E.3 About this Report
6.2 Advertising
Numerous state and federal agencies have expressed concerns about how reverse mortgage products are advertised. Reverse mortgages are inherently complex products, which can make it difficult for consumers to recognize inaccurate or misleading statements.
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6.2.1 RISKS TO CONSUMERS
False or misleading advertising poses a serious risk to consumers. If consumers misunderstand the features, risks, and obligations of a reverse mortgage, they are more likely to make poor decisions. They may take out a reverse mortgage when an
alternative product would better suit their needs or when selling the home and downsizing would be a wiser financial choice. They may not choose the best set of mortgage features for their situation. They may also be more likely to fail to meet their mortgage-related obligations, such as payment of taxes and insurance.
In connection with its 2009 report, the GAO reviewed marketing materials for major HECM lenders.315 The GAO’s study included a review of Internet marketing materials for 12 major HECM lenders, as well as mailed materials from 11 of the 12 lenders. The GAO further reviewed DVDs and other materials from HECM lenders that advertise on television, conducted Internet searches for materials with potentially misleading statements, and collected materials distributed at reverse mortgage information seminars.316
In its study, the GAO identified six potentially misleading claims:317 1. A borrower will “never owe more than the value of your home.”
2. A reverse mortgage is a “government benefit” or otherwise not a loan.
3. A reverse mortgage is a “lifetime loan” or a borrower “can’t outlive the loan.”
4. Borrowers can “never lose” their home.
5. Implied or misrepresented government affiliation.
6. Implied time limits or geographic limits on the availability of reverse mortgages.
6.2.2 POLICY AND ENFORCEMENT RESPONSE
In response to the risks posed by misleading advertising for reverse mortgage consumers, state regulators have introduced more specific regulations and taken enforcement actions against individual companies. The Board of Governors of the Federal Reserve System (the Board) also issued a proposed rule that would have imposed new restrictions at the federal level.
6.2.2a State regulation and enforcement actions
Most of the state regulation against deceptive marketing has focused on how
information is disseminated to the consumer and the information required to be in the disclosures. Several states require the loan agreement to specifically state that the deed
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or mortgage “secures a reverse mortgage loan.”318 Some states also require explicit descriptions of fees and costs,319 with many states requiring the inclusion of interest and fees to be charged when the loan becomes due and payable.320 Arizona requires an originator to disclose in writing all costs being charged and clearly identify which charges are for items not required to obtain the reverse mortgage.321 Other states have focused on the disclosure of events that could trigger the loan to become due and payable.322
State regulators have taken enforcement actions to combat unfair and deceptive marketing of reverse mortgages. Recent actions have centered not only on individuals and entities that make unfair or deceptive statements about reverse mortgages, but also those that misrepresent their ability and qualifications to offer reverse mortgages to consumers.
Between 2008 and 2010, regulators in Florida, Illinois, Maryland, Massachusetts, Virginia and Washington brought allegations of deceptive marketing or consumer fraud against American Advisors Group of Irvine, California (AAG). The allegations centered on multiple direct-mail solicitations marked “Notice of 2008 Government Benefits”323 or “2009 Economic Stimulus Plan – HECM Program”324 that could have created the impression that the product being offered was a benefit and not a reverse mortgage loan. The marketing also contained the Equal Housing Opportunity logo, identified “Administrative Offices” as the sender of the mailing, and told consumers that they had been “pre-selected” and that they would have to make “NO
MONTHLY PAYMENTS of any kind on proceeds.”325
To resolve the administrative action and allegations in Massachusetts, AAG entered into a Consent Order with the Massachusetts Commissioner of Banks agreeing, among other things, to (1) revise its advertising practices and procedures; (2) to issue a written clarification notice to consumers stating that it was not affiliated with a government entity; and (3) pay an administrative penalty.326 To resolve the suit and allegations by the Attorney General in Illinois, AAG agreed to enter an Agreed Order and Consent Decree that, among other things, required the payment of an administrative penalty and enjoined American Advisors Group from making certain statements in connection with the marketing and sale of reverse mortgages.327 The types of statements AAG is permanently enjoined from making include any that represent, expressly or by implication, that: (1) a reverse mortgage is a government benefit; (2) President Obama’s stimulus plan created the HECM; and (3) AAG is affiliated with a government agency.328
State regulators have also taken action against individuals and entities that misrepresent their ability to offer reverse mortgages to consumers.329 In 2011, the Massachusetts Commissioner of Banks took action against several Internet-based entities that were not licensed in the Commonwealth as mortgage brokers, lenders, or originators. The
