WASHINGTON—The CFPB is concerned that older Americans are being misled, or are confused by reverse mortgage advertisements.
Thursday, at the same time it released the results of a focus group study on reverse mortgage ads, the agency issued an advisory warning older Americans to watch out for misleading or confusing reverse mortgage advertisements.
The study, the CFPB stated, found many participants were left with misimpressions about the product.
“After viewing the ads, consumers were confused about reverse mortgages being loans, and they were left with false impressions that they are a government benefit or that they would ensure consumers could stay in their homes for the rest of their lives,” the Bureau stated in a release.
“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,” said CFPB Director Richard Cordray. “It is important that advertisements do not downplay the terms and risks of reverse mortgages or confuse prospective borrowers.”
The CFPB explained that the number of reverse mortgage originations is likely to increase in upcoming years with the retirement of the Baby Boomer generation, which has more home equity than retirement savings.
“Studies have estimated that among Americans nearing retirement, 41% have no retirement savings account. But a majority of them, about 74%, own their homes and have built up good equity,” the CFPB said.
The focus group study is based on 97 unique ads found on TV, radio, in print, and on the Internet. The CFPB interviewed about 60 homeowners age 62 and older in focus groups and in one-on-one interviews in Chicago, Los Angeles, and Washington.
“The study found that many of the ads were incomplete and/or contained inaccurate information,” the Bureau said. “While advertisements frequently do not describe all the details of the particular product or service being sold, the incompleteness of reverse mortgage ads raises heightened concerns because reverse mortgages are complicated and often expensive loans intended for older, and frequently vulnerable, homeowners.”
The study found that the ads were characterized by:
Ambiguity that reverse mortgages are loans: Some consumers found it difficult to understand from the ads that reverse mortgages are loans with fees and compounding interest; that the loans need to be repaid, the CFPB said. “Most ads either did not include interest rates or included interest rates in fine print. Other consumers 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.”
False impressions about government affiliation: The advertisements left some older homeowners with the false impression that reverse mortgages are a risk-free government benefit, and not a loan, the agency said. “The study found that consumers often misinterpret the role of the federal government in the reverse mortgage market as providing consumer protections that are not actually offered.”
Difficult-to-read fine print: The study found that some consumers did not pick up on key aspects of the loan because the loan requirements were often buried in the fine print if they were even mentioned at all, the agency said. “Many reverse mortgage ads reviewed did not, for example, mention helpful information like interest rates, repayment terms, and other requirements.”
Celebrity endorsements that imply reliability and trust: Many ads featured celebrity spokespeople discussing the benefits of reverse mortgages without mentioning the risks, the Bureau said. “Most consumers recalled TV ads that featured spokespeople portrayed as reliable and trustworthy.”
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, the CFPB said. “But a reverse mortgage does not guarantee financial security no matter how long a consumer lives. A consumer can tap into their equity too early and run 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. Most of the advertisements reviewed failed to mention such requirements,” the CFPB concluded.