Advertising practices in the reverse mortgage segment have dodged one form of scrutiny as the Federal Reserve Board pulled its proposed rulemaking in this area. But that is only temporary, as it said it will leave the task for the new Consumer Financial Protection Bureau. Reverse mortgage ads have been a magnet for consumer groups, many of which are concerned that this form of specialized lending could be the next subprime lending. In the mean time, the industry has already taken action on its own to stem the few bad apples.
Last fall, the National Reverse Mortgage Lenders Association came out with an ethics advisory, that gave its members additional guidance in this area; previous advisories had been issued in 2008 and 2009.
Among the issues it addresses are the use of the term “no cost loans” in advertisements, the proper use of celebrity endorsements, the use of the terms “pre-approved” or “prequalified,” using statements that create a sense of urgency, the use of fake checks or currency, and use of the Department of Housing and Urban Development logo.
If it had continued the rulemaking process it introduced in September 2010, the Fed would have modified Reg Z to make sure reverse mortgage advertisements would have “clarifying statements” for things like the loan requiring no payments, that the loan does not have to be repaid during the borrower’s lifetime and that the borrower cannot lose or there is no risk to the home with a reverse mortgage.
The vast majority of reverse mortgage originators are doing their marketing and advertising in an appropriate manner, said Sue Haviland, the co-founder of Reverse Mortgage Success and a weekly columnist on reverse mortgage marketing for www.originationnews.com. Still, it is always good to get these clarifications from NRMLA to help answer any questions.
“Even to have a small number of people doing something that is inappropriate or be construed as misleading is a reflection on everyone,” and it is the industry’s responsibility to protect the integrity of the program.
“For our senior population, we just have to be sure that we are communicating with them in a clear and concise manner. No misleading statements whatsoever or anything that could even be interpreted as potentially misleading,” she said.
One example is insinuating to the borrower that they are not taking out a mortgage. Advertisers must be clear that the consumer is taking a mortgage on their home.
Reverse mortgage lenders have to “advocate carefully” for the product and look at their advertising to make sure that the wording does not include things like it is a government benefit nor they don’t have to repay the loan.
The NRMLA guidance is good because it gives something in writing to those that are unsure regarding their advertising, Haviland said, adding another source is their own legal counsel or compliance department. But it’s not only the NRMLA guidelines they need to be concerned about. They also must comply with their own company guidelines as well as local, state and federal laws.
“I think it is good that they put this information out there for everyone to have because then there is no misunderstanding about their position,” she said.
Scott Stern, chief executive of Lenders One, St. Louis, while not specifically familiar with the NRMLA guidelines, said a substantial amount of the co-operative’s members are LendRight members, so they’ve agreed to a consumer bill of rights for both reverse and forward mortgages.
Lenders One does not provide specific reverse mortgage advertising to its member companies. It does provide advertising modules that they can customize.
Stern said the industry is suffering from a crisis of confidence among consumers. There is a lot of trust that needs to be reestablished between the consumer and the mortgage business.
“We promote to our companies that they stand out in terms of honesty, integrity, pricing and fees on all aspects of mortgage lending, not just reverse mortgage lending,” he said. These ethical practices are core to everything Lenders One does.
With a senior consumer, this focus on ethical practices takes on more urgency. Furthermore, for seniors, the outcome of the reverse mortgage transaction can change their life. The borrower might be more desperate and thus open to manipulation, so originators need to be careful regarding that, Stern said.
“Everything you do in the reverse mortgage lending space takes on much more of an air of importance, not just for the borrower, but for their kids and grandkids. And for the moral imperative that we don’t anything to our senior population to impact the home that they live in or their ability to fund their retirement years,” he said.
Originators have to be more open and honest in this sector because more people, such as the borrower’s children and advisors are taking a look at the transaction.
He doesn’t have any problem with the use of celebrity endorsements of reverse mortgages. “But I do think along with the celebrity endorsement, there is an added layer of responsibility to make sure the borrower is getting the transaction truly because they need it or it can help them and just because they are swayed by the aura of the celebrity” Stern commented.
