Reverse Mortgage Complaints: Misunderstandings and Misrepresentations
Reverse mortgages are a niche product aimed at helping senior citizens stay in their homes and improve their monthly cash flow. In general, a reverse mortgage loan has much less stringent qualification requirements than a purchase, refinance or home equity mortgage loan; however, a reverse mortgage has complicated terms that are not easy to understand.
There are many instances of reverse mortgage complaints and scams. Many of these result from either lenders or brokers either misrepresenting themselves, or giving inaccurate information.
Make sure that you take a reverse mortgage appropriate to you situation. In order to help you avoid and deal with the reverse mortgage process and avoid complaints, learn about reverse mortgages and:
- False Advertising and the CFPB
- Common areas of problems and complaints
- How to deal with reverse mortgage complaints
Reverse Mortgage Advertisement and the CFPB
The Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) issued press releases on November 19, 2012 warning certain mortgage lenders and brokers against using false advertising in the mortgage and reverse mortgage markets.
Here are their main findings:
- Misleading Usage of Government Logos, Seals and Affiliations: Some of the ads utilize government symbols to make a false impression that they are offering a government-backed program.
- Misinformation regarding monthly payments: Some lenders advertise reverse mortgages as a no payment mortgage. While it is true that that there are no monthly principal and/or interest mortgage payments, that is only part of the picture. The CFPB pointed out that lenders are showing only part of the picture. If you don’t pay your property taxes, homeowners insurance, and basic maintenance fees, then you jeopardize your reverse mortgage.
- Mock Checks – Ease of Getting Money: Some lenders send out mock checks or pre-approvals, making it seem like getting a reverse mortgage is a simple process. However, before you take a reverse mortgage you need to learn about how a reverse mortgage works, how a reverse mortgage fits into your overall financial picture, apply for a mortgage and receive counseling. One important lesson is to move with caution.
Common Areas of Reverse Mortgage Complaints
Unfortunately, there are unscrupulous reverse mortgage lenders who take advantage of borrowers trust. Here are some of the main areas that lead to complaints:
- Using false advertising and high-pressure tactics, they encourage borrowers to take out a reverse mortgage even if it isn’t appropriate to their situation.
- Misusage of fund: Many lenders make a hard sell to borrowers convincing them to take an expensive vacation, buy an expensive car, or upgrade their style of living. Although theoretically all of those may be legitimate usages of money, a reverse mortgage borrower must realize that they are using up valuable equity they built up in their homes. That equity may be required in tougher times. Proper and careful analysis of your long-term financial goals and needs is important.
- Wrong type of reverse mortgage: Many borrowers take a lump sum, because this is the only way that they can take a fixed interest rate. However, this may leave the borrower in a position that they don’t have equity left in their home when needed, or that they don’t have sufficient monthly income to cover their living expenses and required housing expenses. Update: Beginning on April 1, 2013 the FHA introduced a new rule limiting the fixed rate HECM option to the HECM saver option. The FHA introduced this rule in order to limit the amount of money a borrower can take in one lump sum.
- Paying back the reverse mortgage: One of the main areas of complaints is the lack of clarity around when and who needs to payback a reverse mortgage. A borrower needs pay back a reverse mortgage under the following circumstances:
- The property is sold.
- The borrowers leave the residence for an extended period, including moving to a nursing home or a different state to be near relatives.
- The death of the last borrower.
However, many lenders don’t emphasize and explain the importance of proper financial planning. One complaint, as illustrated in a New York Times article, is that a surviving spouse is not on the title (or taken off the title to enable a larger reverse mortgage) and then left in a precarious position upon the death of the reverse mortgage borrower. Make sure that you understand when the reverse mortgage needs to be paid back and that you, your spouse and your family are comfortable with using your equity.
Dealing with Reverse Mortgage Complaints
The best way to deal with reverse mortgage complaints is to follow this process:
- Learn about what is a reverse mortgage, how it works, and the pros and cons.
- Make a thorough financial plan. Start by knowing your current situation including your monthly budget and net worth. Then make a long-term retirement plan including your cash flow and asset usage.
- Get a reverse mortgage quote.
- Go through your reverse mortgage counseling session.
- Go over your offer with your spouse, your family, and your financial advisors.
If you run across high-pressure marketing tactics and unscrupulous lenders, then you can file a complaint with the CFPB and the FTC. Taking the time to learn about reverse mortgages will ensure that you take a loan that best fits your financial needs.