When Oregon passed a sweeping new law to regulate reverse mortgage advertising in May, originators and lenders outside of the state could be forgiven for brushing off the news as irrelevant. But legislation in one state can have ripple effects throughout the Home Equity Conversion Mortgage landscape, and aside from also affecting multi-state lenders, Oregon’s legislation could provide a window into how local governments around the country are looking to regulate the way the industry communicates with potential borrowers.
Loud and clear
Under the Beaver State’s new law, which takes effect on New Year’s Day 2018, HECM advertisers will need to include a bevy of information about the products in all print, radio, and television ads — including a discussion of what happens when the loan comes due, a clear enumeration of origination fees, and a warning that the balance of the loan will grow over time.
Oregon also specifically barred advertisers from burying these disclosures where prospective buyers can’t find them, requiring print ads to display the text in “a clear and conspicuous” format — such as a contrasting color or in a separate section of the page — and radio and TV spots to present the mandatory points in a “volume and cadence” sufficient enough for “reasonable” people to hear.
The state’s points mirror a 2014 mortgagee letter issued by the Department of Housing and Urban Development, but in substantially more detail: For instance, the letter simply admonishes HECM lenders not to make “any misleading or misrepresentative advertising or marketing materials in connection with the HECM program” — but stops short of providing specific guidelines for physical ads.
“Mortgagees are required to explain in clear, consistent language all requirements and features of the HECM program,” HUD wrote in the letter, providing a list of bullet points that must be discussed but not necessarily included in actual marketing materials.
Past enforcement actions have also typically focused on outright deception, not a lack of explicitly required information. For instance, the state of New York in 2014 cracked down on New View Mortgage Corp. — which, RMD notes, was not affiliated with industry analysts New View Advisors — for sending HECM marketing mailers designed to look like official government paperwork, bearing the phrases “Economic Stimulus Notice” and “Government Lending Division.”
That’s against HUD’s rules, which prohibit mortgagees from implying that their messages are approved by the federal government. But New York attorney general Eric Schneiderman also called out New View Mortgage for suggesting that borrowers weren’t responsible for any regular payments, and that heirs would inherit remaining equity without adding the caveat that the loan must be repaid.
Just last year, the Consumer Financial Protection Bureau slapped three companies with civil penalties for misleading marketing pitches, calling out issues such as creating a “false sense of urgency” by implying that seniors had a set period of time to apply for a reverse mortgage, or telling consumers that there were no fees associated with a HECM-to-HECM refinance transaction.
When is an ad not an ad?
Oregon’s new law won’t necessarily affect operations at Greenleaf Financial, LLC of Portland, Ore., which according to president Lynn Wertzler relies more on its website and referrals from partners to generate new business. But he expressed concern for newcomers to the business, who might opt for the traditional print ads to establish themselves in local Oregon communities.
“Clearly, it will make some forms of advertising very difficult — if not impossible for any small print ad,” Wertzler told RMD. “It may not be feasible to include all of the provisions that are identified here. It may not be practical. That very well may be something of the past.”
Wertzler also noted that the definitions of “advertisement” and “marketing materials” will become even more important under the new legislation. Under its exact wording, the law applies to “any advertisement, or solicitation, or communication” that lenders or their affiliates make as part of an “inducement” for a person to apply for a loan — language that could extend beyond a mailer or a radio spot.
“We’re going to think about the kind of advertising we do, and think very carefully about what is advertising,” he said, giving the example of a casual networking event where Wertzler and his team might provide business cards and verbal information about HECMs.
“Is that subject to the provisions of it?” Wertzler asked. “They’ll probably need additional clarification.”
Of course, adhering to one state’s laws when broadcasting advertisements nationwide presents a particular challenge for multi-state operators. Some large national lenders elected not to comment for this story, citing a desire to sort out the implications of the law before announcing a strategy.
But the problem isn’t just the domain of nationwide firms with television ad budgets. Mike Gruley, executive vice president at 1st Nations Reverse Mortgage in Ann Arbor, Mich., said his company tries to consider each state’s regulations when developing advertisements that cross borders.
“In general, we like to tailor our ads to include regulatory coverage for all states, as it makes it simpler and more economical for development and/or printing,” Gruley said in an e-mail. “Again, however, if each state were to have the volume of content that Oregon has, most lenders would be forced to develop state-specific marketing.”
While he praised the information as useful for borrowers, he also echoed Wertzler’s concerns about the effect one state’s rules could have on overall HECM outreach.
“Marketing space is limited and expensive, and while this information is certainly helpful and accurate, if many states each adopted their own required language, it could be prohibitive to the overall communication process with prospective borrowers,” Gruley said.
Over at HomeBridge Financial in Morristown, N.J., national reverse mortgage program manager Dino Guadagnino said he cedes control to his compliance and marketing team, asking them to dig into each state’s rules before moving forward with an advertising strategy.
“We try to tailor that ad to that specific state,” Guadagnino said. “I know that I don’t know all the rules when it comes to marketing, but I rely on my group for that. It’s the only way it’s going to work.”
Written by Alex Spanko