Reverse Mortgage

CFPB Enters Into Consent Order With Reverse Mortgage Lender And Dealer – Finance and Banking

cfpb-enters-into-consent-order-with-reverse-mortgage-lender-and-dealer-finance-and-banking

The CFPB recently entered into a consent
order with Nationwide Equities Corporation (Nationwide),
which the CFPB refers to as a mortgage broker and mortgage lender
that primarily provides jumbo reverse mortgage loans and Home
Equity Conversion Mortgage Loans (HECMs). The CFPB asserts in the
consent order that Nationwide engaged in direct mail advertising
practices that violated the Mortgage Acts and
Practices—Advertising Rule (the “MAP Rule,” also
known as Regulation N), the closed-end advertising requirements of
Regulation Z under the Truth in Lending Act (TILA), and the
prohibition against unfair, deceptive or abusive acts or practices
under the Consumer Financial Protection Act of 2010 (the
“CFPA”).

With regard to the method and volume of advertising, the CFPB
asserts that since December 2015 Nationwide has mailed hundreds of
thousands of mortgage advertisements and distributed flyers to
older homeowners and financial professionals whose clients were
older homeowners in at least 36 states and the District of
Columbia. The CFPB also asserts that hundreds of thousands of
consumers have received at least one of Nationwide’s
direct-mail advertisements, and thousands of consumers have
obtained mortgages through Nationwide.

With regard to the asserted violations of the laws noted above,
the CFPB claims that the direct mail advertisements and the flyers
contain three main types of false, misleading or inaccurate
representations:

  1. False or misleading representations about the costs of a
    reverse mortgage loan and the consequences of nonpayment.
  2. False or misleading representations about the nature of the
    mortgage credit product offered and the source of communications
    sent to consumers.
  3. False or misleading representations about the amount of cash or
    credit available, including the likelihood of obtaining a
    particular product or term.

The CFPB asserts that the following statements in advertisements
constitute the first type of false or misleading representation,
because they incorrectly implied that the consumer would not have
to pay taxes or insurance:

  • Nationwide offered a loan “that allows senior homeowners
    to immediately increase their monthly cash flow TAX FREE” and
    “accomplish their goals without touching savings, investments,
    or current income.”
  • Nationwide claimed taking out a reverse mortgage loan
    “[e]liminates monthly mortgage payments” while allowing
    the borrower to “[s]tay in your home,” with “[l]oan
    proceeds [that] are tax-free.”

The CFPB noted that a consumer could lose their home to
foreclosure for the nonpayment of taxes and insurance.

The CFPB asserts that the following statements in advertisements
constitute the second type of false or misleading representation,
because the statements misrepresented the nature of the mortgage
credit product offered and the source of communications sent to
consumers:

  • Certain solicitations sent to consumers with existing reverse
    mortgage loans provided that “THE TIME HAS COME TO UPDATE YOUR
    REVERSE MORTGAGE” and later repeated that the consumer’s
    current loan was “due for an update.”
  • One letter template was stamped “***IMPORTANT
    NOTICE***” and “DATED DOCUMENT OPEN IMMEDIATELY,”
    and warned, “[o]ur records indicate that you have not yet
    called to discuss your eligibility as a homeowner aged 62 or older
    for your property at [the consumer’s specific address]”
    and later described the reverse mortgage loan offered by Nationwide
    as a “Federally Insured Program that allows senior homeowners
    to immediately increase their monthly cash flow TAX
    FREE.”
  • Another letter template was purportedly from the
    “ADMINISTRATIVE OFFICE” and contained sections titled
    “NOTICE” and “STATUS.” It informed the consumer
    that her “waiting period expired” and that she had
    “not accessed [her] equity reserves.” The letter then
    listed the “equity reserves” seemingly available to the
    borrower.
  • One letter was purportedly from the consumer’s
    “Assigned Officer” within an “INFORMATION
    VERIFICATION DEPARTMENT” and was titled “REQUEST FOR
    VERIFICATION OF OCCUPANCY” and stamped “VERIFY.” The
    letter stated that the company “need[ed] to verify that you
    occupy this property as your Primary Residence” and that there
    are “current benefits you can take advantage of as long as you
    still occupy the property. Call us right away . . . so we can
    verify.”
  • One letter sent to 30,000 consumers with existing reverse
    mortgage loans claimed to have “exciting news regarding your
    reverse mortgage,” announcing that the consumer could
    “TAKE FULL ADVANTAGE OF YOUR REVERSE MORTGAGE” and
    “be eligible for more cash,” without having to pay any
    origination charges.
  • Another letter template distributed to 30,000 consumers told
    consumers with existing reverse mortgage loans that they may be
    “eligible to receive additional money by accessing more of the
    equity in your home.” The letter represented that this
    additional money would “come from the change in value and
    principal limit and would not change any of the rules or
    fundamentals of your existing reverse mortgage.”

