QUESTION
Last year, our company got into reverse mortgages. We hired on a few loan officers who
knew a lot about reverse mortgages, and we set up a reverse mortgages division.
At first, we did well until the banking department notified our CEO about advertising violations involving our reverse mortgages. Our compliance manager had approved the advertisements, but what’s done is done.
We had to go through an examination of all our reverse mortgage advertising, and we were stuck with a list of violations and penalties. We scaled down the reverse mortgages division. I’m sure this could have all been avoided.
Now, there’s talk of expanding it again. This time around, I think we need help. I would appreciate your telling us some mistakes we could watch out for in the future.
What are some advertising mistakes in reverse mortgages?
ANSWER
There are
many advertising pitfalls associated with reverse mortgages. Over the years,
these violations have become the basis for lawsuits, administrative actions
(state and federal), agency concerns, and adverse reputation risks. I’ll
mention a few for you to consider. If you are not really familiar with this area
of advertising compliance, please contact us for support.
Most importantly, always make it a point to take the consumers’ point of view as it relates to reverse mortgage advertisements. Too often, they misunderstand one or more important features of the loans and the loans’ potential risks. Ads that downplay the terms and risks of reverse mortgages or confuse prospective borrowers lead to trouble.
Here are a few pointers to consider. Revise your advertising accordingly.
- It may seem odd, but many consumers do not understand that reverse mortgages are loans. For instance, some consumers falsely believe that the government provides reverse mortgages and that, therefore, repayment would not be required.
- Indeed, many consumers find it difficult to understand that reverse mortgages are loans with fees and compounding interest like other loans since ads may not include interest rates or include them in the fine print.
- Some consumers mistakenly believe that money received through a reverse mortgage represents home equity they had accrued over time and that there is no reason they would have to pay it back.
- Consumers are confused by incomplete and inaccurate information. For instance, reverse mortgage advertisements often erroneously imply or state that borrowers cannot lose their homes or that borrowers make no monthly payments.
Sometimes, ads misleadingly claim that reverse mortgage proceeds are “tax free,” thus leading consumers to believe they would not have to pay property taxes.
- One of my pet peeves is that some advertisements leave the impression that the main benefit of a reverse mortgage is that consumers can remain in their homes “as long as they want” based on ads that state that “the title and deed remain in their name.” Consumers then assume that having a reverse mortgage means they can never lose their homes. This is a disingenuously created perception because while reverse mortgage borrowers retain the title and deed, the loans are secured by a lien, and borrowers can, in fact, lose their homes.
Furthermore, reverse mortgage borrowers are responsible for several requirements, including paying property taxes, homeowner’s insurance, and property maintenance. Failing to meet these requirements can trigger a loan default that results in foreclosure. Advertisements that create the impression that there is no risk are thus misleading.
- Consumers often do not read the “fine print.” We all know that! Inevitably, most consumers do not read the fine print in printed ads; indeed, virtually no consumers read the fine print used in television ads.
Ads may include information about borrower requirements in fine print, but regulators do not tolerate the “fine print” disclosure gambit, especially and egregiously where the fine print generally addresses tax and insurance requirements, property maintenance, and residency requirements, repayment terms, and other essential details about the loans.
- Consumers misunderstand the role of government due to defective reverse mortgage ads. This is caused by ads that state that the loans are “government insured” or a “government-backed program.” Some misleading advertisements use text and graphics, such as eagles, government seals, and so forth, to imply that reverse mortgages are affiliated with or offered by the federal government.
- Some consumers complain that language or images in the ads reference the Department of Housing and Urban Development (HUD) or the Federal Housing Authority (FHA). Regulators take the position that federal agencies’ names in the ads deceptively signal that the government is funding and operating a reverse mortgage program for senior citizens.
- Regulators issue administrative actions where ads claim “tax free” money because it is a sign that the company is trying a subterfuge to suggest that the reverse mortgage is a government-run program or benefit.
One final note. Be sure that the reverse mortgage ad is complete with respect to advertising compliance – and I do mean totally complete! Incompleteness in ads can lead to a determination that they are unfair or deceptive if coupled with claims of guarantees or strong statements about the absence of risk.
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group
