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Watch Out For Some Misleading Reverse Mortgage Advertisements
July 6th, 2009
PALM BEACH GADENS, Fla – If you are in the market for a reverse mortgage
to tap in to your current home’s equity for some needed cash, be
suspicious of everything you come across or hear about these loans.
A number of misleading
reverse-mortgage claims were investigated by the U.S. Government Accountability
Office in a June study. The GAO is a nonpartisan, independent agency that
performs investigative work for Congress.
What is a Reverse Mortgage?
A reverse mortgage requires
no income to qualify and be at least 62 years-old to qualify. As a title holder
to the home, you pay taxes and insurance but do not need repay the loan until
you move, sell the home or die.
The study conducted by the
GAO primarily calls for better controls over reverse-mortgage consumer
counseling. It also found 26 potentially misleading reverse-mortgage marketing
claims. The GAO conducted a review of reverse-mortgage materials distributed
over the internet and mail by 12 large lenders and other firms. An analysis was
also performed on the information-seminar and DVD materials.
According to a footnote in
the report, there was no clear indication whether the entities behind the
marketing materials were lenders, mortgage brokers or third-party marketers.
A large number of agencies take
part in regulating reverse-mortgages. They include the Office of The
Comptroller of the Currency, FDIC, Federal Trade Commission, Office of Thrift
Supervision, Federal Reserve Board, National Credit Union Administration, U.S.
Department of Housing and Urban Development (HUD) including state banking and
insurance regulators.
The study reveals that there
have been few complaints related to reverse-mortgage marketing from 2005 to
2008. The FTC mentioned that consumers may not be aware that they may have been
deceived, not know where to complain and in particular for the elderly, they
may be less likely to complain.
Some misleading claims
described in the report were particularly focused on HUD-insured reverse
mortgages. They were made in marketing materials by members of the National
Reverse Mortgage Lenders Association (NRMLA).
Here are some potentially misleading claims found by
the GAO related to HUD-administered reverse mortgages.
- “Never owe more than the value of your
home.” – You can owe more than the value of your home if for
example you and your heirs keep the home when the loan becomes due.
- False
implications that the reverse mortgage is a “Government
Benefit”, rather than a loan that needs to be repaid. Reverse
mortgages charge interest and have steep fees.
- A reverse mortgage offers “lifetime
income” or you “can’t outlive loan”. Not entirely
true. The loan becomes due when you move or sell the home. In other words,
any income you get from the loan will then stop.
- “Never lose your home” – A lender
can foreclose on a home with a reverse mortgage. This can occur if you
fail to pay property taxes or hazard insurance or failure to maintain the
home.
- The use of government symbols and logos to
falsely claim that the lender is a HUD government agency. HUD only
administers and insures the loan.
- False claims suggesting HUD- backed loans are
limited to certain geographical and that you must respond in a certain
time-frame in order to qualify.
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