No advertisement tells the full story about a product or service.
There are practical reasons for that, such as limited air time or print space. And for obvious reasons, information about costs or risks often is omitted, downplayed or buried in the fine print that flashes quickly across the screen or is in minuscule type.
That’s why a recent study critical of reverse mortgage advertisements didn’t shock me.
The Consumer Financial Protection Bureau, which seems to be turning up the heat on the reverse mortgage industry, said its research revealed the ads often leave false impressions and don’t highlight critical details.
“Perhaps most concerning of all, the ads left the consumers believing that if they purchase a reverse mortgage loan, they will be able to rest assured that they can live in their homes and enjoy financial security for the rest of their lives,” bureau Director Richard Cordray told reporters on a conference call. “But a reverse mortgage does not carry such guarantees.”
The agency called on potential borrowers to keep their guards up so they aren’t misled or confused. While that could happen with any advertisement, the significance here is magnified because these ads target older people who often are vulnerable, on fixed incomes and could be desperate for cash. They may live alone and not have anyone to consult about a reverse mortgage, and not be adept at searching for information online.
You must be at least 62 years old to qualify for a reverse mortgage, which is when the bank or lender pays you, based on the value of the equity in your home, instead of you paying the bank. You still own the home, but the lender holds a lien.
Borrowers are charged fees and interest that accrue monthly, increasing their outstanding balance, but payments aren’t required until the loan becomes due. That happens when the borrower sells the home, moves, dies or defaults on the loan by not paying property taxes or homeowners insurance.
Reverse mortgages may be a good fit for some seniors but not a wise move for others, which is why it’s important to understand them.
Peter Bell, president and chief executive officer of the National Reverse Mortgage Lenders Association, told me people had better get used to reverse mortgages because not only are they here to stay but they also are going to become more common. People are living longer and don’t have the savings to fund those golden years but do have equity in their homes, he said.
“It’s a product that makes a lot of sense and whose time has come and will be growing,” Bell said.
The CFPB’s advertising study is just another example of piling on against an industry that people love to hate based on misconceptions, he said.
Bell doesn’t believe there are widespread problems with ads, especially those on television. He said there are some “shoddy marketing pieces” distributed by mail, email and websites, but said they typically come from “lead generators” trying to make a buck connecting potential borrowers with lenders.
The advertising study is based on the impressions of focus groups that were shown 97 television, radio, online and print ads. The advertisers weren’t identified and the ads weren’t included in the report, so I can’t offer my own impressions.
The biggest impression this report made on me is that the CFPB is making it a priority to keep tabs on this industry. It’s the second report this year about the potential pitfalls of reverse mortgages.
Bell said ads aren’t designed to address every pro and con. Those, he said, are covered in counseling that’s required before taking a reverse mortgage.
“The ad is really just a front-end to what is a relatively lengthy process,” Bell said.
The CFPB said it’s important that people don’t go into the process with misconceptions or misinformation.
“Among the advertisements we collected, on their face, many contained confusing, incomplete and inaccurate statements regarding borrower requirements, government insurance and borrower risks,” the bureau said in its report.
The bureau also said:
- Information about interest rates and repayment terms often was missing, or buried in the fine print.
- Some people in focus groups didn’t understand reverse mortgages were loans with fees and compounding interest. Some believed they were a risk-free government benefit that didn’t have to be repaid.
- Celebrity representatives add a false air of credibility, with one member of a focus group saying, “When it’s a former congressman endorsing it, it makes it sound like a good idea.”
Bell told me there are no problems with those ads, which he said obviously refer to pitches by former Tennessee Sen. Fred Thompson. Henry Winkler, the actor who played “The Fonz” on the sitcom “Happy Days,” also appears in reverse mortgage ads.
“To say that people are being duped into getting a loan because Fred Thompson or ‘The Fonz’ told them to is, I think, a silly notion,” Bell said.
Do your homework before considering one of these loans to make sure it’s right for you.
You can read the report on reverse mortgage ads at and find information about reverse mortgages from the National Reverse Mortgage Lenders Association at .
