumer Advisory issued Thursday.
The bureau also released a study on such advertisements, which found that a number of ads can misrepresent reverse mortgages to consumers.
A reverse mortgage is a 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 die, sell or move out. According to the CFPB, the reverse mortgage market is roughly 1% of the traditional mortgage market, with roughly 628,000 loans outstanding.
The Consumer Advisory highlights facts consumers should keep in mind when seeing reverse mortgage ads, including:
A reverse mortgage is a home loan with fees and compounding interest that must be repaid, just like other home loans. It is not a government benefit, which can be implied;
Ads don’t always tell the whole story, such as a consumer can lose ownership of their home; and
- Consumers should have a financial plan in place that accounts for outliving the loan to prevent the risk of running out of retirement resources later in life.
The CFPB study examined 97 unique ads used on radio, TV, print and online, and interviewed roughly 60 homeowners age 62 and older in focus groups and one-on-one interviews. The study found that reverse mortgages ads are often characterized by: ambiguity that reverse mortgages are loans; false impressions about government affiliation; hard-to-read fine print; and false impressions about financial security and the ability to stay in the home for life.