With regard to solicitations that, in the view of the CFPB,
suggested to the consumer that the solicitations were from the
consumer’s current reverse mortgage lender offering a loan
modification, the CFPB stated that in reality Nationwide was
offering an entirely new reverse mortgage that would require a new
credit check, appraisal, title search, initial mortgage insurance
premium (MIP), and other costs associated with the loan. The CFPB
noted borrowers refinancing an existing FHA Home Equity Conversion
Mortgage (HECM) with a new HECM are required to pay an initial MIP
of two percent of the maximum claim amount, which is the difference
between the maximum claim amount for the new HECM loan and the
maximum claim amount for the existing HECM being refinanced. It
also appears that the CFPB believed that certain statements
suggested that Nationwide is, or is affiliated with, a government
agency.

The CFPB asserts that the following statements in advertisements
constitute the third type of false or misleading representation,
because the stated pre-approved amounts were not tailored to the
borrowers or their homes:

  • Letters offered multiple consumers of different ages and with
    home values that varied the exact same “pre-approved”
    loan amount—$20,752.43. The letters advised consumers that
    they were “pre-approved” for the stated dollar amount and
    used phrases like, “We’ve done our homework. Your elevated
    status of Pre-Approved means you already have what it takes to
    qualify,” suggesting that the preapproved loan amount was
    based on some specific characteristics of the borrower or her
    home.

The CFPB also asserts that the following statements in
advertisements constitute the third type of false or misleading
representation, because Nationwide did not possess the information
necessary to make representations that borrowers were
“pre-approved” or eligible for specific terms of credit
and, thus, misrepresented that it could arrange or offer a reverse
mortgage loan with the specific credit terms referenced:

  • One letter sent to 5,000 borrowers stated that “THE TIME
    HAS COME TO UPDATE YOUR REVERSE MORTGAGE” and “you have
    been due for an update for [a number of months over 18].” The
    letter also included a pie chart indicating that specific amounts
    were available for distribution to the consumer should she
    refinance her loan.
  • Another letter sent 30,000 times during the Relevant Period
    claimed the borrower was “PRE-APPROVED” for a reverse
    mortgage refinance and was “eligible to receive additional
    money” which would “come from the change in value and
    principal limit and would not change any of the rules or
    fundamentals of your existing Reverse Mortgage.”
  • Another letter distributed to 15,000 consumers listed an
    “Estimated Available Amount” to the borrower and assured
    the borrower that “We’ve done our homework.”

The CFPB additionally asserts that the following statements in
advertisements constitute the third type of false or misleading
representation, because (1) Nationwide made a misleading comparison
between a consumer’s current reverse mortgage loan and a
hypothetical new reverse mortgage loan that would be available to
the consumer, and (2) the statements misrepresented that taking out
a second reverse mortgage would result in substantial savings to
the consumer:

  • One letter sent to over 16,000 consumers promised that
    borrowers would achieve an “IMMENSE SAVING” by taking out
    a new reverse mortgage loan with the company due to HUD changes to
    MIP requirements, and that if the borrower elected to place the
    reverse mortgage proceeds in a line of credit, the amount
    “will continuously grow and earn interest—every single
    month!” The letter also stated that according to
    “research” and a “recent review” performed on
    the borrower’s account, the borrower could “greatly reduce
    [her] monthly expenses” and “save [] money and equity
    each month.”

With regard to the solicitations claiming substantial savings,
the CFPB stated that the closing costs on a new loan were likely to
be significant and could well outweigh the extra cash available
through the refinanced loan. The CFPB also stated that the new loan
terms Nationwide would offer a consumer would not necessarily be
better than the terms of the consumer’s current reverse
mortgage loan.

