Many advertisements for reverse mortgages contain incomplete or inaccurate information that can pose a serious risk to seniors who take out the loans, a recent study by the Consumer Financial Protection Bureau reports.
The bureau warns consumers to “watch out for misleading and confusing reverse mortgage advertisements.”
“We want older Americans to be aware of certain factors when they see these ads,” said Richard Cordray, director of the bureau.
America is “graying,” with 45 million people who are age 65 or older and 10,000 more who are turning 65 each day. Seniors are living longer, with the average American now spending about 20 years in retirement.
Reverse mortgages allow borrowers 62 or older to get income through cash payment or lines of credit by using the equity in their home.
The reverse mortgage loan becomes due when the borrower dies, leaves the home for 12 consecutive months or more, or fails to maintain the property or pay homeowners insurance or property taxes.
Borrowers must pay a loan origination fee, closing costs, and compounding interests on the loan principal, which can be significant.
The bureau reviewed nearly 100 reverse mortgage ads and conducted focus groups with seniors to determine their understanding of ad claims. It found that the ads may cause some seniors to underestimate the risks and take out a reverse mortgage that may not be right for them. As a result, they could end up running out of money or lose their homes due to the complicated loan terms.
Consumers Union and Californians for Nursing Home Reform want the bureau to require lenders to give borrowers a self-evaluation worksheet before the mandatory counseling session so they can look at key issues that will help them decide whether a reverse mortgage is right for them. California requires a worksheet. It allows consumers to think about what they’re about to do instead of skimming over a written disclosure.
They’re also calling on the bureau to take other additional steps to protect seniors including:
- Ensure loans are suitable for borrowers: Lenders and brokers should be required to consider whether the loans put borrowers at risk of losing their homes, if the borrower understands the complex nature of the contract, and if there are more viable alternatives available to the borrower.
- Establish a fiduciary responsibility for the loan: Lenders and brokers must be required to act in the best interests of the borrower and should be held liable for violating this fiduciary duty.
- Outlaw deceptive marketing: All reverse mortgages should be required to include information to help borrowers determine whether the loans are suitable for them.
- Strengthen the quality and content of counseling: HUD counselors should be required to hold an in-person session with prospective borrowers to determine whether a reverse mortgage is suitable for the borrower. The counselor should deny a counseling certificate to the borrower if the loan isn’t in the best interest of the senior.
- Protect non-borrowing spouses and tenants: Spouses and tenants whose names aren’t on the reverse mortgage loan should be notified about their limited rights to remain in the home after the borrower dies or permanently moves out of the home.