misleading reverse mortgage advertising

Beware of misleading reverse mortgage advertising

Reverse mortgages are widely marketed to senior homeowners by well-known lenders, smaller brokerages and individual financial planners using most advertising channels, including TV, radio, print, Internet and social media. Many commercials have used well-known celebrities such as Fred Thompson, Henry Winkler, and more recently Tom Selleck to pitch the benefits of reverse mortgages.

According to the Consumer Financial Protection Bureau (CFPB), many of these advertisements and sales pitches contain “confusing, incomplete and inaccurate statements regarding borrowing requirements, governments insurance, and borrower risks.” The bureau has also conducted focus groups with seniors and discovered that many would-be reverse mortgage borrowers “had misconceptions about important features and terms of reverse mortgage loans.”

The CFPB and other consumer advocates caution senior citizens to be wary of false advertising on reverse mortgages and to seek reputable counsel if considering such a loan. Below are some of the common ways that homeowners can be misled into committing to a reverse mortgage that is not right for their situation.

Many unscrupulous firms push reverse mortgages as a panacea for the income problems seniors may be having without disclosing any of the risks or costs involved in these types of loans. Examples of advertising language or omissions that intentionally are designed to mislead senior homeowners include:

Claiming reverse mortgages are government giveaways. Many sales tactics try to lead individuals to believe that reverse mortgage are government programs that dole out free money to seniors with enough equity in their homes. Certain reverse mortgages, known as Home Equity Conversion Mortgages (HECMs), are insured and regulated by the federal government, but they are not a federal program. They are private loans provided by for-profit businesses that must eventually be repaid. And the federal insurance applied to HECMs is mostly designed to protect the lender, and the premium for which is an added cost passed on to the bank.

Omitting that there are upfront fees and closing costs. This is a tactic typically designed to make the potential buyer believe a reverse mortgage is anything but a loan. Typical reverse mortgage fees include an origination fee, settlement costs, and mortgage insurance premiums. Also, interest will accrue for as long as the loan remains active, and reverse mortgage interest rates tend to be higher than conventional mortgages.

Misrepresenting risks. Many reverse mortgage sales pitches attempt to lead consumers into believing there is no risk of losing one’s home. This is false. Although there are no monthly payments to make with a reverse mortgage, there are several scenarios in which a homeowner can default on a reverse mortgage, such as failing to pay property taxes or insurance, or failing to maintain the property. This will lead to the loan being called and the lender demanding immediate repayment. Repayment is usually made by selling the home and using the proceeds from the sale. The lender can also foreclose on the home.

High-pressure sales tactics. In many cases, a salesperson will push potential borrowers into a reverse mortgage they don’t really need. They may advertise “special rates” that are supposedly set to expire, or they may use scare tactics such as making up claims about an impending drop in Social Security benefits. These tactics are usually very aggressive, and there is usually a demand to act immediately before it’s too late. There is never a reason to rush into a reverse mortgage. If you are considering one, you are advised to take as much time as necessary to weigh the pros and cons, conduct research, and look for alternatives.