Reverse mortgages may help seniors whose net worth is largely dependent on the value of their property by giving them access to much-needed cash. For homeowners who are 62 years of age or older and have a sizable amount of home equity, a reverse mortgage is a loan.
These older citizens are given the opportunity to borrow money using the equity in their homes and receive payments in the form of a lump amount, a set monthly payment, or a line of credit. When the borrower passes away, vacates the property permanently, or sells it, the whole loan sum becomes due and payable.
Reverse mortgages have, however, been linked to certain problems. Reverse mortgages contain certain real concerns, in addition to the possibility for frauds that prey on the elderly. Despite recent changes, there are still certain scenarios in which a widow or widower who has lost their spouse might lose their house. In certain cases, advertisements for reverse mortgages have made exaggerated promises.
For instance, a reverse mortgage salesperson in California misled prospective clients by claiming that a reverse mortgage would result in no payments. The broker also said that there will be no fees for consumers to pay while refinancing a reverse mortgage. The truth is that those who get a reverse mortgage do pay a variety of expenses, including as closing charges, appraisal fees, title insurance prices, and property, insurance, and maintenance expenditures.
Due of this, several states have established legislation limiting the language that lenders are allowed to use while advertising reverse mortgages. These guidelines are in addition to those set out by the federal government regarding mortgage advertising.
- The manner in which reverse mortgages may be promoted is governed by a number of federal statutes, including the Mortgage Acts and Practices Advertising Rule (MAPs Rule), the Truth in Lending Act (TILA), and the Consumer Financial Protection Act of 2010.
- According to these regulations, misleading promises cannot be made in mortgage advertisements or in any other kind of marketing material sent to customers by mortgage brokers, lenders, services, or advertising firms.
- Many states have also enacted legislation to regulate reverse mortgage advertising.
- The Consumer Financial Protection Bureau (CFPB) is concerned about how reverse mortgages are sold in spite of these regulations.
- Reverse mortgage marketing that portray the product as a source of income or a government benefit should be avoided by consumers. Reverse mortgages should be regarded as loans and handled accordingly.
Federal Laws on Reverse Mortgage Advertising
Because real estate is often the single largest transaction individuals will make in their lifetime, mortgage advertising is a segment of the financial services industry that is quite strictly regulated. Federal legislation regulates mortgage advertising to stop dishonest lenders from taking advantage of borrowers. The Truth in Lending Act (TILA), the Mortgage Acts and Practices Advertising Rule (MAPs Rule), and the Consumer Financial Protection Act of 2010 are the most significant of these legislation.
The MAPs Rule, also known as Regulation N, is the legislation that, out of all of them, has the greatest direct effect on reverse mortgage advertising. This law controls the manner in which mortgage lenders, servicers, brokers, ad firms, and others may market their services. The law prohibits misleading statements in mortgage advertisements and other business correspondences delivered to customers by mortgage brokers, lenders, services, and advertising firms.
Additionally, there are regulations that just apply to reverse mortgages. Home equity conversion mortgages (HECMs), which are insured by the Federal Housing Administration (FHA), make up the overwhelming majority of reverse mortgages in the country. The FHA has special guidelines for reverse mortgages and oversees the promotion of FHA-backed loans. The HECM program’s criteria and features must be explained to customers in straightforward, consistent English, per FHA regulations.
The CFPB has expressed concerns about reverse mortgage advertising on many occasions. The agency claimed in a 2015 report that following exposure to reverse mortgage advertisements, “consumers were confused about reverse mortgages being loans, and they were left with false impressions that they are a government benefit or that they would ensure consumers could stay in their homes for the rest of their lives.”
The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are in charge of enforcing federal regulations governing reverse mortgage advertising, and both agencies have taken action against several mortgage lenders for making fraudulent promises in reverse mortgage advertising.
The manner that reverse mortgages are promoted has drawn recurrent criticism from the CFPB. The organization has warned senior citizens to be wary of marketing for reverse mortgages that may be deceptive or confusing. Customers should be aware that a reverse mortgage is a loan, that advertisements may be deceptive, and that, without a solid strategy, you could outlive the loan’s available funds.
State Laws on Reverse Mortgage Advertising
Several states have implemented rules that restrict the manner that reverse mortgages may be promoted in addition to federal regulations.
Some of these rules, like those in Tennessee and North Carolina, are meant to make it harder for reverse mortgage lenders to misrepresent how these loans function. Others, like the regulations in force in Oregon, stipulate a number of disclosures—important details that the lender must convey to the prospective borrower—and state that these must be obvious and not only in the small print.
Instead of outlawing certain forms of advertising, a number of states have added to the counseling session that all prospective HECM borrowers are required to attend in an effort to safeguard customers. All potential HECM borrowers are required by the U.S. Department of Housing and Urban Development (HUD) to finish this counseling session. HUD mandates that the counselors explain the benefits and drawbacks of getting a reverse mortgage.
What is a violation of reverse mortgage advertising?
Advertising for reverse mortgages is rather heavily regulated, and many federal statutes prohibit lenders from making misleading promises in their advertising. These include the Truth in Lending Act (TILA), the Mortgage Acts and Practices Advertising Rule (MAPs Rule), and the Consumer Financial Protection Act of 2010.
What is an example of false advertising for reverse mortgages?
Concerns have been expressed by the Consumer Financial Protection Bureau (CFPB) over reverse mortgage advertising. In a 2015 study, the agency discovered that after viewing reverse mortgage advertisements, consumers were perplexed about the fact that reverse mortgages are loans and were left with the mistaken impression that they are a government benefit or that they would guarantee consumers could remain in their homes for the rest of their lives.
Who regulates reverse mortgage companies?
Reverse mortgage lenders are subject to federal regulation by the Consumer Financial Protection Bureau (CFPB), the Department of Housing and Urban Development (HUD), and the Federal Trade Commission (FTC). However, a handful of states have also implemented legislation that regulates the promotion of reverse mortgages.
The Bottom Line
A number of federal rules regulate the manner in which reverse mortgages may be promoted. These include the Truth in Lending Act (TILA), the Mortgage Acts and Practices Advertising Rule (MAPs Rule), and the Consumer Financial Protection Act of 2010. According to these regulations, misleading promises cannot be made in mortgage advertisements or in any other kind of marketing material sent to customers by mortgage brokers, lenders, services, or advertising firms. A handful of states have also established legislation regulating the promotion of reverse mortgages.
The CFPB has expressed worry regarding the manner in which reverse mortgages are promoted notwithstanding these regulations. Therefore, ads for reverse mortgages that portray this product as a source of income or a government benefit should be avoided by customers. Loans are what reverse mortgages are, so handle them as such.
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