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Reverse mortgages are loans designed for people over 62 years old that are secured by their biggest asset: their home. Although it can be a useful tool for tapping equity without paying monthly loan payments while in the home, it can also be risky if the borrower is not fully aware of what they (and their heirs) might be committing to.
That’s partly why the government has recently cited some reverse mortgage lenders for deceptive and misleading lending practices, which have led to senior homeowners losing their homes in some cases.
For instance, last month, the Consumer Financial Protection Bureau (CFPB) cited American Advisors Group (AAG) for allegedly misleading people with “inflated and deceptive home estimates to lure consumers into taking out reverse mortgages.” The CFPB, responsible for overseeing consumer financial protection laws, declined to comment on the consent order.
In a statement, AAG said, “The matter involves direct mail pieces that included third-party home value estimates. AAG cooperated fully in this investigation, has already begun to take steps to address CFPB’s concerns, and is pleased to resolve the matter.”
This is the second time the CFPB accused AAG of deceptive advertising. In late 2016, the agency cited AAG and two other reverse mortgage lenders—Reverse Mortgage Solutions and Aegean Financial—in a consent order for a wide variety of misleading claims. And earlier this year, the CFPB reached a consent order with Nationwide Equities Corporation for sending deceptive reverse mortgage mailers to hundreds of thousands of older borrowers.
First, let’s break down what a reverse mortgage is and how it works to help you determine whether it’s a good, or bad, fit for you.
What Are Reverse Mortgages?
Reverse mortgages allow homeowners who are 62 years and older to convert a portion of their home equity—the current home’s value minus the remaining mortgage balance—into cash in the form of a loan, or a line of credit. Typically, homeowners will receive their funds monthly and are not obligated to repay the loan as long as they live in the house, or until you or your heirs sell the house. This is one way of tapping equity without selling the home.
Once the borrower moves out or is deceased, the loan must be repaid. Sometimes, the property has to be sold in order for the loan to be repaid. This also means the heir to your home will have to do it. However, there are other ways to repay what’s owed, including refinancing the reverse mortgage …….
Source: https://www.forbes.com/advisor/mortgages/avoid-reverse-mortgage-lending-traps/