[Updated] CFPB Study: Reverse Mortgage Ads Give False Impressions

The way reverse mortgage lenders advertise their products, whether it’s on TV, in print or on the Internet, is misleading prospective borrowers, contends the Consumer Financial Protection Bureau (CFPB) based on the results of a study conducted by the government agency.

Today, the CFPB released results of a focus group study on reverse mortgage ads, in which the agency gauged impressions and feedback from participants, who were all of the eligible age to get a reverse mortgage.

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, D.C., and the study was based on 97 unique ads found on TV, radio, in print and on the Internet.

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Based on participants’ responses, the CFPB inferred that many of the reverse mortgage ads today are either incomplete in their messaging or contained inaccurate information.

“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 in a written statement. “It is important that advertisements do not downplay the terms and risks of reverse mortgages or confuse prospective borrowers.”

Specifically, the Bureau cited that after viewing the ads, consumers were confused about reverse mortgages being loans. They also said they were left with false impressions that reverse mortgages are a government benefit, and that they loans would ensure consumers could stay in their homes for the rest of their lives.

“While the 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 CFPB stated in a release.

After viewing ads, some consumers found it difficult to understand that reverse mortgages are loans with fees and compounding interest, and that the loans ultimately need to be repaid. The CFPB cited that most ads either did not include interest rates or included interest rates in fine print.

Other consumers, however, thought that because the money received through a reverse mortgage represented home equity they had accrued over time, there was no reason they would have to pay it back.

The study also found that some consumers did not pick up on key aspects of the reverse mortgage because the loan requirements and specifics, such as interest rates and repayment terms, were often “buried in the fine print if they were even mentioned at all.”

Consumers even had qualms about celebrity endorsements in the ads, citing that many ads featuring these spokespeople discuss the benefits without mentioning the risks.

“When it’s a former Congressman endorsing it, it makes it sound like a good idea,” the CFPB quoted one consumer having said in one of the focus groups.

Thursday’s report is the most recent endeavor the CFPB has undertaken regarding consumer complaints against reverse mortgage industry, and not the first time the federal agency has targeted misleading advertising, either.

In February the CFPB sued Maryland-based reverse mortgage lender All Financial Services, alleging that the company deceptively marketed its reverse mortgage products by claiming it was affiliated with the U.S. government in a mailer sent out to nearly 200,000 consumers, which contained an eagle resembling the Great Seal of the United States, along with language that said “Government Lending Division.”

“This gave the impression that the [reverse mortgage] loan originated from the U.S. government, or any entity affiliated with the government, when clearly it did not,” Cordray said during a press call Thursday.

During a Q&A portion of Thursday’s press call, RMD asked whether the CFPB plans to take what it learned from the advertisement study, and based on those findings, develop or produce any guidance for reverse mortgage lenders to help them improve their messaging.

“I don’t have that information at this moment,” said Stacy Canan, deputy assistant director for the CFPB Office for Older Americans. “It’s certainly something we could consider. Other than that, we don’t have plans at this moment.”

In terms of the CFPB’s findings as they relate to the recent program changes from the Department of Housing and Urban Development (HUD), namely the Financial Assessment (FA), the CFPB told RMD that it is optimistic the new rules will make loans safer for borrowers, but the agency did express some additional concerns.

“[W]e remain concerned that consumers who take a reverse mortgage in their early eligibility years (62 or thereabouts) have an increased likelihood of depleting their loan funds in their later years, and therefore may be financially unable to handle unexpected expenses that may arise (typically related to health and long term care needs),” said Canan in an emailed statement to RMD.

Written by Jason Oliva

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    • wealthone,

      If you think that you can better explain TALC, you should forward that disclosure to HUD so that they can advise as to its use.

      • I try as best I can to just regurgitate what the HUD definition is, otherwise that’s all I got. What an awful thing to push on our prospective clients and THEN accuse us of questionable advertising. (was my point)

  • Truth be told I don’t completely buy it. Certainly some ads are confusing but Americans are notorious for hearing what they want to. Seriously?!

    The term mortgage is misunderstood that it is not in fact a loan?! The financial literacy of most in the U.S. is appalling and this study should take that into consideration.

  • Glad to see that RMD is looking into matters like this.

    I wish that the items listed were the only things wrong with our ads. For example, when originators/advertisers constantly refer to reverse mortgage proceeds as income, is that not false advertising? No one in their right mind expects that as a borrower they will receive income on a mortgage. Yet when we call it income, the advertisers make it seem like a HECM is not a debt that has to be repaid since all it payout to its borrowers is income.

    It is surprising that some borrowers have not accused our industry of bait and switch. We offer mortgages with income to the borrowers but it ends up being a mortgage where the cash inflow to the borrower must be repaid. So where is the income?

    We need rules which will be strictly enforced. Allowing some to get away with misleading ads causes many others to utilize misleading advertising techniques when they increase origination production.

  • It’s typical for CFPB to avoid details, like exactly how many people out of 60 (a very small sample) didn’t get all the details, only “some”. If you show 60 people a Walmart ad “some” of them won’t get it. What about that Lincoln ad with Matthew McConaughey? I don’t get it. And yes, if you show 60 people an ad for a government insured FHA mortgage, reverse OR regular, “some” will think it is offered by the U.S government

  • This guy…is under qualified to do anything other than offer up a memorized answer on “Jeopardy”. This is a non elected governing body that like Chairman Dodd and Barney Frank have “Never worked at a lender”. Would any soon to be bride invest in the biggest day of their life by hiring someone that has never worked as a stylist, a tailor, a hairdresser or a beautician? This is insane rhetoric from an unqualified guy.

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