By Veronica Meffe, Americans for Financial Reform
This month the Consumer Financial Protection Bureau (CFPB) took action against three reverse mortgage companies for promising seniors a financial product that was too good to be true. The CFPB’s investigation determined that several of the claims the companies made in TV and print ads were not true. All three companies “tricked consumers into believing they could not lose their homes” with a reverse mortgage, CFPB Director Richard Cordray said in a statement accompanying the Bureau’s announcement of the settlements it has reached with Reverse Mortgage Solutions, Aegean Financial, and American Advisors Group, which is the largest reverse mortgage lender in the United States.
A reverse mortgage is a special type of home loan for homeowners who are 62 or older, that converts a portion of the equity that has been built up over years of paying a mortgage, into cash. Homeowners do not have to repay the loan until they pass away, sell, or move out of the house, or fail to meet the obligations of the mortgage. These three companies promised consumers that their reverse mortgages would eliminate debt without any monthly payment obligation. In fact, a reverse mortgage is itself a debt and consumers are required to make regular payments related to the home, including for property taxes, insurance and home maintenance. Consumers can default on a reverse mortgage and lose their home if they fail to comply with the terms of the loan, including making such payments.
The CFPB settlement requires the three companies to make clear and prominent disclosures of the possible dangers of reverse mortgages in their future adds, and to pay a combined $800,000 in penalties
The CFPB provides information for consumers about reverse mortgages on its website.