A few months back I wrote that it was fair to allow the Consumer Financial Protection Bureau (CFPB) to share its two cents about reverse mortgages. It was a rebuttal of sorts to a neutral explanation I had given previously. Recently, the CFPB authored a piece on the subject again, so now it’s a little more than two cents in its favor. Reverse mortgages are an important issue because excessive borrowing can lead to a New York bankruptcy filing. This time, the bureau is concerned with the advertising lenders use to convince homeowners to purchase reverse mortgages, specifically ads that appeared on the Internet, radio, television, and in print between 2013 and 2014.
As a brief recap, a reverse mortgage gives the homeowner payouts against his or her house’s equity. It must be repaid at some point, usually after the homeowner sells the property or passes away. It’s “reverse” in the sense that the homeowner draws down the home’s equity with each payment rather than builds it up.
So what did the CFPB discover about advertising relating to reverse mortgages?
Looking at focus groups and interviewing a handful of individual homeowners in three cities, the CFPB concluded that reverse mortgage lenders’ advertising was highly problematic. In its initial review, which (since fairness is what we’re striving for) was based on the bureau’s own educated workers’ opinions, it characterized the ads as containing “confusing, incomplete, and inaccurate statements regarding borrower requirements, government insurance, and borrow risks.”
As for the focus groups, they included 59 homeowners over the age of 62. Here are a few of the CFPB’s more striking findings:
- Many of the homeowners were confused about the concept of reverse mortgages, e.g. not understanding they are loans that must be repaid or that they would be repaid with interest.
- They were also confused by the terms. For example, some believed it was impossible to lose their homes if they didn’t repay or that they were excused from paying property taxes.
- Some participants believed the government is involved in reverse mortgages—to their benefit. Indeed, some of the ads allegedly featured government seals, eagles, and other indicators of federal involvement. In reality, this is usually Federal Housing Authority (FHA) insurance that guarantees the loan proceeds will be paid out to the homeowners should the lender fail to do so. It doesn’t otherwise protect homeowners.
Finally, the CFPB used the focus-group participants’ statements to criticize the ads for encouraging younger retirees to live a consumptive lifestyle rather than more frugally given Americans’ longer lifespans.
The CFPB’s report can be found here (pdf).
Focus groups and interviews don’t provide any real statistical insights, and it’s not to the CFPB’s credit that it didn’t discuss participants who understood what reverse mortgages were irrespective of what the ads said. However, such research techniques do contextualize how people might respond to the ads. The message is that homeowners should not purchase reverse mortgages frivolously.
As with all types of debt, my practice helps clients who have taken on reverse mortgages and are finding themselves in financial difficulty as a result.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.