The CFPB recently entered into a consent order with Nationwide Equities Corporation (Nationwide), which the CFPB refers to as a mortgage broker and mortgage lender that primarily provides jumbo reverse mortgage loans and Home Equity Conversion Mortgage Loans (HECMs). The CFPB asserts in the consent order that Nationwide engaged in direct mail advertising practices that violated the Mortgage Acts and Practices—Advertising Rule (the "MAP Rule," also known as Regulation N), the closed-end advertising requirements of Regulation Z under the Truth in Lending Act (TILA), and the prohibition against unfair, deceptive or abusive acts or practices under the Consumer Financial Protection Act of 2010 (the "CFPA").
With regard to the method and volume of advertising, the CFPB asserts that since December 2015 Nationwide has mailed hundreds of thousands of mortgage advertisements and distributed flyers to older homeowners and financial professionals whose clients were older homeowners in at least 36 states and the District of Columbia. The CFPB also asserts that hundreds of thousands of consumers have received at least one of Nationwide's direct-mail advertisements, and thousands of consumers have obtained mortgages through Nationwide.
With regard to the asserted violations of the laws noted above, the CFPB claims that the direct mail advertisements and the flyers contain three main types of false, misleading or inaccurate representations:
- False or misleading representations about the costs of a reverse mortgage loan and the consequences of nonpayment.
- False or misleading representations about the nature of the mortgage credit product offered and the source of communications sent to consumers.
- False or misleading representations about the amount of cash or credit available, including the likelihood of obtaining a particular product or term.
The CFPB asserts that the following statements in advertisements constitute the first type of false or misleading representation, because they incorrectly implied that the consumer would not have to pay taxes or insurance:
- Nationwide offered a loan "that allows senior homeowners to immediately increase their monthly cash flow TAX FREE" and "accomplish their goals without touching savings, investments, or current income."
- Nationwide claimed taking out a reverse mortgage loan "[e]liminates monthly mortgage payments" while allowing the borrower to "[s]tay in your home," with "[l]oan proceeds [that] are tax-free."
The CFPB noted that a consumer could lose their home to foreclosure for the nonpayment of taxes and insurance.
The CFPB asserts that the following statements in advertisements constitute the second type of false or misleading representation, because the statements misrepresented the nature of the mortgage credit product offered and the source of communications sent to consumers:
- Certain solicitations sent to consumers with existing reverse mortgage loans provided that "THE TIME HAS COME TO UPDATE YOUR REVERSE MORTGAGE" and later repeated that the consumer's current loan was "due for an update."
- One letter template was stamped "***IMPORTANT NOTICE***" and "DATED DOCUMENT OPEN IMMEDIATELY," and warned, "[o]ur records indicate that you have not yet called to discuss your eligibility as a homeowner aged 62 or older for your property at [the consumer's specific address]" and later described the reverse mortgage loan offered by Nationwide as a "Federally Insured Program that allows senior homeowners to immediately increase their monthly cash flow TAX FREE."
- Another letter template was purportedly from the "ADMINISTRATIVE OFFICE" and contained sections titled "NOTICE" and "STATUS." It informed the consumer that her "waiting period expired" and that she had "not accessed [her] equity reserves." The letter then listed the "equity reserves" seemingly available to the borrower.
- One letter was purportedly from the consumer's "Assigned Officer" within an "INFORMATION VERIFICATION DEPARTMENT" and was titled "REQUEST FOR VERIFICATION OF OCCUPANCY" and stamped "VERIFY." The letter stated that the company "need[ed] to verify that you occupy this property as your Primary Residence" and that there are "current benefits you can take advantage of as long as you still occupy the property. Call us right away . . . so we can verify."
- One letter sent to 30,000 consumers with existing reverse mortgage loans claimed to have "exciting news regarding your reverse mortgage," announcing that the consumer could "TAKE FULL ADVANTAGE OF YOUR REVERSE MORTGAGE" and "be eligible for more cash," without having to pay any origination charges.
