Reverse Mortgages – How to Advertise Reverse Mortgage Loans

There’s been a lot of noise over the last few years about the marketing practices of Lenders who offer Reverse Mortgage loans. There is not however a lot of guidance out there about what needs to be an advertisement for a Reverse Mortgage product.  We have heard advice such as be sure to make it very clear in your ads that the Reverse Mortgage borrower will still be responsible for paying the property taxes and hazard insurance for the property.

Consumers need to understand how a reverse mortgage loan works and what the risks are with such a loan.  Many people who may be considering obtaining a, reverse mortgage loans may not understand how the loans really work. And in many cases, a reverse mortgage loan may not be suitable for all eligible homeowners.  In addition, certain mortgage loan originators may be promoting reverse mortgage loans to unsophisticated consumers without really explaining how the product works. So what’s best practices here on advertising reverse mortgage loans? What details about how the product works must be explained in your advertisement for reverse loans?

There’s not much in Regulation Z about advertising Reverse Mortgage Loans so where can we look for guidance? Here are some rules to consider (note that these come from a new law that was enacted in the State of Oregon):

The lender shall include a clear and conspicuous summary of the terms of the reverse mortgage.

The summary must, at a minimum, disclose these provisions of the reverse mortgage loan contract to the extent that the contract includes the provision:
  1. At the conclusion of the term of the reverse mortgage loan contract, some or all of the equity in the property that is the subject of the reverse mortgage no longer belongs to the person and the person may need to sell or transfer the property to repay the proceeds of the reverse mortgage from the proceeds of the sale or transfer or the person must otherwise repay the reverse mortgage with interest from the person’s other assets.
  2. The lender will charge an origination fee, a mortgage insurance premium, closing costs or servicing fees for the reverse mortgage, all or any of which the lender will add to the balance of the reverse mortgage loan.
  3. The balance of the reverse mortgage loan grows over time and the lender charges interest on the outstanding loan balance.
  4. The person retains title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts may cause the reverse mortgage loan to become due immediately.
  5. Interest on a reverse mortgage is not deductible from the person’s income tax return until the person repays all or part of the reverse mortgage loan.
Note: See Oregon Revised Statutes Section 86A.196 for more information about the rules applicable to reverse mortgage lenders who operate in Oregon.