Reverse mortgage lender accused of deceptive marketing

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Reverse mortgage lender accused of deceptive marketing

The Consumer Financial Protection Bureau (CFPB) has filed a lawsuit and proposed settlement claiming misleading marketing by the biggest reverse mortgage lender in the country as the latest example of its increased enforcement actions.

Key Takeaways

  • According to the Consumer Financial Protection Bureau, the biggest reverse mortgage company in the country lured clients with false property value estimates.
  • American Advisors Group, the lender, claims that it is taking action to allay the CFPB’s worries.
  • The CFPB seems prepared to increase regulation and the application of the laws regulating reverse mortgages, which are complicated products.

What the CFPB Alleges

The Consumer Financial Protection Bureau (CFPB) claims that Irvine, California-based American Advisors Group (AAG) used exaggerated and misleading home estimates in direct mailers to lure potential reverse mortgage customers in the lawsuit filed last week with the U.S. District Court for the Central District of California.

Additionally, the CFPB claimed that AAG violated a previous consent agreement in 2016 by using false representations and deceptive advertising. The ruling demands that AAG pay a $1.1 million civil penalty as well as $173,400 in consumer restitution if it is approved by the court.

The CFPB’s interim director, David Uejio, announced the case and said that “American Advisors Group abused customers’ trust by promoting reverse mortgages with inflated and fraudulent home-value estimations.” When we find consumer damage or practices that try to take advantage of vulnerable groups, the CFPB will act swiftly.

An AAG representative stated that the issue included direct mail mailings that contained house value assessments from other sources.

  Weekly Mortgage Applications Survey

The representative told Investopedia that AAG “completely cooperated with our inquiry, has already started to take actions to address CFPB’s concerns, and is delighted to settle the issue.” We are dedicated to giving our consumers accurate information to enable them to properly access their home equity and take these sorts of marketing concerns seriously.

The CFPB lawsuit claims that the midpoint value estimates were on average 18% inflated, while the high end figures were on average 28% exaggerated.

The CFPB argued that despite AAG’s representation in a footnote to its marketing materials that it took “every endeavor to guarantee the home value information given is accurate,” such measures were insufficient. In their argument, AAG claimed that “no study directly relevant to the projected property values that it promoted in its mailers” had been done.

Reverse Market Insight, a Dana Point, Calif.-based company that analyzes industry statistics, ranks AAG as the leading reverse mortgage lender nationwide year to date with a 33% market share.

Greater Scrutiny Ahead for Reverse Mortgage Lenders?

The CFPB has targeted a reverse mortgage lender twice this year, with the most recent being the AAG action. The Bureau accused Nationwide Equities Corp. of sending misleading loan advertising to tens of thousands of senior consumers in April.

Additionally, there are hints that maybe more lies ahead. For instance, the CFPB said that it has “a number of ongoing and recently started fair lending investigations of institutions” in a semi-annual report to Congress that was made public on October 8.

The CFPB’s moves come in response to a 2015 study in which it examined reverse mortgage lender ads in five significant U.S. markets. According to the research, many of these representations about borrower obligations, government insurance, and borrower risks were unclear, lacking, and misleading.

  Standing Mortgage Definition

A Complex Product

Homeowners age 62 and older may access their home equity via a kind of loan called a federally insured reverse mortgage, often known as a HECM, in the form of a lump amount, a line of credit, or monthly draws.

Taxes on real estate, as well as the price of maintenance and insurance, must still be paid by homeowners. When the borrower passes away, sells the home, vacates the property for a year, or defaults, the loan is required to be repaid.

The Federal Housing Administration manages HECMs (FHA).Reverse mortgage defaults increased from 2% of loan terminations in 2014 to 18% in 2018, according to a 2019 report by the U.S. Government Accountability Office that looked at FHA data. This increase was primarily caused by borrowers failing to meet occupancy requirements or pay property taxes and insurance.

The CFPB advises homeowners to examine this advice on its website because it’s critical to fully comprehend how these loans function—and the possible hazards to borrowers.

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