GAO Finds Potentially Misleading Claims in Reverse Mortgage Marketing

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:

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  • “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.

Marketing Example

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  • I'm glad to see that the government is protecting seniors and helping lenders provide accurate information. It also goes to show that even HUD can inadvertently mis-word marketing material.

    • Yes, I've had a client lose her home because she didn't pay taxes after her RM was in place. It was an unfortunate situation but the lender or HUD couldn't carry the loan when she was over $6,000 behind in her taxes and the tax debt was increasing and she wasn't taking responsibility.

      • As far as ANY senior EVER – I had a client who lost her home to the county as a tax forfeiture because she was $20,000 in default in taxes. Home was worth over $300,000 with no other liens. She chose not to do the RM because she felt the costs were too high. So for her fear of closing costs of about $13,000 she lost over $267,000 in equity. Didn't make sense to me… So yes, seniors do lose their home because of not paying taxes – if not from a lender or HUD, from the county.

  • Listen, reverse mortgage people. We said it was going to happen. Sadly, the June 29th GAO report to Congress, questioning HECM non-recourse claims in reverse-mortgage marketing, among others, confirmed it: FHA Mortgagee Letter 2008-38 has dealt a serious blow to one of the pillars of HECM marketing for the past 20 years. It is a very costly blow.

    You see, the HECM non-recourse claim that the GAO now calls into question is no ordinary marketing claim. It was a claim rooted in the DNA of HECM reverse mortgages. It was an unassailable claim that reassured consumers and industry alike.

    Needless to say that marketing is about perception. And until Mortgagee Letter 2008-38 is revoked and unconditional HECM non-recourse guarantee restored, much of reverse mortgage marketing dollars will be wasted.

  • kpr –

    To answer your question on the non-payment of taxes and insurance – the answer is “no”. However, HUD guidelines call for the loan to be called due and foreclosure started if the taxes and insurance fall in to a default situation.

    So far, the investors (primarily Fannie Mae) have not had foreclosure initiated because they have been afraid of the bad press associated with it.

    However, I don't see how – with the growing volumes of reverses – that they will be able to continue to do this, especially when HUD requires it in their guidelines. I believe you will start to see foreclosures on some (the worst offenders), but not all T&I Defaults. I have read some information recently that NRMLA is working with HUD to come up with a long-term solution to the problem – and it is just that, a serious problem.

  • To RM Leader: who was responsible for the foreclosure? It was my understanding that HUD had a moratorium on foreclosures, and although Interested mentions the possibility of foreclosures, I have not heard of any taking place.

    • The lender and HUD foreclosed – it was several years ago. While they don't like to do it, I haven't heard of a moratorium on foreclosures.

  • Nothing is more important today than complete financial information & perspectives presented clearly and completely. Not to sell, but to inform.

    We should take the perspective that our products are bought by confident and educated seniors, not sold to them.

    bob purcell

  • I don't believe there is a moratorium on foreclosures from HUD, not sure where you heard that. I had a client's home foreclosed on this month for non payment.

  • RM Leader and TexasReverse:

    I have been in this biz for more than 10 years and I have never heard of anyone being foreclosed. Do you know who the lender/servicer was?

    By the way, HUD does not foreclose, they just instruct the lender, investor, and/or servicer to handle the foreclosure, generally in the name of the lender.

  • I was told by a major lender that if a borrower's property taxes have been in a senior property tax deferral program prior to a reverse mortgage being originated that they would need to be paid in full at the time the RM closes.

    After the RM closes the RM borrower can file for the senior tax exemption again and not need to worry about being foreclosed on.

    Does any one know what HUD says about senior property tax deferral programs as they relate to Reveres Mortgages? Could they foreclose on a borrower for participating?

  • I couldn't agree more, this add is deceptive and all the weight of the law prohibiting this should be brought to bear on the responsible parties. Laws should be enforced, and where additional laws are needs legislature should pass them and courts apply them if they are constitutional.

    But are there laws against a senior taking a HELOC if they qualify, they can also loose their house there too, any laws against this?. What about a downsize where they pay all cash if they don't maintain their taxes, they loose their home too, any laws there? What about a simple senior purchasing a home and getting a conventional FHA mortgage is any counseling laws in place for that? Can these homes be lost? Where are the laws?

    Why is the reverse mortgage business, that can be nothing short of a god send to seniors, being targeted. I have met so many RM professionals that are filled with nothing but ethics and integrity, tell only the truth and wouldn't sell a loan unless it was appropriate, where is the press on these.

    Where are the complaints where is the data…can you say McCarthyism

    Now for the politicians on these crusades do they know that seniors are being taken advantage of and robbed in so many other ways, not to even mention non-seniors. Nursing homes, inadequate medical care, lack of proper health insurance, cant afford medications, family abuse. I could extend this list ad nauseoum. Where are the lawmakers priorities? Does this seem right?

    What are the motives here, is there anything unseen going on?

    Regards

    Ron

  • Ron, I could not agree with you more. What is the hidden agenda for these attacks. I have helped seniors out of foreclosures because of regular loans that they were placed in.

    Politicians are using more scare tatics. Are they getting some kickbacks?

  • As a RM Originator, I'd bett over 90% of the politicians, their staff, and reporters have ONLY enough knowledge to be dangerous. It's the age old problem os too much mouth and not enough brain.
    Sad to see the football RM's are being turned into.
    God save the Republic!!

  • The Reverse Mortgage is not the problem, its the brokers and loan officers that have come into the reverse mortgage industry that are the problem. Charging the highest margins and service fees have cost us to lose most of our yield spread. People who know nothing about the program are selling the program and doing it wrong or not explaining it correctly. I just closed one that i took from Lending tree because they told the client that the home repairs had to be completed before they could a reverse mortgage, that is not true. If there was only one program, one margin, one service fee, and any extra money left over at the time of closing had to put into a line of credit, you would never have the government looking at this program. If there is no margin for fraud the reverse mortgage will have a good name again and we would all do more loans. Untill we all have to offer the same program and same numbers, reverse mortgages is a great part time job.

  • The Reverse Mortgage is not the problem, its the brokers and loan officers that have come into the reverse mortgage industry that are the problem. Charging the highest margins and service fees have cost us to lose most of our yield spread. People who know nothing about the program are selling the program and doing it wrong or not explaining it correctly. I just closed one that i took from Lending tree because they told the client that the home repairs had to be completed before they could a reverse mortgage, that is not true. If there was only one program, one margin, one service fee, and any extra money left over at the time of closing had to put into a line of credit, you would never have the government looking at this program. If there is no margin for fraud the reverse mortgage will have a good name again and we would all do more loans. Untill we all have to offer the same program and same numbers, reverse mortgages is a great part time job.

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