CFPB Warns that Reverse Mortgage Advertisements Can be Deceiving

The Consumer Financial Protection Bureau (CFPB) issued a warning to consumers today about the misleading effects of reverse mortgage advertisements. The Bureau released results of a focus group study on reverse mortgage advertisements and found that many participants were left confused about the product.

“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,” said Richard Cordray, CFPB director. “It is important that advertisements do not downplay the terms and risks of reverse mortgages or confuse prospective borrowers.”

The study found that after viewing the ads, consumers did not understand that reverse mortgages were actual loans. Instead, they were left under the false impression that reverse mortgages are a government-issued program that helps consumers stay in their home for the rest of their lives.

In actuality, the CFPB reported that a reverse mortgage is a 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 payments are normally given to these borrowers as lump-sum payments, monthly payments, or as lines of credit.

The CFPB’s reverse mortgage study interviewed about 60 homeowners age 62 and older in focus groups and in one-on-one interviews using 97 unique ads found on TV, radio, in print, and on the Internet. The study also found that many of the ads were incomplete and/or contained inaccurate information, raising concerns because reverse mortgages are complicated and expensive loans for older, more susceptible homeowners.

The study found that the ads were characterized by:

• Ambiguity that reverse mortgages are loans: Some consumers found it difficult to understand from the ads that reverse mortgages are loans with fees and compounding interest; that the loans need to be repaid.
• False impressions about government affiliation: The advertisements left some older homeowners with the false impression that reverse mortgages are a risk-free government benefit, and not a loan.
• Difficult-to-read fine print: The study found that some consumers did not pick up on key aspects of the loan because the loan requirements were often buried in the fine print if they were even mentioned at all.
• Celebrity endorsements that imply reliability and trust: Many ads featured celebrity spokespeople discussing the benefits of reverse mortgages without mentioning the risks.
• False impressions about financial security and staying in the home for the rest of the consumer’s life: The study found that many ads implied financial security for the rest of a consumer’s life. But a reverse mortgage does not guarantee financial security no matter how long a consumer lives.

The CFPB’s Consumer Advisory Warning:

• A reverse mortgage is a home loan, not a government benefit: Consumers need to know that reverse mortgages have fees and compounding interest that must be repaid, just like other home loans.
• Reverse mortgage ads do not always tell the whole story: Reverse mortgage ads do not always tell the whole story, such as that a consumer can lose ownership of their home.
• Without a good plan, a consumer could outlive the loan money: Consumers should have a financial plan in place that accounts for a long life.

Click here to view the full CFPB Reverse Mortgage Study.

Click here to view the full CFPB Consumer Advisory Warning.