CFPB Fines Three Reverse Mortgage Lenders For Alleged False Advertising
Three reverse mortgage lenders – American Advisors Group, Reverse Mortgage Solutions and Aegean Financial – were fined by the Consumer Financial Protection Bureau (CFPB) in December for allegedly using deceptive advertising to promote their reverse mortgage offerings.
In addition to paying fines, the lenders have been ordered to cease their deceptive advertising practices and implement systems to ensure they are complying with all regulations.
“These companies tricked consumers into believing they could not lose their homes with a reverse mortgage,” Richard Cordray, director of the CFPB, says in a release. “All mortgage brokers and lenders need to abide by federal advertising disclosure requirements in promoting their products.”
The CFPB points out that the Mortgage Acts and Practices Advertising Rule prohibits misleading claims in mortgage advertising.
In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits institutions from engaging in deceptive acts or practices, including practices regarding advertising of consumer financial products or services.
Orange, Calif.- based American Advisors Group – which the bureau says is the largest reverse mortgage lender in the U.S. – is accused of misinforming consumers through its ads that reverse mortgage borrowers could not lose their homes and would have the right to stay in their homes for the rest of their lives. The false information was included in television advertisements, as well as in an “information kit” that the lender sent to approximately 1 million consumers.
Through its investigation, the CFPB found that American Advisors Group had been using false advertising since January 2012. The company also falsely told potential customers that they would have no monthly payments and that with a reverse mortgage, they would be able to pay off all debts.
American Advisors Group will pay a civil penalty of $400,000 for the alleged violations. In addition, it must make clear and prominent disclosures in its reverse mortgage advertisements and implement a system to ensure it is following all laws.
Reverse Mortgage Solutions, headquartered in Houston and licensed to conduct business in 48 states, faces a similar complaint. The CFPB says in addition to telling consumers that they could not lose their homes, Reverse Mortgage Solutions also falsely told potential customers that they would have no payments with a reverse mortgage and that they would “always retain ownership” and “can’t be forced to leave.” The company also misrepresented that heirs would inherit the home, without disclosing any conditions of the inheritance, the CFPB says.
What’s more, Reverse Mortgage Solutions created a false sense of urgency to buy its reverse mortgage product by telling consumers that it was only available for a limited period of time. For example, one call script required representatives to tell potential customers that if they didn’t call back by close of business, they would “turn your file down, and you will miss out on a tremendous money-saving opportunity.”
Reverse Mortgage Solutions will pay a civil penalty of $325,000 and has also been ordered to provide clear and prominent disclosures in its reverse mortgage advertisements, as well as to implement a system to ensure it is following all laws.
Regional lender Aegean Financial, headquartered in El Segundo, Calif., which also operates under multiple names in California, Louisiana, Oregon, Texas and Washington, is also accused of telling consumers that they could not lose their homes. It also falsely told potential customers through its ads that they would have no payments with a reverse mortgage and would not be subject to costs associated with refinancing a reverse mortgage.
Aegean Financial is also accused of falsely affiliating itself with the government in its Spanish-language advertisements. For example, one advertisement said, “If you are 62 years old or older and you own a house, we have good news for you: You qualify for a reverse mortgage from the United States Housing Department.” The company also failed to keep records of its advertisements, as required by law.
Aegean Financial will pay a civil penalty of $65,000 and also must make clear and prominent disclosures in its reverse mortgage advertisements, as well as implement a system to ensure it is following all laws, the CFPB says in its release.
ARMCO: Loan Defect Rate Dropped In Second Quarter
About 1.63% of all loan files included “critical” defects in the second quarter – down from a peak of 1.92% in the first quarter, according to ARMCO’s QC Trends report, which analyzes loan data passing through the firm’s ACES Analytics benchmarking software.
Still, critical defects were higher than they were in the third quarter of 2015, when 0.77% of all files had critical defects.
A critical loan defect is one that would likely preclude a loan from funding under the current regulations and agency requirements. However, there is no standard definition of what a critical loan defect is. ARMCO uses the Fannie Mae loan defect taxonomy, along with its own analysis of data captured by the ACES Analytics benchmarking system, to arrive at the findings of its QC report.
The second-quarter report finds that defects in the “legal/regulatory/compliance” category continued to decrease; however, this category remains the largest, with about 34% of all defects fitting into it.
The report also finds that “credit-related” defects increased significantly compared with the first quarter. Defects related to assets were up 172%, defects related to borrower/mortgage eligibility were up 162%, defects related to credit were up 91%, and defects related to income/employment were up 69%.
Defects related to the TILA-RESPA Integrated Disclosures (TRID) rule were down slightly compared with the first quarter.
“While TRID-related defects are still driving the majority of legal/regulatory/compliance defects, we’re seeing a decline in defects in this category as a result of corrective action planning lenders undertook through the first six months of 2016,” says Phil McCall, chief operating officer for ARMCO, in a statement. “As lenders determine the most effective strategies for addressing TRID-related defects, we expect to see this category decline further.”
Loan package documentation defects increased slightly and accounted for 26.7% of reported defects versus 26.4% in the first quarter.
“Given the magnitude of compliance-related defects lenders were facing in the first quarter, it’s not surprising to see upticks in other areas,” says Avi Naider, CEO for ARMCO. “Now that lenders have begun to get a handle on their TRID-related defects, they should have more capacity to address those credit-related defects. Thus, we should see those categories normalize in the third quarter.”
ClosingCorp Hires New SVP Of Data Operations And Product Management
Gerardo Caceres has joined ClosingCorp, a provider of residential real estate closing cost data and technology for the mortgage and real estate services industries, as senior vice president of data operations and product management.
Previously, Caceres was the senior vice president of service delivery and account management at RealEC Technologies/Black Knight Financial Services, where he was responsible for driving relationship management and strategic initiatives with top-tier clients.
Prior to that, he held a series of executive positions at Bank of America, most recently serving as senior vice president of title strategy and national title platform (NTP). In this role, he was responsible for providing title and closing services to Bank of America home loan originations through the NTP, a managed network of title and closing providers.
In his new position, Caceres will determine the overall strategic direction and tactical execution for all of ClosingCorp’s products. He is responsible for further enhancing the company’s data and information management strategy. His immediate focus is to deliver several enhancements to strengthen the company’s core products, while also ensuring that data is acquired, processed, updated, verified and available to ClosingCorp’s clients quickly and accurately.