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Commissioner issued Cease Directives to these entities for misrepresenting themselves as being licensed to transact business, collecting personal information from consumers, and offering quotes to consumers.330 One entity offered consumers a “Lender’s Pledge” claiming: “We at Reverse Mortgage Page are committed to bringing you together with the best, most reputable reverse mortgage lenders. Our reverse mortgage lenders pledge to: 1) be registered and in good standing with all appropriate
government regulators…7) completely follow all federal, state, and administrative laws...”331 Another entity referred consumers from its “Find a Lender” webpage to entities not authorized to conduct mortgage business in Massachusetts and further claimed, “You won't lose your home through a reverse mortgage. Your lender does not ever gain ownership.”332
Similar concerns about how individuals and entities represent themselves have been noted by other regulators, who as early as 2007 took note of aggressive marketing campaigns targeted at seniors utilizing purported credentials or designations that implied a level of expertise or special training in advising senior citizen investors.333 Securities regulators in the Commonwealth of Massachusetts and other states made it a dishonest or unethical practice for individuals (broker-dealers, agents, and investment adviser representatives) to use these so-called senior designations unless the regulator has somehow recognized the use of the designation and the accrediting organization conferring it.334 State insurance regulators have also issued similar regulations.335 Community groups have noted the rise of the use of the similar so-called senior designations, including the “Certified Senior Adviser” title, in the marketing and sale of reverse mortgages.336
As recently as late 2011, consumers reported to the CFPB that they had received direct-mail solicitations from reverse mortgage lenders claiming to offer government benefits and displaying the seal of a federal agency.337
6.2.2b The Federal Reserve Board’s proposal
On September 24, 2010, the Board proposed a rule that would have imposed new restrictions on reverse mortgage advertisements. The Board’s proposed rule would have required advertisements to disclose clarifying information if the advertisement used statements similar to those identified as potentially misleading by the GAO or other problematic statements identified by the Board.
The Board’s proposed rule would have required clarifying disclosures for the following types of statements: 338
1. A reverse mortgage is a “government benefit.”
Clarification:A reverse mortgage is a loan that must be repaid.
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2. A reverse mortgage provides payments “for life” or a consumer need not repay a reverse mortgage “during your lifetime.”
Clarification: Explain the circumstances under which payments or access to a line of credit may end or a consumer would be required to repay a reverse mortgage during the consumer’s life (e.g., the borrower sells the home).
3. A consumer “cannot lose his or her home” or there is “no risk” to a consumer’s home with a reverse mortgage.
Clarification: Foreclosure may occur if the consumer (1) lives somewhere other than the home longer than allowed by the loan agreement; or (2) does not pay property taxes or insurance premiums.
4. Payments are not required for a reverse mortgage.
Clarification: Consumers must make payments for taxes and insurance during the term of the reverse mortgage.
5. Government fee limits apply to a reverse mortgage.
Clarification: Reverse mortgage costs may vary among creditors and loan types.
Less expensive options may be available.
6. A reverse mortgage does not affect a consumer’s eligibility for, or benefits under, a government program.
Clarification: A reverse mortgage may affect eligibility for some government programs. Specifically, SSI and Medicaid may be affected.
7. A consumer or a consumer’s heirs “cannot owe” or will “never repay”
more than the value of the consumer’s home.
Clarification: In order to retain the home when the reverse mortgage becomes due, (1) the consumer or the consumer’s heirs or estate must pay the entire loan balance and (2) the balance may be greater than the value of the consumer’s home.x
x These types of advertising statements may be less problematic today as a result of HUD’s rescission of FHA Mortgagee Letter 2008-38, which required the borrower’s estate to pay off the entire reverse mortgage loan balance in order to retain ownership of the home. See Section 6.7.2.
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The advertising provisions of the Board’s proposed rule were designed to assist consumers in understanding potential risks associated with taking out a reverse mortgage. The authority for future rulemaking on reverse mortgage advertising under the Truth in Lending Act (TILA) transferred to the CFPB on July 21, 2011.
6.2.3 CONCLUSIONS
Given the complex nature of reverse mortgages, consumers may be particularly susceptible to misleading advertisements. Such statements can create confusion about fundamental features of reverse mortgages, leading consumers to make poor product choices.
The CFPB remains concerned about the consumer harm caused by misleading advertisements. The CFPB plans to consider the Board’s 2010 proposal and other potential means of combating misleading advertisements in this area. Additionally, the CFPB currently has authority to take supervisory and enforcement actions against deceptive practices.339