Dave Ramsey's $150 Million Lawsuit and More Misinformation
Christian radio host Dave Ramsey is currently facing a substantial $150 million lawsuit from 17 listeners who claim that he played a significant role in defrauding them by promoting a timeshare exit company.
This is the latest example of Dave Ramsey giving poor and even fraudulent advice to his listeners, as we have documented before.
Read on to learn about Dave Ramsey’s latest $150 million lawsuit, his incorrect claims about reverse mortgages, and even how his views on regular mortgages are hurting Americans.
Dave Ramsey faces $150 million lawsuit
Dave Ramsey is currently entangled in a lawsuit worth $150 million filed by his listeners due to his endorsement of a timeshare exit group.
Reed Hein, the timeshare exit company in question, promised to assist customers in getting out of their timeshare contracts but frequently fell short of delivering on their promises.
- Legal professionals assert that Ramsey received a hefty $30 million payment for his six-year-long endorsement of Reed Hein.
The lawsuit, filed in April against Ramsey and marketing company Happy Hour Media Group, alleges that the radio host's endorsement of Timeshare Exit Team had a detrimental financial impact on his listeners.
Dave Ramsey, known for providing financial advice to millions of listeners through his radio show, relies on biblical teachings to guide his recommendations.
Listeners often call in seeking advice on managing their finances, including one couple in May who sought help with their debts amounting to $760,000.
The lawsuit claims that Ramsey received substantial compensation for advertising Timeshare Exit Team, which was operated by Reed Hein & Associates, based in Kirkland, Washington.
Lawyers assert that Reed Hein paid Ramsey $450,000 per month for his services, totaling $30 million over six years.
Reed Hein promised to assist customers in exiting their timeshare agreements but frequently failed to deliver on their promises, according to the lawsuit.
Legal actions initiated by timeshare operators in 2017 proved successful, and in 2021, Reed Hein was ordered by the Washington State attorney general, Bob Ferguson, to cease its deceptive practices and pay $2.6 million for restitution to victims. Subsequently, the company ceased its operations.
Each of the 17 plaintiffs involved in the lawsuit claims to have paid thousands of dollars for Timeshare Exit Team's services after being influenced by Ramsey's promotions.
They state that they were often advised to negotiate their settlements directly with the timeshare companies, and reaching out to Reed Hein proved to be an arduous task.
Ramsey continued to promote Reed Hein between 2015 and 2021, ceasing only when the company stopped compensating him, as alleged in the lawsuit.
During this period, it is asserted that Ramsey received numerous letters from dissatisfied listeners regarding the company's services.
Throughout the time that Ramsey endorsed Reed Hein, the lawsuit contends that the company generated $70 million in fees from customers referred to them by the radio host.
Lawyers argue that as complaints mounted, Ramsey became increasingly defensive about his association with the company.
The lawsuit claims that Ramsey responded by recording a nine-minute radio segment in which he criticized individuals he deemed responsible for Reed Hein's difficulties, including timeshare companies and the Washington State attorney general.
According to the lawsuit, Ramsey never reimbursed any of the tens of millions of dollars paid to him by Reed Hein and Happy Hour Media Group from his own listeners' hard-earned money. Instead, he is accused of continuing to profit from his listeners' funds.
Why Dave Ramsey is Wrong About Reverse Mortgages
Dave Ramsey is a well-known figure in the financial industry, renowned for his expertise in personal finance, budgeting, and debt reduction. However, when it comes to reverse mortgages, Ramsey's advice misses the mark.
In this blog, we will explore why Dave Ramsey is wrong about reverse mortgages by debunking his claims and addressing common misconceptions.
One of Ramsey's main arguments against reverse mortgages is his opposition to leverage and debt. While it is true that not all debt is created equal, the proper use of home equity through a reverse mortgage can provide significant benefits to retired homeowners.
It can help eliminate debt, provide financial stability on a fixed income, decrease tax liability, increase net worth, and leave a larger legacy for the next generation.
Ramsey claims that over 100,000 reverse mortgages have failed, resulting in foreclosures and evictions. However, these foreclosures were not due to failures of the reverse mortgage itself.
Most of the foreclosures occurred during the housing meltdown from 2008-2012 and were either "beneficial" or "neutral" from the borrower's perspective.
Reverse mortgages do not make borrowers more likely to default on their tax bill since they eliminate the required mortgage payment and provide the borrower with cash.
Another claim made by Ramsey is that heirs are stuck with two options if the borrower dies before selling the home - paying off the full reverse mortgage or surrendering the house to the bank. This is incorrect.
The US Department of Housing and Urban Development (HUD) and The Federal Housing Administration (FHA) regulate and insure the Home Equity Conversion Mortgage (HECM) product, which allows heirs up to 12 months to sell the home after the borrower's death.
Selling the home provides a form of inheritance for the heirs, and most are content to sell the home and receive the remaining equity.
Ramsey also asserts that homeowners won't qualify for a reverse mortgage if their home is worth more than a certain amount. This claim is false.
