CFPB Warns Reverse Mortgage Advertising is Misleading

A new study from the Consumer Financial Protection Bureau (CFPB) found that reverse mortgage advertising can be confusing and misleading, and issued a warning to older Americans to be on the lookout for potentially deceptive reverse mortgage advertisements.  CFPB reports that borrowers have “false impressions’ that reverse mortgages are a government benefit or that getting a reverse mortgage would ensure consumers could stay in their homes for the rest of their lives.
“According to the CFPB, the number of reverse mortgage originations is likely to increase in the coming years with the retirement of the “baby boom”generation. The CFPB says that members of this group have more home equity than retirement savings. Studies have estimated that among Americans nearing retirement, 41 percent have no retirement savings account. But a majority of them, about 74 percent, own their homes and have built up good equity, the CFPB said.”
Reverse mortgage ads don’t always tell the whole story, so consider these facts when you see advertisements:
1. A reverse mortgage is a home loan, not a government benefit
Reverse mortgages have fees and compounding interest that must be repaid, just like other home loans. With most reverse mortgages, federal insurance guarantees that borrowers will receive their loan funds if their lender has financial difficulty or if their loan balance exceeds the value of their home. However, borrowers pay for this insurance and it’s not a government benefit.
2. You can lose your home with a reverse mortgage
When a reverse mortgage ad says you’ll retain ownership of your home, or that you can live there as long as you want to, don’t take these messages at face value. These statements are true only if you continue to meet all requirements of the reverse mortgage. If you fall behind on your property taxes or homeowners insurance, are absent from your home for longer than six months, or fail to satisfy other requirements, you can trigger a loan default. If you don’t take care of the default in time, the lender can foreclose on your home. Sometimes these requirements are listed in fine print, but not always. If you have a question about reverse mortgage requirements, contact a HUD-approved housing counselor near you.
3. Without a good plan, you could outlive your loan money
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