Number of ads increasing for reverse mortgages
Have you seen TV or direct mail ads for reverse mortgages? I’m going to guess that you have, especially recently, since the volume of mail ads has increased dramatically over the last few years.
The most common type of reverse mortgage is the home equity conversion mortgage, or HECM. Insured by the Federal Housing Administration, the program “enables you to withdraw a portion of your home’s equity to use for home maintenance, repairs, or general living expenses,” per the U.S. Department of Housing and Urban Development website (tinyurl.com/39fcd5n2).
According to the Consumer Financial Protection Bureau, the volume of reverse mortgage direct mail ads increased from 11 million ads per year in 2019 and 2020 to 44 million in 2021 and 48 million in 2022 (tinyurl.com/mrykhpys).
Who is the audience? Largely low- and middle-income households, with 74 percent of the direct mail ads going to age-62-or-older households with incomes below $75,000. A CFPB analysis of 2021 1-year American Community Survey data indicated that this demographic (age and income) represents 53 percent of U.S. households. According to U.S. Census Bureau, 78.9 percent of householders age 65 and older owned their own home as of the second quarter of 2023. (Source: Table 7, Homeownership Rates by Age of Householder, tinyurl.com/32dhy423.)
The ads go beyond acquiring a reverse mortgage. They are also directed to households that already have a reverse mortgage, with offers of refinancing, which raises a concern. About 51 percent of the ads that went to people in the West region were refinancing ads in 20212022.
Overall, about 84 percent of direct mail reverse mortgage ads went to people living in states in the South and West during 2021 and 2022, “where a somewhat higher share of older homeowners report difficulty making ends meet and difficulty making mortgage payments.” The CFPB cautions: “[T]he increase in ads for reverse mortgage refinances are concerning in that they suggest lenders may be targeting existing reverse mortgage borrowers for costly closing costs rather than providing them with a new product that reduces the effect of economic hardship.”
The idea behind reverse mortgages is helping older homeowners with financial needs. However, “[t]ypically, a reverse mortgage is a more expensive product than other home loans. For some older adult homeowners, using their equity to avoid monthly mortgage payments is a tradeoff they are willing to accept,” reports the CFPB. “For others, it’s a product that jeopardizes their financial security and may prevent them from leaving their home to their heirs.”
The CFPB goes further: “Although the intent of the HECM program is to meet the needs of older adult homeowners with lower incomes the data nevertheless suggests that reverse mortgage lenders are potentially targeting vulnerable populations with an expensive product that may not be best suited for their individual housing and financial needs” (tinyurl.com/mrykhpys).
While the recent CFPB study focused on direct mail ads, TV ads for reverse mortgages have been prevalent for some time. In a 2015 CFPB study, focus group participants “reported seeing television advertisements frequently, even several each day” (tinyurl.com/5f7kc4k9). The ads “frequently feature celebrity spokespeople.”
However, none of the participants could read the fine print used in the TV ads. Many consumers “expressed surprise when shown a printed ad stating interest rates.” Several participants believed that reverse mortgages were “provided by the government and that therefore repayment would not be required.”
While reverse mortgages can create a safety net in the right cases, they can backfire in the wrong cases. As always, be prepared to do your homework before getting a reverse mortgage.
How? Here are some resources:
If you plan to do a reverse mortgage, participate in a required consumer information session given by a HUD-approved HECM counselor (tinyurl.com/33avv9ku).
• The CFPB provides an overview of reverse mortgages at tinyurl.com/3456m2jc.
• The Federal Deposit Insurance Corp. also offers information about reverse mortgages at tinyurl.com/5n6kz5rv.
• A reverse mortgage may be the right decision for you, but be sure to do a deep dive into the details before you agree to one.
Seasoned investment counsel (tinyurl.com/52nus8hz) and award-winning columnist and author, Julie Jason, JD, LLM, promotes financial literacy and investor protection. Read her latest book, "The Discerning Investor: Personal Portfolio Management in Retirement for Lawyers (and Their Clients)" (tinyurl.com/4u7h9pjs), published by the American Bar Association. Write to Julie at readers@juliejason.com. While all questions cannot be answered, each email is read and reviewed and can lead to discussion in a future column.