Reverse Mortgage Warning Issued
The Consumer Financial Protection Bureau has issued a warning specifically for seniors on the possible deceptive nature of 'reverse-mortgage' advertisements. According to a report from Market Watch, the agency observed that many ads claim these schemes have the backing of the federal government.
Another misleading item in these reverse mortgage offer plans is the fact that mortgagors would still have to repay the balance remaining on their existing loans.
The agency had studied about a hundred advertisements and then conducted a test by showing these ads to senior citizens. Afterwards, the panel of senior citizens was asked questions on the ads they had seen. Quite a number of them did not understand that reverse mortgages were loans that had fees and interest. Others presumed the reverse mortgage was the equity they put in their homes, thus need not be repaid.
In another report, this time from the Portland Press Herald, warn of the possible default that may occur if engaging a reverse mortgage program. The report said about 10 percent of borrowers end up defaulting and losing their homes. This is twice the national rate of default for conventional home mortgages.
In essence, a reverse mortgage provides borrowers with cash or a line of credit by utilizing the accumulated equity on the loan as security. Most senior citizens use this loan facility to pay off credit cards or do renovation work on their existing homes. Because the loan is not paid monthly, the loan balance would increase over time. It becomes due when the borrower passes away, or alienates the home or defaults on other obligations.
According to CFPB Director Richard Cordray, the ads did not mention the risks attendant to reverse mortgages. He added, "Or, if they did, they were so buried in the fine print that consumers did not pick up on... key aspects of the loan."
He further stated, "Indeed, many reverse mortgage ads did not even mention anything about interest rates, repayment terms or other crucial requirements of the loan."