Reverse Mortgages: An Understanding of the Risks

This month, the Consumer Financial Protection Bureau (CFPB) published the article A closer look at reverse mortgage advertisements and consumer risks, which examines its study of advertisements for this product to older homeowners.

This month, the Consumer Financial Protection Bureau (CFPB) published the articleA closer look at reverse mortgage advertisements and consumer risks, which examines its study of advertisements for this product to older homeowners.

The CFPB found "many contained confusing, incomplete, and inaccurate statements regarding borrower requirements, government insurance, and borrower risks".

Nonetheless, CFPB does acknowledge that "reverse mortgages can help some older homeowners meet financial needs", which makes them an important product to understand.

Unfortunately, the article finds that Consumers described 'lifestyle enhancement' as the primary use for reverse mortgage proceeds", but a reverse mortgage should only be used as a last resort because "homeowners can lose their home if they fail to meet the loan terms".

Read this article and decide for yourself if a reverse mortgage is a good product for you.

Reverse mortgage advertisements, which are marketed to older homeowners, are found across many of the major media channels in the United States, including television, radio, print, and internet. These advertisements frequently feature celebrity spokespeople. The Consumer Financial Protection Bureau (CFPB) reviewed advertisements from a variety of lenders that appeared in five large urban U.S. markets between March 2013 and March 2014. We also convened focus groups and conducted one-on-one interviews with homeowners, age 62 and older, in three cities to explore their impressions of the advertisements.1

Among the advertisements we collected, on their face, many contained confusing, incomplete, and inaccurate statements regarding borrower requirements, government insurance, and borrower risks. Furthermore, after viewing ads in our focus groups, many consumers were confused or had misconceptions about important features and terms of reverse mortgage loans. For example, some consumers struggled to understand that reverse mortgages are loans that must be repaid with interest. Consumers also often misinterpreted the role of the federal government in the reverse mortgage market as providing consumer protections that are not actually offered.