The Federal Housing Administration has issued an official notice reminding lenders of reverse mortgage marketing prohibitions against misleading or deceptive advertising.
As a result of “a variety of marketing and advertising strategies currently employed or being proposed” by lenders following the recent Home Equity Conversion Mortgage chanciness, the Department of Housing and Urban Development is clarifying its policy regarding marketing of reverse mortgages via a mortgagee letter released Wednesday.
“Senior borrowers deserve freedom of choice when considering whether a reverse mortgage is appropriate for them,” said FHA Commissioner Carol Galante in a press release. “This guidance is intended to make sure lenders know we’re keeping a watchful eye on their marketing and advertising practices that might steer borrowers toward reverse mortgage options that limit their available choices.”
Under the guidance, lenders are reminded that they are required to “explain in clear, consistent language all requirements and features of the HECM program and may not mislead or otherwise cause a senior borrower to believe that the HECM product contains any features or limitations that are inconsistent with FHA’s requirements.”
Among the items a FHA-insured lender is required to explain a host of product features and options. Those include the fact that FHA insures fixed rate as well as annual and monthly adjustable rate mortgages; that the borrower can change the payment method under adjustable rate mortgages at any time and that fixed rate reverse mortgages are limited to the single disbursement lump sum payment option where the sum is drawn one time at closing and not thereafter.
Additionally, HUD specifies that lenders must also make note that adjustable rate mortgages provide for five, flexible payment options and future draws; that the amount available is determined by the age of the youngest borrower; and that disbursement of mortgage proceeds during the first 12-month disbursement period is subject to an initial disbursement limit as determined by HUD requirements.
FHA also noted that it is working to address risks relating to new fixed rate HECM products.
“It is necessary to also take steps to mitigate the potential for abuse, largely related to the advertising and presentation of these particular products,” FHA writes.
The agency also stressed existing marketing and advertising requirements including the requirement that all advertisements or marketing materials used in connection with the HECM program must include a prominently displayed disclaimer that clearly informs the public that the materials are not from HUD or FHA and was not approved by the Department or Government Agency.
Written by Elizabeth Ecker