Senior alert: Consumer watchdogs say reverse-mortgage companies are still trying to trick you with ads promising a risk-free way to tap the equity in your home.

That’s the message from the Consumer Financial Protection Bureau, which on December 7, 2016, ordered three reverse-mortgage companies to stop running deceptive ads and pay almost $800,000 in total in fines for making false promises to potential borrowers and claiming that consumers could never lose their homes.

A reverse mortgage is a special type of loan that allows homeowners who are 62 or older to access the equity they have built up in their homes and defer payment of the loan until they die, sell, or move out. The loan proceeds are generally taken as a lump sum, as monthly payments, or as lines of credit.

But seniors who don’t keep up with payments on taxes, insurance, utilities, and upkeep risk defaulting on the loans and being forced to move out.

The three companies the CFPB took action against: American Advisors Group, the largest reverse mortgage lender in the U.S.; Reverse Mortgage Solutions, which operates in 48 states; and Aegean Financial, which also advertises reverse mortgages to Spanish-speaking consumers in California under the name Jubilados Financial.

“These companies tricked consumers into believing they could not lose their homes with a reverse mortgage,” said CFPB Director Richard Cordray. “All mortgage brokers and lenders need to abide by federal advertising disclosure requirements in promoting their products.”  

The CFPB says these companies, in voluminous print, television, and radio ads, and distribution of direct-marketing information kits, made false claims, including that borrowers would “always retain ownership” and “can’t be forced to leave.”

The CFPB said the ads also claimed there are no costs to reverse mortgages, when in fact you have credit report fees, title insurance costs, appraisal costs, other closing costs, and a fee for government mortgage insurance.  

The three companies did not admit or deny the CFPB's findings. In a statement, American Advisors Group said it takes its "regulatory responsibilities seriously and has made a significant investment in our compliance and legal infrastructure to ensure we fully conform to all marketing laws and rules—and better understand how they are interpreted." Aegean Financial and Reverse Mortgage Solutions did not respond to our request for comment by press time.

A Troubled History

Though a number of regulatory changes have been made to protect consumers, advertising remains a troubling component of the reverse-mortgage lending business.

Lenders barrage potential borrowers with ads featuring B-list actors such as Henry “The Fonz” Winkler and Robert Wagner aggressively pitching reverse mortgages to seniors as a risk-free way to supplement retirement income.

American Advisors ran TV ads almost daily and distributed its information kits to more than 1 million people. Its newest pitchman started in September: Tom Selleck.

This isn’t the first time the CFPB has cracked down on misleading advertising by the industry. Last year the bureau issued a report saying that many reverse-mortgage ads are inaccurate or omit important information.

The CFPB has sent warning letters (PDF) to mortgage advertisers targeting older Americans and took an enforcement action against a reverse-mortgage lender in 2015 for misrepresenting itself as a government agency.

The reverse-mortgage industry knows regulators are closely scrutinizing it. A piece in the industry trade publication Reverse Mortgage Daily was published earlier this year with this headline: "What All Reverse Mortgage Lenders Must Know to Avoid the CFPB’s Clutches."

Consumer Reports has also long been concerned about the risks of reverse mortgages and advocated for important changes for more disclosures. CR helped make it mandatory for seniors in California to fill out a detailed questionnaire walking them through the loan’s possible consequences before filling out a mortgage application.

CR would like the worksheet, which we helped design with a neurology professor who studies decision-making in older adults, to become a national requirement.

How to Spot a Deceptive Ad

Even with the latest actions by the CFPB, you should still take steps to be sure you aren't misled by reverse-mortgage advertising. Here's what you should know if you are considering a reverse mortgage:
• You don’t receive the full value of loan. The face amount will be slashed by higher-than-average closing costs, origination fees, up-front mortgage insurance, appraisal fees, and servicing fees over the life of the mortgage. In addition, the interest rate you pay is generally higher than for a traditional mortgage.
• Interest is added to the balance you owe each month. That means the amount you owe grows as the interest on your loan adds up over time. And the interest is not tax-deductible until the loan is paid off.
• You still have to pay property taxes, insurance, utilities, fuel, maintenance, and other expenses. If you don’t pay your property taxes, keep homeowner’s insurance, or maintain your home in good condition, you can trigger a loan default and might lose your home to foreclosure.
• Reverse mortgages can use up all the equity in your home, leaving fewer assets for you and your heirs. Borrowing too soon can leave you without resources later in life.
• Generally, you don’t have to pay back the money as long as you remain in your home. But when you die, sell your home, or move out, the loan must be repaid. Doing that might mean selling the home to have enough money to pay the accrued interest.

For more information on reverse mortgages, the CFPB provides a guide (PDF) for consumers and answers to common questions. If you currently have a reverse mortgage, you can submit submit complaints to the CFPB.