U.S. consumer watchdog agencies are warning homeowners age 62 or older that reverse mortgages are not as attractive as they are often advertised on television and the Internet. Often, the promoters use established, older celebrities to make these pitches.
Yes, you can lose your home, despite these ads saying otherwise. And your monthly payments may not go down necessarily, because you’re still responsible for property taxes, property insurance, utilities and general upkeep of your properties.
The Consumer Financial Protection Bureau (CFPB) this week ordered three reverse-mortgage companies to stop running deceptive ads. The CFPB also fined the three companies almost $800,000 in total in fines for making false promises to potential borrowers, which included claims that they could never lose their homes.
Under a reverse mortgage, homeowners who are 62 or older to able to access the equity they have built up in their homes and defer payment of the loan until they die, sell, or move out. The loan proceeds are generally taken as a lump sum, as monthly payments, or as lines of credit.
However, these older Americans, many of them on fixed retirement incomes, risk defaulting on the loans and being forced to move out under similar foreclosure circumstances faced by struggling homeowners with standard mortgages.
The three companies fined by the CFPB are: American Advisors Group, the largest reverse mortgage lender in the U.S.; Reverse Mortgage Solutions, which operates in 48 states; and Aegean Financial, which also advertises reverse mortgages to Spanish-speaking consumers in California under the name Jubilados Financial.
“These companies tricked consumers into believing they could not lose their homes with a reverse mortgage,” said CFPB Director Richard Cordray. “All mortgage brokers and lenders need to abide by federal advertising disclosure requirements in promoting their products.”
For example, the CFPB points out: American Advisors Group falsely told potential customers that they would have no monthly payments and that with a reverse mortgage they would be able to pay off all debts.
“In fact, consumers with a reverse mortgage still have payments and can default and lose their home if they fail to comply with the loan terms,” the CFPB stated.
In a June 2012 report to Congress on reverse mortgages, the CFPB stated that “false and misleading advertising poses a serious risk to consumers.” The CFPB also published a June 2015 study, and accompanying advisory warning, reaffirming the risk to consumers as a result of deceptive and misleading reverse mortgage advertising.