- Another letter template distributed to 30,000 consumers told consumers with existing reverse mortgage loans that they may be "eligible to receive additional money by accessing more of the equity in your home." The letter represented that this additional money would "come from the change in value and principal limit and would not change any of the rules or fundamentals of your existing reverse mortgage."
With regard to solicitations that, in the view of the CFPB, suggested to the consumer that the solicitations were from the consumer's current reverse mortgage lender offering a loan modification, the CFPB stated that in reality Nationwide was offering an entirely new reverse mortgage that would require a new credit check, appraisal, title search, initial mortgage insurance premium (MIP), and other costs associated with the loan. The CFPB noted borrowers refinancing an existing FHA Home Equity Conversion Mortgage (HECM) with a new HECM are required to pay an initial MIP of two percent of the maximum claim amount, which is the difference between the maximum claim amount for the new HECM loan and the maximum claim amount for the existing HECM being refinanced. It also appears that the CFPB believed that certain statements suggested that Nationwide is, or is affiliated with, a government agency.
The CFPB asserts that the following statements in advertisements constitute the third type of false or misleading representation, because the stated pre-approved amounts were not tailored to the borrowers or their homes:
- Letters offered multiple consumers of different ages and with home values that varied the exact same "pre-approved" loan amount—$20,752.43. The letters advised consumers that they were "pre-approved" for the stated dollar amount and used phrases like, "We've done our homework. Your elevated status of Pre-Approved means you already have what it takes to qualify," suggesting that the preapproved loan amount was based on some specific characteristics of the borrower or her home.
The CFPB also asserts that the following statements in advertisements constitute the third type of false or misleading representation, because Nationwide did not possess the information necessary to make representations that borrowers were "pre-approved" or eligible for specific terms of credit and, thus, misrepresented that it could arrange or offer a reverse mortgage loan with the specific credit terms referenced:
- One letter sent to 5,000 borrowers stated that "THE TIME HAS COME TO UPDATE YOUR REVERSE MORTGAGE" and "you have been due for an update for [a number of months over 18]." The letter also included a pie chart indicating that specific amounts were available for distribution to the consumer should she refinance her loan.
- Another letter sent 30,000 times during the Relevant Period claimed the borrower was "PRE-APPROVED" for a reverse mortgage refinance and was "eligible to receive additional money" which would "come from the change in value and principal limit and would not change any of the rules or fundamentals of your existing Reverse Mortgage."
- Another letter distributed to 15,000 consumers listed an "Estimated Available Amount" to the borrower and assured the borrower that "We've done our homework."
The CFPB additionally asserts that the following statements in advertisements constitute the third type of false or misleading representation, because (1) Nationwide made a misleading comparison between a consumer's current reverse mortgage loan and a hypothetical new reverse mortgage loan that would be available to the consumer, and (2) the statements misrepresented that taking out a second reverse mortgage would result in substantial savings to the consumer:
- One letter sent to over 16,000 consumers promised that borrowers would achieve an "IMMENSE SAVING" by taking out a new reverse mortgage loan with the company due to HUD changes to MIP requirements, and that if the borrower elected to place the reverse mortgage proceeds in a line of credit, the amount "will continuously grow and earn interest—every single month!" The letter also stated that according to "research" and a "recent review" performed on the borrower's account, the borrower could "greatly reduce [her] monthly expenses" and "save  money and equity each month."
With regard to the solicitations claiming substantial savings, the CFPB stated that the closing costs on a new loan were likely to be significant and could well outweigh the extra cash available through the refinanced loan. The CFPB also stated that the new loan terms Nationwide would offer a consumer would not necessarily be better than the terms of the consumer's current reverse mortgage loan.
