How to help: Northern California wildfire relief

Elderly could lose homes due to reverse mortgages

This is an archived article and the information in the article may be outdated. Please look at the time stamp on the story to see when it was last updated.

(FILE) A for sale sign sits on the front lawn of a home in the Washington, D.C. area.

NEW YORK — Tell grandma not to believe those ads about reverse mortgages that promise free money.

Rather than a tax-free ticket to financial freedom, she could end up losing losing her home.

That’s the message from the Consumer Financial Protection Bureau. The government agency unveiled a study that shows elderly homeowners are being fed misleading advertising about reverse mortgages that could lead to big financial problems.

The study says that many homeowners do not realize that reverse mortgages are loans they eventually have to be paid back. They’re confused by “incomplete and inaccurate” information from lenders, partly because they cannot or did not read the fine print on the ads shown on TV and the Internet.

Reverse mortgages are loans that allow homeowners aged 62 or older to borrow against the equity in their homes and defer payment and interest until they move from the home, sell it, or die.

The study focused on 97 ads from a variety of lenders that appeared in five large urban markets between March 2013 and March 2014. The study is also based on interviews with 59 homeowners aged 62 and older to get their impressions of the ads.

The study said some homeowners “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.”

Some homeowners even thought that “having a reverse mortgage meant they could never lose their home.”

Both those ideas are misleading. The study points out that homeowners still have to pay property taxes, homeowner’s insurance and maintenance, and failure to do so can lead to foreclosure. This is the type of information that appears in the fine print.

But the homeowners are lured by images of elderly people enjoying a leisurely lifestyle on the golf course and the promises of tax free money.

Also, the ads, replete with images of eagles and federal-looking seals, mislead the consumer by conveying, falsely, that the mortgages are backed by the government. But they aren’t.

The ads sometimes use respected individuals to get their point across. One of the homeowners told the interviewers, “When it’s a former Congressman endorsing it, it makes it sound like a good idea.”

The study suggested that the problem could get worse going forward, “with 20% of the U.S. population reaching age 65 and older by 2030.”

The study said that many of the elderly are increasingly likely to consider tapping their home equity to supplement their retirement income, which is why it’s important that advertisements do not confuse or mislead prospective reverse mortgage borrowers about the terms and potential risks of the loans.

3 comments

  • David Whittington

    Reverse home mortgages are as predatory as car title loans – in both cases the borrower winds up with no car and no home. Reverse home mortgages are particularly egregious because ‘The Fonze’ from Happy Days and Senator Fred Thompson (former presidential candidate and TV Law and Order star) are constantly seen peddling these reverse mortgages – seemly adding some credibilty to the whole process. Car title loans and reverse mortgages are simply NOT good solutions to financial problems – especially for elderly people.

  • Brian Watson

    This article is a complete joke. Do your homework and you’ll see these are great loans for some. Of course you’re going to lose your home if you DON’T pay your taxes and insurance. The loan isn’t due until BOTH borrowers have died. This loan is only bad for the greedy kids that THINK they’re losing their inheritance.

Comments are closed.