In the latest example of its heightened enforcement activities, the Consumer Financial Protection Bureau (CFPB) filed a complaint and proposed a settlement alleging deceptive marketing by the nation’s largest reverse mortgage lender.
Key points to remember
- The Consumer Financial Protection Bureau alleges that the nation’s largest reverse mortgage provider used misleading home valuation estimates to attract customers.
- The lender, American Advisors Group, says it is taking action to address CFPB’s concerns.
- Reverse mortgages are complex products, and the CFPB appears poised to strengthen oversight and enforcement of the rules that govern them.
What the CFPB alleges
In action filed last week with the United States District Court for the Central District of California, the CFPB alleges that the American Advisors Group (AAG), based in Irvine, Calif., Used estimates of swollen homes and misleading in direct mail to attract potential reverse mortgage customers.
The CFPB also alleged that AAG violated a prior consent order in 2016, again involving misleading advertising and misleading claims. If made by the court, the order requires AAG to pay a civil fine of $ 1.1 million plus $ 173,400 in consumer redress.
âAmerican Advisors Group has violated consumer confidence by advertising reverse mortgages with inflated and misleading home valuation estimates,â CFPB Acting Director David Uejio said in announcing the action. “The CFPB will act decisively when we uncover harms or consumer practices that seek to benefit vulnerable populations.”
A spokesperson for AAG admitted that the case involved direct mail articles that included estimates of the value of third-party homes.
“AAG has fully cooperated with this investigation, has already started to take action to address CFPB concerns and is happy to resolve the issue,” the spokesperson told Investopedia. âWe take these types of marketing issues seriously and are committed to providing our clients with clear and accurate information to help them responsibly access their home equity. ”
According to the CFPB suit, the median value estimates were inflated by an average of 18%, while at the high end, the values ââwere on average 28% higher.
While the AAG included a footnote in its marketing materials claiming that it had made “every attempt to ensure that the information provided on the home’s value is reliable,” the CFPB said that these efforts were not sufficient. She argued that AAG had done “no analysis directly related to the appraised values ââof the homes it advertised in its mailings.”
AAG has been the # 1 reverse mortgage lender nationwide since the start of the year, with a 33% market share, according to Reverse Market Insight, an industry data analysis company based in Dana Point, California.
More Watch To Come For Reverse Mortgage Lenders?
The AAG action is the second CFPB execution against a reverse mortgage lender this year. In April, the bureau accused Mahwah, New Jersey-based Nationwide Equities Corp. of sending deceptive loan ads to hundreds of thousands of older borrowers.
And there are signs that there may be more to come. In a biannual report to Congress released on Oct. 8, for example, the CFPB wrote that it had “a number of ongoing and recently initiated investigations into fair loans from institutions.”
The CFPB’s actions follow a 2015 report in which it examined advertisements from various reverse mortgage lenders in five major US markets. This study found that many contained confusing, incomplete and inaccurate statements regarding borrower requirements, government insurance, and borrower risks.
A complex product
Federally Insured Reverse Mortgages, officially known as Home Equity Conversion Mortgages (HECMs), are a type of loan that allows homeowners 62 and over to leverage their home equity. in the form of a lump sum, a line of credit or monthly withdrawals.
Homeowners must continue to pay property taxes, insurance and repair costs. The loan must be repaid when the borrower dies, sells the house, moves for 12 months, or defaults.
HECMs are administered by the Federal Housing Administration (FHA). A 2019 report from the United States Government Accountability Office that examined FHA data found that reverse mortgage defaults fell from 2% of loan terminations in 2014 to 18% in 2018, mostly due to due to borrowers’ non-compliance with occupancy requirements or non-payment of property taxes and insurance.
Because it is so important to fully understand how these loans work and the potential risks to borrowers, CFPB urges homeowners to review this advice on its website.