If you took out a reverse mortgage without adding your spouse to the documents, do you know what could happen with the property after you die?
Did you know you could lose the house if you forgo maintenance or get behind on property taxes?
Are you under the impression the mortgage is with the government?
Reverse mortgages, which typically pay homeowners 62 and older a portion of their home equity until the borrower dies or moves, are complex products with provisions that occasionally are a moving target.
So it’s little surprise that when the Consumer Financial Protection Bureau recently showed consumer ads about the products to about 60 seniors who had very little knowledge about them, the homeowners had trouble even understanding that the products were loans that have to be repaid.
“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 issuing a consumer alert about the products. “It is important that advertisements do not downplay the terms and risks of reverse mortgages or confuse prospective borrowers.”
CFPB officials stopped short of claiming any of the 97 ads met the regulatory definition of deceptive marketing practices, and a trade group representing reverse mortgage lenders said it has filed a freedom of information act to review the ads used in the focus groups.
But the false impressions created by the print, TV and web ads pointed out some useful tips for seniors who are starting to research whether such a product is right for them, and recent changes to some of the terms affecting holders of reverse mortgage holders are worth noting.
These are not government loans. While lenders offering federally insured reverse mortgages must comply with certain rules, the loans themselves are not taken out directly with the government.
Read the fine print. Homeowners applying for a federally insured home equity conversion mortgage (HECM) are required to undergo counseling about the terms. Make sure you understand them before signing, including the fact that you could face foreclosure if you fail to maintain the property or pay property taxes. The CFPB said few ads mentioned interest rates or repayment terms.
Widow relief. In a separate action on June 12, the Federal Housing Administration issued a fix on a HECM policy that consumer advocates said had been pushing many widows and widowers into foreclosure after their spouses died because they hadn’t been included on the loan. The revision, which eliminates certain requirements for survivors to assume the reverse mortgage, had previously been for mortgages originated after Aug. 4, 2014. Now, holders of earlier mortgages have the same protection.
Home for life. CFPB also said the ads created a false impression that a reverse mortgage guarantees you can stay in the home the rest of your life. In fact, there are upkeep provisions, as well as different financial terms that don’t come with the lifetime guarantee. For example, if you take the money out in large installments early in the life of the loan, you could exhaust the payments relatively quickly.
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Janet Kidd Stewart writes The Journey for the Chicago Tribune. Share your journey to or through retirement or pose a question at journey@janetkiddstewart.com.
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