Fed Proposes New Reverse Mortgage Advertising Requirements

A new proposal from the Federal Reserve aims to reign in misleading marketing from reverse mortgage lenders after consumer testing found statements used in advertisements could be confusing to consumers.

While not final, the proposed rule establishes guidelines to ensure consumers receive accurate and balanced information in reverse mortgage advertisements.

”Reverse mortgage advertisements generally focus on special features of reverse mortgages, such as the fact that regular payments of principal and interest are not required,” said the Fed.  “For this reason, the proposal contains additional advertising requirements specific to reverse mortgages that supplement, rather than replace, the general advertising requirements for open-end or closed-end credit.”

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Developed earlier this year through consumer testing by the Fed, the proposal identifies eight different statements that require clarifying information.  For example, advertisements that state that a reverse mortgage “requires no payments”, must clearly disclose the fact that borrowers must pay taxes and required insurance.  Additionally, advertising that a consumer “cannot lose” or there is “no risk” to a consumer’s home with a reverse mortgage would also need clarification.

Interested parties can comment on the rule, which ends 90 days after publication of the proposal in the Federal Register.

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  • Not all of the 930 page document pertains to reverse mortgages; however, what it does cover, provides a peek into how the Fed views the industry and its products. It also exposes some of its bias and lack of understanding about our industry. rnrnAs to specific advertising issues, Page 440 explains: u201cProposed u00a7 226.33(e)(5) provides that if an advertisement states that a consumer u201ccannot loseu201d or that there is u201cno risku201d to the consumeru2019s home or otherwise states that foreclosure cannot occur if the consumer (1) lives somewhere other than the dwelling longer than allowed by the loan agreement or (2) does not pay property taxes or insurance premiums.u201d But then it provides: u201cProposed comment 33(e)(5)-1 provides examples that illustrate how an advertisement may disclose the clarifying information required by proposed u00a7 226.33(e)(5). One such example is the following: u2018You cannot lose your home except in certain circumstances, including if you live somewhere else for longer than allowed by the loan agreement or you do not pay taxes or insurance.u2019u201drnrnWhy would the proposal require the last disclosure? How is the home lost particularly in the last case? While these result in the loan being called due and payable, they do not automatically result in the loss of the home. This kind of model example does not bode well for our ability to market the HECM Saver correctly and effectively to the financial and legal communities. rnrnAs to long-term care insurance, Page 475 declares: u201cProposed comment 40(a)(1)-1 also specifically mentions certain products that the Board has learned through research and outreach may be especially problematic in reverse mortgage transactions. These include annuities, financial planning services, and long-term care insuranceu201d. These three are not equally problematic nor do they belong grouped together. Page 464 provides the basis upon which the Fed reached its conclusion: “Long-term care insurance may be unnecessary, such as where the long-term care insurance coverage is not appreciably better than Medicaid coverage. Other consumers may not be able to afford the premiums if they go up, resulting in the loss of all of their reverse mortgage and other funds used to pay upfront costs and premiums. Further, a particular plan may not cover what the consumer needs, or policies may have terms or limitations that make receiving money for a claim difficult.” rnrnOn other subjects, Page 488 states: u201cBased on its research and outreach, the Board believes that originating a reverse mortgage before the consumer has obtained counseling should be considered an unfair practice under Regulation Z. The Board also believes that imposing a nonrefundable fee on a prospective reverse mortgage consumer within three days after a consumer has obtained counseling should be considered unfair. The Board therefore proposes to prohibit these practices under its authorityu2026.u201drn rnWhile some were less concerned about the Consumer Protection Bureau when it was decided that the CPB would be overseen by the Fed, this document shows how little the Fed knows about reverse mortgages and the industry. This document will bring about many changes to disclosures, counseling for proprietary reverse mortgages, advertising, timing of when processing can begin, and other areas. rn

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