Question

WASHINGTON, D.C.– Today the Consumer Financial Protection Bureau (CFPB) took action against three reverse mortgage companies for deceptive advertisements, including claiming that consumers could not lose their homes. The CFPB is ordering American Advisors Group, Reverse Mortgage Solutions, and Aegean Financial to cease deceptive advertising practices, implement systems to ensure they are complying with all laws, and pay penalties.

“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.”

A reverse mortgage is a special type of home 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 pass away, sell, or move out. The loan proceeds are generally provided to the borrowers as lump-sum payments, monthly payments, or as lines of credit. Homeowners remain responsible for payment of taxes, insurance and home maintenance, among other obligations.

The Mortgage Acts and Practices Advertising Rule prohibits misleading claims in mortgage advertising. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits institutions from engaging in deceptive acts or practices, including with regard to advertising of consumer financial products or services.

American Advisors Group

American Advisors Group, headquartered in Orange, Calif., is licensed in 49 states and the District of Columbia. It is the largest reverse mortgage lender in the United States. The company ran television advertisements almost daily and disseminated its information kit to approximately 1 million consumers. The information kit included a DVD and several brochures with information about reverse mortgage products.

Through its investigation, the CFPB found that since January 2012 American Advisors Group’s advertisements misrepresented that consumers could not lose their home and that they would have the right to stay in their home for the rest of their lives. The company also falsely told potential customers that they would have no monthly payments and that with a reverse mortgage they would be able to pay off all debts. In fact, consumers with a reverse mortgage still have payments and can default and lose their home if they fail to comply with the loan terms. These terms require, among other things, paying property taxes, making homeowner’s insurance payments, and paying for property maintenance. Moreover, a reverse mortgage is a debt and therefore cannot be used to eliminate all of a consumer’s debt.

Under the terms of today’s consent order, the company must make clear and prominent disclosures in its reverse mortgage advertisements and implement a system to ensure it is following all laws. It will also pay a civil penalty of $400,000.

What are two things EACH of the above companies did that was deemed deceptive?

Answer 1

A reverse mortgage (also called as home equity conversion mortgage) is a special and new kind of loan, through which homeowners having an age of 62 years of more can assess the equity of their homes and defer the payment of the reverse mortgage loan until they move out, sell, or pass away. The loan is usually paid when the owner/borrower moves out, or when he/she dies. Therefore the loan is for converting the accumulated home equity in the form of liquid assets. The proceeds of the loan are to be collected as monthly payments, lump-sum amounts, or in the form of credit lines. However, seniors who take the loan and do not keep up on tax payments, insurance, and regular home maintenance will risk defaulting on the loan and will be forced to move out.

The companies in question here are tricking the consumers in believing that they will never lose their homes when they choose a reverse mortgage, which is not true. The Federal advertising disclosure guidelines and requirements should be abided by all the mortgage lenders and brokers when they promote their products, including a reverse mortgage loan. Federal regulations require that the lenders inform the borrowers of all the different and available features of the reverse mortgage loan and also explain all of these features, provisions, and conditions in plain language. A federal regulatory agency, the Consumer Financial Protection Bureau (CFPB) found that the companies are making false claims in their voluminous television, print, radio ads, and in the direct marketing information kits that homeowners/borrowers will never be forced to leave and will always retain ownership of their home. However, the fact of the matter is that loan default may be raised when the borrower is absent from the home for more than 6 months, falls behind the payment of homeowner insurance and property taxes, and/or does not satisfy the other requirements of the loan. The lender will foreclose on the home in case the borrower defaults.

Further, the CFPB points out that these ads were also claiming that there will be no cost to reverse mortgage, which is the second deception in the case here practiced by the lending companies. The fact is that the borrowers have to pay the credit report fee, appraisal costs, title insurance cost, fee for the government mortgage insurance, as well as the closing costs, among other costs. Therefore, these advertisements have been found to hide important facts and information or present it in an inaccurate way, thereby misleading people.

Apart from these 2 deceptions, there are also other deceptive ways associated with reverse mortgage loan ads. For instance, some of the advertisements for the loan mention that the loan will not be affecting the Medicare or social security benefits of the borrower. But what these advertisements do not mention is that the reverse mortgage loan will affect eligibility for Medicaid. Some companies also misrepresent that the heirs will always inherit the home and are not disclosing all the conditions for inheritance. The fact is that heirs can only retain the ownership of a home upon the death of the consumer if they pay 95% of the total and assessed value of the home, or repay the reverse mortgage. In most conditions, it has been found that heirs do not actually inherit the home. Moreover, the ads are also giving the impression that the loans are somehow affiliated to the government and the loan equity is a kind of benefit that the seniors will be provided through public funds, which is entirely inaccurate.