As noted above, the CFPB asserts that Nationwide sent solicitations directly to older homeowners and financial professionals whose clients were older homeowners. When addressing the MAP rule, the CFPB states that the rule's prohibitions are not limited to advertisements sent directly to consumers, because the rule prohibits misrepresentations "in any commercial communication." The CFPB notes that under the MAP rule a commercial communication includes statements "designed to effect a sale or create interest in purchasing good[s] or services."
The MAP rule has a general prohibition against making any material misrepresentation, expressly or by implication, in any commercial communication, regarding any term of any mortgage credit product. The MAP rule also sets forth a non-exclusive list of specific types of misrepresentations that violate the rule. The CFPB asserts violations of the prohibitions against the following specific types of misrepresentations:
- The existence, nature, or amount of fees or costs to the consumer associated with the mortgage credit product, including but not limited to misrepresentations that no fees are charged.
- The terms, amounts, payments, or other requirements relating to taxes or insurance associated with the mortgage credit product, including but not limited to misrepresentations about:
- Whether separate payment of taxes or insurance is required; or
- The extent to which payment for taxes or insurance is included in the loan payments, loan amount, or total amount due from the consumer.
- The amount of the obligation, or the existence, nature, or amount of cash or credit available to the consumer in connection with the mortgage credit product, including but not limited to misrepresentations that the consumer will receive a certain amount of cash or credit as part of a mortgage credit transaction.
- The existence, number, amount, or timing of any minimum or required payments, including but not limited to misrepresentations about any payments or that no payments are required in a reverse mortgage or other mortgage credit product.
- The potential for default under the mortgage credit product, including but not limited to misrepresentations concerning the circumstances under which the consumer could default for nonpayment of taxes, insurance, or maintenance, or for failure to meet other obligations.
- The association of the mortgage credit product or any provider of such product with any other person or program, including but not limited to misrepresentations that:
- The provider is, or is affiliated with, any governmental entity or other organization; or
- The product is or relates to a government benefit, or is endorsed, sponsored by, or affiliated with any government or other program, including but not limited to through the use of formats, symbols, or logos that resemble those of such entity, organization, or program.
- The source of any commercial communication, including but not limited to misrepresentations that a commercial communication is made by or on behalf of the consumer's current mortgage lender or servicer.
- The right of the consumer to reside in the dwelling that is the subject of the mortgage credit product, or the duration of such right, including but not limited to misrepresentations concerning how long or under what conditions a consumer with a reverse mortgage can stay in the dwelling.
- The consumer's ability or likelihood to obtain any mortgage credit product or term, including but not limited to misrepresentations concerning whether the consumer has been preapproved or guaranteed for any such product or term.
- The consumer's ability or likelihood to obtain a refinancing or modification of any mortgage credit product or term, including but not limited to misrepresentations concerning whether the consumer has been preapproved or guaranteed for any such refinancing or modification.
With regard to the Regulation Z closed-end loan advertising requirements, the CFPB asserts a violation of the requirements that an advertisement for credit secured by a first lien on a dwelling must, if applicable, disclose that the advertised payments do not include amounts for taxes and insurance premiums, and that the actual payment obligation will be greater.
With regard to the prohibition against unfair, deceptive or abusive acts or practices under the CFPA, the CFPB simply states that the asserted violations of the MAP rule and the Regulation Z advertising requirements also violate such prohibition.
Among various conduct requirements, Nationwide agreed to designate a senior-level executive as the Advertising Compliance Official. The Advertising Compliance Official must review each mortgage advertisement template before any advertisement based on that template is disseminated to a consumer to ensure that it is compliant with the MAP Rule, Regulation Z, TILA, the CFPA, and the consent order. The Advertising Official also must document the review and, if the advertisement states an amount of cash that a borrower might receive, the documentation must state the method of arriving at that number and include any materials used to determine the availability of that amount.
Nationwide also agreed to pay to the CFPB a civil money penalty of $140,000.
Nationwide does not admit or deny any findings of fact or conclusions of law, except for admitting the facts necessary to establish the CFPB's jurisdiction over Nationwide and the subject matter of the consent order.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.