No Surprise Here: CFPB Finds Reverse Mortgage Ads Create False Impressions

thompsonLast year, Consumerist reported on why you shouldn’t run out to sign up for a reverse mortgage just because Fred Thompson or other paid spokespeople opine about the benefits in national advertising campaigns. Today, the Consumer Financial Protection Bureau echoed our fears that these ads can be misleading by releasing the results of a focus group and issuing an advisory warning consumers that promotions for the costly product often don’t tell the whole story.

The CFPB focus group on reverse mortgage advertisements found that more often than not many participants were left with misperceptions regarding the financial products.

The study [PDF] focused on 97 unique ads found on TV, radio, in print and on the Internet. In all, 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.

For the most part, consumers revealed they 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.

“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,” CFPB Director Richard Cordray said in a statement. “It is important that advertisements do not downplay the terms and risks of reverse mortgages or confuse prospective borrowers.”

Reverse mortgages allow a borrower, 62 years or older, to convert the equity on their home into either a lump sum or monthly payments. The funds are not required to be paid back until the borrower moves or dies.

According to the report, many of the ads were incomplete and/or contained inaccurate information.

Although a normal 30-second ad doesn’t generally describe all the details about a particular product or service, the CFPB says the incomplete state of reverse mortgage promotions raised heightened concerns because reverse mortgages are complicated and often expensive loans intended for older, and frequently vulnerable, homeowners.

The report found that ads used in the focus groups were characterized by:

• Ambiguity that reverse mortgages are loans: Most ads either did not include interest rates or included interest rates in fine print. Additionally, some consumers said they 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: In many cases, the ads left some older homeowners with a false impression that a reverse mortgage was 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 the loan requirements were often buried in the fine print –– if they were even mentioned at all. 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. Most consumers recalled TV ads that featured spokespeople portrayed as reliable and trustworthy.

In fact, one consumer in the focus group said, “When it’s a former Congressman endorsing it, it makes it sound like a good idea.”

• 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 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.

Additionally, 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.

“Incomplete or inaccurate statements made in advertisements about reverse mortgages can pose serious risks to older Americans,” the CFPB says in a statement. “Without more balanced information, consumers may not make the right financial choice and jeopardize their retirement security.”

In addition to release its focus group findings, the CFPB warned consumers on Thursday to be vigilant about misleading and confusing reverse mortgage advertisements.

The advisory [PDF] aims to provide older consumers with accurate information about reverse mortgages including that the product is a home loan, not a government benefit; that ads won’t always tell the whole story; and without a comprehensive plan someone taking out a reverse mortgage could outlive the loan funds.

Consumer advocates praised the CFPB’s findings regarding reverse mortgages and urged the Bureau to do more.

“These ads paint a misleading rosy picture about reverse mortgages that may lead some seniors to make poor choices and jeopardize their retirement security,” Norma Garcia, senior attorney for Consumers Union, said in a statement. “The CFPB should take additional steps to make sure seniors are protected from reverse mortgages abuses and get all the information they need to make the choice that’s right for them.”

CFPB Study Finds Reverse Mortgage Advertisements Can Create False Impressions [CFPB]