This December, the Consumer Financial Protection Bureau — the CFPB — took action against three companies engaged in reverse mortgages for deceptive advertising.  The three companies, American Advisors Group, Reverse Mortgage Solutions, and Aegean Financial, were told to cease deceptive advertising practices and pay penalties.

Reverse mortgages are a special type of home loan given to homeowners who are 62 or older.  It allows them to access equity that they have built up over the years in their homes.  Payments on reverse mortgages are usually deferred until the homeowner passes away, sells the house or moves out.  The loan proceeds are provided to the homeowners as lump sum payments, monthly payments, or as lines of credit.  Homeowners are still responsible for paying taxes, insurance, and home maintenance obligations, among others.

Homeowners interested in reverse mortgages are often told that they will never lose their home and/or have the right to stay in their homes for the rest of their lives.  But they should know that this is not a blanket promise.  If a homeowner gets a reverse mortgage and fails to comply with the loan terms (like fails to pay taxes or keep insurance, etc.) then there can be a default under the loan and the possibility of losing the home arises.  Homeowners are also told that they can use the reverse mortgage to pay off “all their debts.”  While they can use funds to pay off credit cards or medical bills, the mortgage itself is a loan — it is a debt — and so “all” debts are not being erased.  Its just one debt being switched for another.  There are oftentimes confusion about inheriting a house after a reverse mortgage.  Heirs are only allowed to keep the home if they either pay back the reverse mortgage or pay 95% of the assessed value of the home.

Homeowners wishing to tap into the equity of their homes need to look at, and understand, all the terms and conditions of a reverse mortgage, and can always call on a qualified attorney to review the documents and explain it to them in plain language.

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