CFPB Accuses Nation's Largest Reverse Mortgage Lender of Deceptive Marketing

Watchdog agency reminds consumers to tread carefully with these complex loans

In the latest example of its stepped-up enforcement activities, the Consumer Financial Protection Bureau (CFPB) has filed a complaint and proposed settlement alleging deceptive marketing by the nation's largest reverse mortgage lender.

Key Takeaways

  • The Consumer Financial Protection Bureau alleges that the nation's largest reverse mortgage provider used deceptive home value estimates to attract customers.
  • The lender, American Advisors Group, says it is taking steps to address the CFPB's concerns.
  • Reverse mortgages are complex products, and the CFPB appears ready to boost oversight and enforcement of rules governing them.

What the CFPB Alleges

In the action filed last week with the U.S. District Court for the Central District of California, the CFPB alleges that Irvine, Calif.-based American Advisors Group (AAG) used inflated and deceptive home estimates in direct mailers to entice potential reverse mortgage customers.

The CFPB also alleged that AAG violated a prior consent order in 2016, again involving deceptive advertising and misleading claims. If entered by the court, the order requires AAG to pay a $1.1 million civil penalty plus $173,400 in consumer redress.

"American Advisors Group violated consumers' trust by advertising reverse mortgages with inflated and deceptive home-value estimates," the CFPB’s acting director, David Uejio, said in announcing the action. "The CFPB will act decisively when we uncover consumer harm or practices that seek to take advantage of vulnerable populations."

An AAG spokesperson acknowledged the matter involved direct mail pieces that included third-party home value estimates. 

"AAG cooperated fully in this investigation, has already begun to take steps to address CFPB's concerns, and is pleased to resolve the matter," the spokesperson told Investopedia. "We take these types of marketing issues seriously, and are committed to providing our customers with clear and accurate information to help them responsibly access their home equity."

According to the CFPB suit, the midpoint value estimates were inflated on average by 18%, while at the high end the values were an average of 28% higher.

While AAG included a footnote in its marketing materials claiming it made "every attempt to ensure the home value information provided is reliable," the CFPB said those efforts weren't enough. It contended that AAG performed "no analysis directly related to the estimated home values that it advertised in its mailers."

AAG holds the top spot among reverse mortgage lenders nationally year to date, with a 33% market share, according to Reverse Market Insight, a Dana Point, Calif.-based industry data analysis firm.

Greater Scrutiny Ahead for Reverse Mortgage Lenders?

The AAG action is the second CFPB enforcement against a reverse mortgage lender this year. In April, the bureau charged that Mahwah, N.J.-based Nationwide Equities Corp. sent deceptive loan advertisements to hundreds of thousands of older borrowers.

And there are signs that there may be more to come. In a semiannual report to Congress released on Oct. 8, for example, the CFPB wrote that it had "a number of ongoing and newly opened fair lending investigations of institutions."

The CFPB actions follow a 2015 report in which it reviewed advertisements from a variety of reverse mortgage lenders in five large U.S. markets. That study found that many contained confusing, incomplete, and inaccurate statements regarding borrower requirements, government insurance, and borrower risks.

A Complex Product

Federally insured reverse mortgages, formally known as home equity conversion mortgages (HECMs), are a type of loan that allows homeowners age 62 and older to tap their home equity in the form of a lump sum, line of credit, or monthly draws.

Homeowners must continue to pay property taxes and the costs of insurance and repairs. The loan must be paid back when the borrower dies, sells the house, moves out for 12 months, or defaults.

HECMs are administered by the Federal Housing Administration (FHA). A 2019 report by the U.S. Government Accountability Office that examined FHA data found reverse mortgage defaults increased from 2% of loan terminations in 2014 to 18% in 2018, mostly due to borrowers failing to meet occupancy requirements or to pay property taxes and insurance.

Because it's so important to thoroughly understand how these loans work—and the potential risks to borrowers—the CFPB urges homeowners to review this guidance on its website.

Article Sources

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  1. Consumer Financial Protection Bureau. "CFPB Takes Action Against American Advisors Group for Deceptively Marketing Reverse Mortgages to Consumers." Accessed Oct. 15, 2021.

  2. United States District Court Central District of California. "Consumer Financial Protection Bureau v. American Advisors Group, Case 8:21-cv-01674." Accessed Oct. 15, 2021.

  3. Reverse Market Insight, Inc. "HECM Lenders Industry Overview September 2021." Accessed Oct. 15, 2021.

  4. Consumer Financial Protection Bureau. "CFPB Takes Action Against Reverse Mortgage Lender for Deceptive Advertising." Accessed Oct. 15, 2021.

  5. Consumer Financial Protection Bureau. "Semi-Annual Report of the Consumer Financial Protection Bureau, Spring 2021." Accessed Oct. 15, 2021.

  6. Consumer Financial Protection Bureau. "A Closer Look at Reverse Mortgage Advertisements and Consumer Risks." Accessed Oct. 15, 2021.

  7. U.S. Government Accountability Office. "Reverse Mortgages: FHA Needs to Improve Monitoring and Oversight of Loan Outcomes and Servicing." Accessed Oct. 15, 2021.