Last week, the CFPB announced its findings from a focus group study it conducted regarding reverse mortgage advertising. Although the reverse mortgage market is about 1 percent of the size of the traditional mortgage market, with 628,000 outstanding loans, reverse mortgage lenders can expect increased scrutiny because the CFPB expects the number of reverse mortgage originations to rise now that “baby boomers” are retiring with little other than the equity in their homes to fund their retirements.
The Bureau enlisted 59 seniors by telephone for its study, 48 of whom participated in focus groups and another 11 who gave one-on-one interviews. From this population, the study concluded that reverse mortgage advertising has the potential to confuse seniors in the following manner:
Ambiguity whether reverse mortgages are loans: Some consumers found it difficult to understand that reverse mortgages are loans because most ads either did not include interest rates or only included interest rates in fine print.
False impressions about government affiliation: Some seniors were left with the impression that reverse mortgages are a risk-free government benefit, and not a loan.
Difficult-to-read fine print: The study found that some consumers did not pick up on key aspects of the loan because information such as interest rates, repayment terms, and other requirements were often buried in “the fine print.”
Celebrity endorsements that imply reliability and trust: Many ads featured celebrity spokespeople, such as former Senator Fred Thompson, discussing the benefits of reverse mortgages, allegedly without mentioning the risks.
False impressions about financial security and staying in the home for the rest of the consumer’s life: The study found that many ads implied financial security for the rest of a consumer’s life. But seniors cannot necessarily rely on the proceeds of a reverse mortgage loan to fund their retirement years, especially if the consumer taps into their home equity too early and runs out of funds to draw on. In addition, borrowers with a reverse mortgage are still responsible for paying property taxes, homeowner’s insurance, and property maintenance. Failing to meet these requirements can trigger a loan default that results in foreclosure.
The CFPB warned seniors to remember that a reverse mortgage is a home loan, not a government benefit; that reverse mortgage ads to do not disclose all of the specific requirements of reverse mortgage loans; and that older borrowers may outlive the proceeds of their reverse mortgage loans.
Although the CFPB stated that it is not taking action against any specific reverse mortgage lender at this time, it noted that it did take action against a reverse mortgage advertiser earlier this year. Nonetheless, reverse mortgage lenders should review their advertising to ensure that they address the concerns noted by the CFPB.