Several reverse mortgage companies were fined a collective amount of $790,000 for using deceptive advertising that claimed consumers could never lose their homes through a reverse mortgage.
The reverse mortgage firms fined were American Advisors Group, Reverse Mortgage Solutions, and Aegean Financial. The three firms reached a consent agreement with the Consumer Financial Protection Bureau. The regulators for the Consumer Financial Protection Bureau found the ads used by the companies misled consumers.
Specifically, the ads used statements that implied a person could never lose his or her home with a reverse mortgage. Another ad promised, “ I can show you how to use a government-insured program that allows you to save money, get cash and live payment-free as long as you live in your home.”
American Advisors Group created an ad that featured the prominent celebrity Fred Thomas from the television show Law and Order to appeal to an older demographic. The TV drama star told consumers on the advertisement that a reverse mortgage is a product that is a “safe, effective financial tool.”
What Is A Reverse Mortgage?
A reverse mortgage is a special type of home loan that enables older homeowners, those persons that are aged 62 or older, to draw on the equity put into a home and receive a lump sum payment, monthly payments, or a line of credit.
Reverse mortgages have become a popular estate planning tool for clients that wish to receive in-home health care assistance rather than at an assisted living facility. This is a great option for clients that do not plan to move from their home, can afford the cost of maintaining the home, and want to access the equity in their home to supplement their income.
The bank or other entity that gives a person a reverse mortgage will make a lump sum payment or payments throughout the person’s lifetime based on a percentage of accumulated home equity. Normally, the loan does not have to be repaid until the person passes away. In many scenarios the mortgage can be created, so the bank receives the house when the borrower passes away.
The next question the estate planning attorneys at our firm often receive is how much money can a person receive through a reverse mortgage. There are a few factors that determine the amount of a loan. Some of these factors include (1) the age of the client, or his or her spouse, (2) the value of the home, (3) the interest rate, (4) lesser of the appraised value or the FHA mortgage limit of $625,000.
The borrower must be the homeowner to be eligible for a reverse mortgage. This person must either own the house outright or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan.
Reverse mortgages can be a complicated and confusing mechanism to the average consumer. The reverse mortgage companies are required to make clear and prominent disclosures in the reverse mortgage ads so that consumers do not get the wrong idea about what this type of mortgage offers. For more information on how to receive in-home care by using a reverse mortgage contact the estate planning attorneys at The Law Office of David M. Goldman PLLC today.