What’s Prohibited in Reverse Mortgage Advertising?

Reverse mortgages can provide much-needed cash for seniors whose net worth is mostly tied up in the value of their home. A reverse mortgage is a loan for homeowners who are age 62 or older and have considerable home equity.

It allows these seniors to borrow money against the value of their home and receive funds as a lump sum, a fixed monthly payment, or a line of credit. The entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home.

However, there have been some issues associated with reverse mortgages. Aside from the potential for scams targeting the elderly, reverse mortgages have some legitimate risks. Despite recent reforms, there are still situations when a widow or widower could lose the home upon their spouse’s death. There also have been instances in which reverse mortgages have been advertised using false claims.

For example, a California-based reverse mortgage broker falsely told potential customers that a reverse mortgage would mean no payments. The broker further claimed that borrowers would not be subject to costs associated with refinancing a reverse mortgage. The fact is, people who take out a reverse mortgage do incur a range of costs, including fees for closing, appraisals, title insurance, and property, insurance, and maintenance fees.

Because of this, some states have passed laws that prohibit what lenders can and can’t say when they are promoting reverse mortgages. These rules are in addition to federal regulations that determine how mortgages can be advertised.

Federal Laws on Reverse Mortgage Advertising

Mortgage advertising is a relatively heavily regulated part of the financial services market, partially because property is the single biggest purchase that most people will make in their lifetime. To prevent unscrupulous lenders from taking advantage of borrowers, mortgage advertising is regulated by federal law. The most important of these laws are the Mortgage Acts and Practices Advertising Rule (MAPs Rule), the Truth in Lending Act (TILA), and the Consumer Financial Protection Act of 2010.

Of these laws, the one that relates most directly to reverse mortgage advertising is the MAPs Rule, also known as Regulation N. This act regulates how mortgage lenders, servicers, brokers, advertising agencies, and others can advertise mortgage services. The rule forbids deceptive claims in mortgage advertising and other commercial communications sent to consumers by mortgage brokers, lenders, services, and advertising agencies.

In addition, there are rules that apply specifically to reverse mortgages. The vast majority of reverse mortgages in the United States are home equity conversion mortgages (HECMs), which the Federal Housing Administration (FHA) insures. The FHA regulates the advertising of FHA-backed loans and has specific rules for reverse mortgages. Under FHA rules, lenders must explain all requirements and features of the HECM program in clear, consistent language to consumers.

The CFPB has repeatedly raised concerns about how reverse mortgages are advertised. In a 2015 report, the agency stated that after viewing advertisements for reverse mortgages, “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.”

Federal laws relating to reverse mortgage advertising are overseen by the Federal Trade Commission (FTC) and the CFPB, both of which have taken action against many mortgage lenders for false claims associated with reverse mortgage advertising.

State Laws on Reverse Mortgage Advertising

In addition to federal legislation, several states have passed laws that limit the way in which reverse mortgages can be advertised. 

Some of these, such as laws in North Carolina and Tennessee, aim to further restrict the ability of reverse mortgage lenders to misrepresent how these loans work. Others, such as the laws in effect in Oregon, define a number of disclosures—important pieces of information that the lender must communicate to the potential borrower—and specify that these must be prominent and not just appear in the fine print.

A number of states, rather than prohibiting certain types of advertising, have sought to protect consumers by adding to the counseling session that all potential HECM borrowers must attend. The U.S. Department of Housing and Urban Development (HUD) requires all prospective HECM borrowers to complete this counseling session. HUD requires the counselors to detail the pros and cons of taking out a reverse mortgage.

The Bottom Line

There are a number of federal laws that control the way that reverse mortgages can be advertised. These include the Mortgage Acts and Practices Advertising Rule (MAPs Rule), the Truth in Lending Act (TILA), and the Consumer Financial Protection Act of 2010. These rules forbid deceptive claims in mortgage advertising and other commercial communications sent to consumers by mortgage brokers, lenders, services, and advertising agencies. A number of states have also passed laws that control the way in which reverse mortgages are advertised.

Despite these rules, the CFPB has raised concerns about the way that reverse mortgages are advertised. Therefore, consumers should be wary of advertisements for reverse mortgages that present this product as a source of income or a government benefit. Reverse mortgages are a loan, and they should be treated as such.