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Saturday, November 27, 2021

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Reverse mortgage lender accused of deceptive marketing

Within the newest instance of its stepped-up enforcement actions, the Consumer Financial Protection Bureau (CFPB) has filed a criticism and proposed settlement alleging misleading advertising and marketing by the nation’s largest reverse mortgage lender.

Key Takeaways

  • The Shopper Monetary Safety Bureau alleges that the nation’s largest reverse mortgage supplier used misleading dwelling worth estimates to draw clients.
  • The lender, American Advisors Group, says it’s taking steps to deal with the CFPB’s considerations.
  • Reverse mortgages are complicated merchandise, and the CFPB seems prepared to spice up oversight and enforcement of guidelines governing them.

What the CFPB Alleges

Within the motion filed final week with the U.S. District Courtroom for the Central District of California, the CFPB alleges that Irvine, Calif.-based American Advisors Group (AAG) used inflated and misleading dwelling estimates in direct mailers to entice potential reverse mortgage clients.

The CFPB additionally alleged that AAG violated a previous consent order in 2016, once more involving misleading promoting and deceptive claims. If entered by the court docket, the order requires AAG to pay a $1.1 million civil penalty plus $173,400 in shopper redress.

“American Advisors Group violated shoppers’ belief by promoting reverse mortgages with inflated and misleading home-value estimates,” the CFPB’s performing director, David Uejio, mentioned in asserting the motion. “The CFPB will act decisively after we uncover shopper hurt or practices that search to make the most of weak populations.”

An AAG spokesperson acknowledged the matter concerned unsolicited mail items that included third-party dwelling worth estimates. 

“AAG cooperated totally on this investigation, has already begun to take steps to deal with CFPB’s considerations, and is happy to resolve the matter,” the spokesperson instructed Investopedia. “We take these kind of advertising and marketing points significantly, and are dedicated to offering our clients with clear and correct info to assist them responsibly entry their dwelling fairness.”

In response to the CFPB go well with, the midpoint worth estimates had been inflated on common by 18%, whereas on the excessive finish the values had been a mean of 28% increased.

Whereas AAG included a footnote in its advertising and marketing supplies claiming it made “each try to make sure the house worth info offered is dependable,” the CFPB mentioned these efforts weren’t sufficient. It contended that AAG carried out “no evaluation immediately associated to the estimated dwelling values that it marketed in its mailers.”

AAG holds the highest spot amongst reverse mortgage lenders nationally yr thus far, with a 33% market share, in line with Reverse Market Perception, a Dana Level, Calif.-based trade information evaluation agency.

Larger Scrutiny Forward for Reverse Mortgage Lenders?

The AAG motion is the second CFPB enforcement towards a reverse mortgage lender this yr. In April, the bureau charged that Mahwah, N.J.-based Nationwide Equities Corp. despatched misleading mortgage ads to a whole lot of 1000’s of older debtors.

And there are indicators that there could also be extra to return. In a semiannual report back to Congress launched on Oct. 8, for instance, the CFPB wrote that it had “a variety of ongoing and newly opened truthful lending investigations of establishments.”

The CFPB actions observe a 2015 report wherein it reviewed ads from quite a lot of reverse mortgage lenders in 5 giant U.S. markets. That research discovered that many contained complicated, incomplete, and inaccurate statements relating to borrower necessities, authorities insurance coverage, and borrower dangers.

A Complicated Product

Federally insured reverse mortgages, formally often known as dwelling fairness conversion mortgages (HECMs), are a sort of mortgage that enables owners age 62 and older to faucet their dwelling fairness within the type of a lump sum, line of credit score, or month-to-month attracts.

Householders should proceed to pay property taxes and the prices of insurance coverage and repairs. The mortgage should be paid again when the borrower dies, sells the home, strikes out for 12 months, or defaults.

HECMs are administered by the Federal Housing Administration (FHA). A 2019 report by the U.S. Authorities Accountability Workplace that examined FHA information discovered reverse mortgage defaults elevated from 2% of mortgage terminations in 2014 to 18% in 2018, largely resulting from debtors failing to fulfill occupancy necessities or to pay property taxes and insurance coverage.

As a result of it is so necessary to completely perceive how these loans work—and the potential risks to debtors—the CFPB urges owners to evaluation this guidance on its web site.

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