Authored by D. Kyle Deak

Today the Consumer Financial Protection Bureau released the results of a study on reverse mortgage advertisements.  The study was based upon personal interviews conducted in November and December 2014 with 59 homeowners aged 62 or older in Chicago, Los Angeles, and Washington, D.C. concerning 97 print, radio, online, and television ads collected and analyzed by the CFPB.

The study found that after viewing the ads, consumers were generally confused about reverse mortgage products, and were left with false impressions concerning the products.  The study noted the following issues:

  • Consumers did not understand that reverse mortgages are loans: Some of those interviewed found it difficult to understand from the ads that reverse mortgages are loans that need to be repaid.  Most ads do not discuss repayment terms or clearly identify interest rates.  Others thought that because the money they received through a reverse mortgage represented home equity they had accrued over time, there was no reason they would have to pay it back. 
  • Incomplete and inaccurate information: Some ads used language that implied that consumers could not lose their homes, that there were no monthly payments, or that the loans were “tax free,” implying that consumers would not have to pay property taxes.
  • Difficult-to-read fine print: The study found that none of those interviewed could read the fine print loan requirements in television ads, and most could not do so with printed ads.   
  • Consumers misunderstood the role of government: The advertisements left some with the false impression that reverse mortgages are a government program, and that as such the government insured their protection against losing their home.  The study further found that consumers often misinterpret the role of government as providing protections that are not actually offered.
  • False impressions about “lifestyle enhancement” and staying in the home for the rest of the consumer’s life: The study found that many ads implied financial security, and suggested getting a reverse mortgage while younger so the consumer could enjoy the money while they were still young and healthy without noting that a consumer can tap into their equity too early and run out of funds to draw on, or that consumers with a reverse mortgage are still responsible for paying property taxes, homeowner’s insurance, and property maintenance.

Based upon the study, today the CFPB also issued an advisory warning older Americans to watch out for misleading or confusing reverse mortgage advertisements.  The advisory highlights the following for consumers:

  • A reverse mortgage is a home loan, not a government benefit.
  • You can lose your home with a reverse mortgage.

Without a good plan, a consumer could outlive their loan money.