CFPB warns about reverse mortgage ads
It's hard to avoid those ads depicting senior citizens taking reverse mortgages as a way to guarantee that they'll stay in their homes for the rest of their lives. However, they mislead consumers and falsely convey the loans are a government benefit, the Consumer Financial Protection Bureau said on Thursday.
The agency issued an advisory warning that the extensive advertising for reverse mortgages, often featuring celebrity endorsements (including former U.S. Senator Fred Thompson), ignores the risks of that form of lending.
"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," CFPB Director Richard Cordray said in a statement. "It is important that advertisements do not downplay the terms and risks of reverse mortgages or confuse prospective borrowers."
The CFPB conducted a study involving focus groups and found that the ads left inaccurate impressions on consumers.
Reverse mortgages let homeowners borrow against the equity in their homes they accumulated over the years while deferring payment until their home is sold or they die. A reverse mortgage can result in a lump sum payout, monthly payment or a line of credit.
The CFPB study found that many of those who reviewed the ads didn't understand that reverse mortgages were loans, carried fees and had compounding interest. That misimpression, the agency said, in part stemmed from the ads not showing or referencing interest rates.
In addition, those interviewed about reverse mortgages said they were left believing that the loans are a government benefit afforded to seniors who built up equity in their homes and carried no risk. In fact, the CFPB said, homeowners are still responsible for paying their property taxes, keeping insurance up to date and maintaining their homes. They could also draw on their equity too soon and exhaust it.