While HUD sets limits on the HECM product each year, exceeding the limit does not affect a borrower's ability to qualify for the reverse mortgage.
The limit only restricts the home value when calculating the proceeds, but it does not disqualify homeowners from obtaining the reverse mortgage.
Additionally, Ramsey makes false claims about mortgage insurance premiums (MIP), loan requirements, interest rates, and servicing fees associated with reverse mortgages.
The MIP protects both the borrower and the lender, ensuring the borrower will never owe more than the value of the home and guaranteeing repayment for the lender.
The borrower is not required to take a loan for the maximum amount they qualify for; they can choose the amount they want to take out.
Interest rates on HECMs are often competitive with other mortgage products in the market, and servicing fees have not been seen in a HECM product for over 10 years.
There are also common misconceptions about reverse mortgages that Ramsey hasn't addressed.
For example, reverse mortgages do not require homeowners to give up ownership of their home. The borrower retains full ownership, and the lender only has a lien on the property.
Reverse mortgages are not only for financially unstable seniors but can also be a useful tool for seniors of all financial situations.
The interest rates and fees associated with reverse mortgages are similar to traditional mortgages, and there are no income requirements to qualify for a reverse mortgage.
Furthermore, reverse mortgages do not mean that the lender will eventually own the home, and they are not exclusively for seniors who plan to stay in their home for the rest of their lives.
In conclusion, Dave Ramsey's claims and misconceptions about reverse mortgages are inaccurate and misleading.
Reverse mortgages can provide valuable financial benefits and flexibility for homeowners, especially in retirement. It is important to gather accurate information and consult with a qualified professional.
Don’t Listen to this Dave Ramsey Mortgage Advice
Ramsey's one-size-fits-all approach, combined with his lack of understanding and arrogance on mortgage-related matters, is concerning.
Firstly, Ramsey suggests that the best way to buy a home is to pay in cash or wait until you can put down at least 20%.
While this advice may work for some individuals, it is not suitable for everyone. Waiting to accumulate such a significant amount of cash or delaying homeownership can lead to missed opportunities.
For example, between 2017 and 2022, there was a period of historically low interest rates and substantial home appreciation. Homebuyers who followed Ramsey's advice during that time may have missed out on the chance to benefit from these favorable market conditions.
Consider two hypothetical homebuyers looking at a $300,000 property. Borrower #1 purchases the home with 20% down ($60,000) and experiences a 10% increase in property value, resulting in a $30,000 return on investment (ROI).
On the other hand, Borrower #2 buys the same property with 5% down ($15,000) and also sees a 10% increase in property value, yielding a $30,000 ROI.
Although Borrower #2 has a slightly higher monthly payment, the substantial return on investment outweighs the marginal difference in payment.
Additionally, if Borrower #1 needed access to the locked-up funds in their home, it would not be easily accessible.
Secondly, Ramsey promotes the idea that the only sensible mortgage option is a 15-year fixed-rate conventional loan. While a 15-year mortgage can be advantageous in terms of interest savings, it requires larger monthly payments and may not be affordable for everyone.
Ramsey's calculations are based on the assumption that homeowners will keep the loan for the full 30-year term, which is rarely the case. In reality, homeowners often sell or refinance before the loan reaches maturity.
For instance, consider a homeowner named Bill, who knows he will be relocated for work in five years. Bill decides to opt for a 5/1 adjustable-rate mortgage (ARM) with a 30-year term, where the interest rate remains fixed for the first five years.
This choice allows him to take advantage of the lower rate and longer amortization period. Depending on individual circumstances, alternative mortgage options like ARMs can be suitable and financially beneficial.
Lastly, Ramsey's claim that reverse mortgages are a scam is entirely false and misleading. Reverse mortgages, designed for seniors, are regulated by the U.S. Department of Housing and Urban Development (HUD) and have a high consumer satisfaction rating.
Contrary to Ramsey's assertions, reverse mortgages are non-recourse loans, meaning homeowners and their heirs will never owe more than the value of their home.
The Federal Housing Administration (FHA) guarantees this consumer protection, and applicants are made aware of this before applying for a reverse mortgage.
Qualified mortgage professionals, well-versed in the intricacies of reverse mortgages, find Ramsey's criticism baseless. A comprehensive fact-check conducted in 2021 debunked Ramsey's claims about reverse mortgages.
It is disheartening that Ramsey's misinformation may mislead older homeowners who could benefit from debt consolidation and responsible retirement cash flow planning.
In conclusion, when seeking mortgage advice, it is crucial to consult licensed mortgage loan originators rather than relying on a radio personality like Dave Ramsey.
His generalizations and lack of experience and credentials can lead to detrimental financial decisions for homeowners and homebuyers. Each individual's circumstances and goals are unique.
With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.
About Author - Phil Ganz
Phil Ganz has over 20+ years of experience in the residential financing space. With over a billion dollars of funded loans, Phil helps homebuyers configure the perfect mortgage plan. Whether it's your first home, a complex multiple-property purchase, or anything in between, Phil has the experience to help you achieve your goals.