A focus group study recently conducted by the Consumer Financial Protection Bureau (CFPB) reveals that many consumers are confused by advertisements for reverse mortgages.
The CFPB says its study is based on interviews with about 60 homeowners, age 62-plus, who watched some or all of 97 unique ads on reverse mortgages found on TV, radio, in print and on the Internet.
After viewing the ads, some of the participants were confused as to whether reverse mortgages were actually loans, while others were left with the false impression that reverse mortgages are a government benefit. Some were unsure whether a reverse mortgage would allow them to stay in their homes for the rest of their lives.
The study found that many of the ads were incomplete and/or contained inaccurate information. Although advertisements frequently do not describe all the details of the particular product or service being sold, the incompleteness of reverse mortgage ads raises heightened concerns because reverse mortgages are complicated and often-expensive loans intended for older – and frequently vulnerable – homeowners, the bureau says.
According to the CFPB, some of the focus group participants found it difficult to understand from the ads that reverse mortgages are loans with fees and compounding interest – and further, that the loans must be repaid. Most ads either did not include interest rates or included interest rates in fine print. Other consumers thought that because the money they received through a reverse mortgage represented home equity they had accrued over time, there was no reason they would have to pay it back.
In addition, some participants fell under the false impression that the federal government provides consumer protections for the reverse mortgage that are not actually offered.
What's more, some consumers failed to understand certain key aspects of the loan because the loan requirements were often buried in the fine print of the advertisement. Many reverse mortgage ads reviewed did not, for example, mention helpful information like interest rates, repayment terms, and other requirements.
Adding to consumer confusion is the fact that well-known celebrities often plug the products, sometimes leading to a false sense of trust, the bureau says.
‘Most consumers we spoke with remembered television ads that featured spokespeople portrayed as reliable and trustworthy,’ the CFPB writes in the study. ‘According to a consumer in one focus group, 'When it's a former Congressman endorsing it, it makes it sound like a good idea.'’
Perhaps the more alarming finding revealed by the study is that most consumers who view the ads say the main reason for taking out a reverse mortgage is ‘lifestyle enhancement,’ as opposed to paying for basic living expenses.
Most said the primary use for reverse mortgages – as suggested by the advertisements – was to improve one's lifestyle, including traveling while one still has their health. Images of active, youthful retirees were a common feature among ads shown to consumers. Ads typically depicted seniors riding bicycles, playing golf or enjoying similar leisure activities.
As a result of the concerns raised by the study, the CFPB has issued an advisory warning consumers to be wary of advertisements for reverse mortgages.
To view the full study, click here.