As noted above, the CFPB asserts that Nationwide sent
solicitations directly to older homeowners and financial
professionals whose clients were older homeowners. When addressing
the MAP rule, the CFPB states that the rule’s prohibitions are
not limited to advertisements sent directly to consumers, because
the rule prohibits misrepresentations “in any commercial
communication.” The CFPB notes that under the MAP rule a
commercial communication includes statements “designed to
effect a sale or create interest in purchasing good[s] or
services.”

The MAP rule has a general prohibition against making any
material misrepresentation, expressly or by implication, in any
commercial communication, regarding any term of any mortgage credit
product. The MAP rule also sets forth a non-exclusive list of
specific types of misrepresentations that violate the rule. The
CFPB asserts violations of the prohibitions against the following
specific types of misrepresentations:

  • The existence, nature, or amount of fees or costs to the
    consumer associated with the mortgage credit product, including but
    not limited to misrepresentations that no fees are charged.
  • The terms, amounts, payments, or other requirements relating to
    taxes or insurance associated with the mortgage credit product,
    including but not limited to misrepresentations about:
    • Whether separate payment of taxes or insurance is required;
      or
    • The extent to which payment for taxes or insurance is included
      in the loan payments, loan amount, or total amount due from the
      consumer.
  • The amount of the obligation, or the existence, nature, or
    amount of cash or credit available to the consumer in connection
    with the mortgage credit product, including but not limited to
    misrepresentations that the consumer will receive a certain amount
    of cash or credit as part of a mortgage credit transaction.
  • The existence, number, amount, or timing of any minimum or
    required payments, including but not limited to misrepresentations
    about any payments or that no payments are required in a reverse
    mortgage or other mortgage credit product.
  • The potential for default under the mortgage credit product,
    including but not limited to misrepresentations concerning the
    circumstances under which the consumer could default for nonpayment
    of taxes, insurance, or maintenance, or for failure to meet other
    obligations.
  • The association of the mortgage credit product or any provider
    of such product with any other person or program, including but not
    limited to misrepresentations that:
    • The provider is, or is affiliated with, any governmental entity
      or other organization; or
    • The product is or relates to a government benefit, or is
      endorsed, sponsored by, or affiliated with any government or other
      program, including but not limited to through the use of formats,
      symbols, or logos that resemble those of such entity, organization,
      or program.
  • The source of any commercial communication, including but not
    limited to misrepresentations that a commercial communication is
    made by or on behalf of the consumer’s current mortgage lender
    or servicer.
  • The right of the consumer to reside in the dwelling that is the
    subject of the mortgage credit product, or the duration of such
    right, including but not limited to misrepresentations concerning
    how long or under what conditions a consumer with a reverse
    mortgage can stay in the dwelling.
  • The consumer’s ability or likelihood to obtain any mortgage
    credit product or term, including but not limited to
    misrepresentations concerning whether the consumer has been
    preapproved or guaranteed for any such product or term.
  • The consumer’s ability or likelihood to obtain a
    refinancing or modification of any mortgage credit product or term,
    including but not limited to misrepresentations concerning whether
    the consumer has been preapproved or guaranteed for any such
    refinancing or modification.

With regard to the Regulation Z closed-end loan advertising
requirements, the CFPB asserts a violation of the requirements that
an advertisement for credit secured by a first lien on a dwelling
must, if applicable, disclose that the advertised payments do not
include amounts for taxes and insurance premiums, and that the
actual payment obligation will be greater.

With regard to the prohibition against unfair, deceptive or
abusive acts or practices under the CFPA, the CFPB simply states
that the asserted violations of the MAP rule and the Regulation Z
advertising requirements also violate such prohibition.

Among various conduct requirements, Nationwide agreed to
designate a senior-level executive as the Advertising Compliance
Official. The Advertising Compliance Official must review each
mortgage advertisement template before any advertisement based on
that template is disseminated to a consumer to ensure that it is
compliant with the MAP Rule, Regulation Z, TILA, the CFPA, and the
consent order. The Advertising Official also must document the
review and, if the advertisement states an amount of cash that a
borrower might receive, the documentation must state the method of
arriving at that number and include any materials used to determine
the availability of that amount.

Nationwide also agreed to pay to the CFPB a civil money penalty
of $140,000.

Nationwide does not admit or deny any findings of fact or
conclusions of law, except for admitting the facts necessary to
establish the CFPB’s jurisdiction over Nationwide and the
subject matter of the consent order.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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