The Government Accountability Office’s reverse mortgage report found that among the materials reviewed, it discovered 26 different entities that made potentially misleading claims in their HECM marketing materials.
The group includes entities regulated by each of the federal banking regulators as well as FTC and state regulators. It also included both members and nonmembers of the National Reverse Mortgage Lenders Association.
The six potentially misleading claims that the GAO identified were as follows:
- “Never owe more than the value of your home”: The claim is potentially misleading because a borrower or heirs of a borrower would owe the full loan balance—even if it were greater than the value of the house—if the borrower or heirs chose to keep the house when the loan became due. This was the most common of the potentially misleading statements we found in the marketing materials we reviewed. This claim was made by HUD itself in its instructions to approved HECM lenders; however, in December 2008, HUD issued guidance to HECM lenders explaining the inaccuracy of this claim.
- Implications that the reverse mortgage is a “government benefit” or otherwise, not a loan: While HECMs are government-insured, the product is a a loan that borrowers or their heirs must repay, not a benefit. Examples of this type of claim include the following: “You may be qualified for this government-sponsored benefit program,” and “Access the equity in your home without having to sell, move, or take out a loan.”
- “Lifetime income” or “Can’t outlive loan”: Although borrowers can choose to receive HECM funds as monthly tenure payments, even under this option, payments will not continue once the loan comes due (e.g., when the borrower moves out of the house or violates other conditions of the mortgage).
- “Never lose your home”: This claim is potentially misleading because a lender could foreclose on a HECM borrower’s home if the borrower did not pay property taxes and hazard insurance or did not maintain the house.
- Misrepresenting government affiliation: An example of this type of claim would include use of government symbols or logos and claims that imply that the lender is a government agency.
- Claims of time and geographic limits: These claims falsely imply that HECM loans are limited to a certain geographic area, or that the consumer must respond within a certain time to qualify for the loan. Examples include “must call within 72 hours,” and “deadline extended,” as well as the claim that a consumer’s residence is “located in a Federal Housing Authority qualifying area.”
Below is an example of one of the marketing pieces the GAO examined.