Reverse Mortgage

Reverse mortgage lender accused of misleading advertising


As the latest example of its increased enforcement activity, the Consumer Financial Protection Bureau (CFPB) has filed a complaint proposing a settlement alleging fraudulent marketing by the largest reverse mortgage lender in the country.

The central theses

  • The Consumer Financial Protection Bureau claims that the country’s largest reverse mortgage loan provider used fraudulent home value estimates to attract customers.
  • The lender, American Advisors Group, says it is taking steps to address the CFPB’s concerns.
  • Reverse mortgages are complex products and the CFPB appears poised to step up oversight and enforcement of the rules governing them.

What the CFPB claims

In the lawsuit filed last week in the U.S. District Court for the Central District of California, the CFPB alleges that the Irvine, Calif.-Based American Advisors Group (AAG) used inflated and fraudulent real estate appraisals in direct mail to target prospects attract with reverse mortgage loans.

The CFPB also alleged that AAG violated a prior consent order in 2016, which in turn included fraudulent advertising and misleading claims. If the order is issued by the court, AAG must pay a civil penalty of $ 1.1 million plus $ 173,400 in consumer protection measures.

“American Advisors Group has violated consumer confidence by promoting reverse mortgages with inflated and fraudulent home value estimates,” said CFPB Acting Director David Uejio when announcing the action. “The CFPB will act decisively if we uncover consumer harm or practices aimed at taking advantage of vulnerable populations.”

An AAG spokesman admitted the matter was direct mail containing estimates of home value by third parties.

“AAG has fully cooperated with this investigation, has already begun to take steps to address the concerns of the CFPB and is pleased to resolve the matter,” the spokesman told Investopedia. “We take these types of marketing problems seriously and strive to provide our customers with clear and accurate information to enable them to have responsible access to their home equity.”

According to the CFPB lawsuit, the mean value estimates were inflated by an average of 18%, while the values ​​at the upper end were on average 28% higher.

While the AAG included a footnote in its marketing materials claiming it had “made every attempt to ensure that the home value information provided is reliable,” the CFPB said those efforts were inadequate. She claimed that AAG “did not conduct any analysis directly related to the appraised property values ​​it advertised in its mailings”.

According to Reverse Market Insight, an industry data analyst based in Dana Point, California, AAG holds the top position among reverse mortgage lenders nationwide with a 33% market share.

Greater Control For Reverse Mortgage Lenders Ahead?

The AAG lawsuit marks the CFPB’s second enforcement against a reverse mortgage lender this year. In April the office accused Nationwide Equities Corp. based in Mahwah, NJ, sent fraudulent loan notices to hundreds of thousands of senior borrowers.

And there are signs that more could come. For example, in a semi-annual report to Congress released on October 8, the CFPB wrote that it had “a number of ongoing and newly opened investigations into fair lending by institutions.”

The CFPB actions follow a 2015 report in which it checked the advertisements of a variety of reverse mortgage lenders in five major US markets. This study found that many contained confusing, incomplete, and inaccurate statements about borrower requirements, government insurance, and borrower risk.

A complex product

Federally insured reverse mortgages, officially known as home equity conversion mortgages (HECMs), are a type of loan that allows homeowners aged 62 and over to take advantage of their home equity in the form of a lump sum, line of credit, or monthly draw.

Homeowners will still have to pay property tax, as well as insurance and repairs. The loan must be repaid if the borrower dies, sells the home, moves out for 12 months, or defaults on payments.

HECMs are administered by the Federal Housing Administration (FHA). A 2019 report by the US Government Accountability Office that examined the FHA’s data found that the number of inverse mortgage defaults rose from 2% of loan cancellations in 2014 to 18% in 2018, largely because borrowers fail to meet occupancy requirements meet or fail to pay property taxes and insurance.

Because it is so important to thoroughly understand how these loans work and the potential risks to borrowers, the CFPB encourages homeowners to review these guidelines on their website.