We research, you save.
Got Questions On Rates? (855) 610-2972

What makes a reverse mortgage ad ‘deceptive’?

Senior homeowners shopping for a reverse mortgage need to be on alert for false, misleading or deceptive advertising.

The risk is so serious that the Federal Housing Administration (FHA) recently issued a letter reinforcing its prohibition against misleading or deceptive advertising and reminding lenders to make sure seniors are fully informed of all their options when they apply for an FHA reverse mortgage.

Part of the U.S. Department of Housing and Urban Development (HUD), the FHA insures reverse mortgages through its Home Equity Conversion Mortgage program (HECM).

Protection against misleading ads

The FHA wants to protect older borrowers from misleading ads and lender presentations that seem to limit their choices, rather than inform them of the full range of offerings. The presentation of only particular products, rather than the full range of FHA reverse mortgages isn't allowed.

Talking to your parents about a reverse mortgage

Talking to your parents about their finances, let alone a reverse mortgage, is never easy. But for children to discuss reverse mortgage options with their parents, they themselves must first understand what the loan entails. Eric Tyson, co-author of "Mortgages for Dummies," says the first question for a parent should be: Do you want to keep living in your own home? To learn more, be sure to read our article, “Is a reverse mortgage OK for your parents?”

“This guidance is intended to make sure lenders know we’re keeping a watchful eye on their marketing and advertising practices that might steer borrowers toward reverse mortgage options that limit their available choices,” FHA Commissioner Carol Galante said in a statement.

Lenders must explain all the requirements in clear and consistent language and can't mislead seniors into thinking the reverse mortgage contains any features or limits that aren't consistent with the FHA requirements.

Borrowers: What to look out for

For example, lenders must explain that:

  • FHA insures fixed-rate mortgages as well as annual and monthly adjustable-rate mortgages (ARMs)      
  • Fixed-rate mortgages are limited to a single lump sum payment with a one-time draw at closing
  • ARMs allow five payment options and future draws after closing, and the borrower can change the method of payment at any time if funds are available
  • The amount of funds available is determined by the youngest borrower's age
  • The disbursement of funds during the initial 12-month disbursement period is subject to an initial disbursement limit

Appropriate marketing materials

Lenders can't state or imply that being approved to participate in FHA programs means the FHA or HUD has endorsed their products.

Lender's advertisements and marketing materials must include a prominently displayed disclaimer that clearly states the materials aren't from HUD or FHA and haven't been approved by HUD or FHA. Seniors should be very wary of any ads or marketing materials that suggest otherwise.

“Senior borrowers deserve freedom of choice when considering whether a reverse mortgage is appropriate for them,” said Galante.

More help from HSH.com

  • HSH.com’s annual outlook: 2019 Mortgage and Housing Market Forecasts

    At the start of each year, HSH.com details the important factors we think are most likely to influence the mortgage and real estate markets in the coming year. Come each July, we review to see if our expectations are being met or not.
  • HSH.com on the latest move by the Federal Reserve

    The Federal Reserve concluded a meeting today, lifting the key federal funds rate to a range of 2.25 to 2.5 percent.
  • 5 things homebuyers should be thankful for this Thanksgiving

    Here are five things homebuyers should be thankful for this Thanksgiving.
  • The salary you must earn to buy a home in the 50 largest metros

    Here’s how much salary you would need to earn in order to afford the median-priced home in your metro area.
  • 10 metros where a home costs about $1,000/month

    HSH.com identifies 10 metro areas where you can afford the principal, interest, taxes and insurance payments on a median-priced home for only around $1,000 per month.

No Comments

Leave a Comment

Get a reverse mortgage quote today.

Enter your zip code

Please enter valid zip
Please enter a valid postal code