On New Years day, we posted an extensive piece on Reverse Mortgage Fraud. In that post we listed three companies that were recently the target of Consumer Financial Protection Bureau (CFPB). Those companies are American Advisors Group, Reverse Mortgage Solutions and Aegean Financial. Aegean also goes by the name Jubilados Financial. Recently we teamed up with Consejo de Latinos Unidos to identify victims and investigate claims against these companies.
Reverse Mortgage Loans Explained
Reverse mortgages allow folks to pull the equity out of their home. Unlike a traditional home equity loan which must be paid back over a specified time period, in a reverse mortgage the homeowner gives up his or her equity in the home and receives regular monthly payments. They are a tool that allows senior citizens to supplement their income. Unfortunately, they are often misunderstood and subject to abusive schemes.
The recent reverse mortgage schemes typically target elderly homeowners. (Federally insured reverse mortgages, called a Home Equity Conversion Mortgage (HECM), are only available to those 62 or older.) The aggressive marketing tactics and false advertising surrounding some of the products have been sickening.
In December of 2016, the CFPB acted against the above three companies. This post details the allegations against American Advisors Group.
American Advisors (AAG) is the largest of the reverse mortgage lenders. Based in California, AAG operates in all but 49 states.
American Advisors Group Misleading Ad Campaign
AAG markets to prospective borrowers through TV ads, radio and print media. The company also does direct mailings. One of those mailings was billed as an “information kit.” The kit included a DVD featuring former U.S. Senator Fred Thompson. Other videos featured Peter Graves or Tom Selleck.
The CFPB says that American Advisors Group ad campaign was misleading. For example, one DVD script featured the following colloquy
Q. “Can I lose my home?”
A. “No you cannot lose your home.”
Another script said a reverse mortgage “allows seniors to convert the equity locked in their homes into tax free income without any monthly payments.”
A TV ad began with the statement, “Some people have told me reverse mortgages sound too good to be true, I mean you get cash out of your home, no monthly payments, and still own your home, there’s gotta be a catch…well there isn’t.”
Yet another ad suggested that reverse mortgages are a way of eliminating debt.
Federal Rules on Reverse Mortgage Disclosures and Ads
What the ads failed to clearly explain is that homeowners must continue to pay taxes and insurance payments in order to keep their home. The CFPB say the ads violate the “Mortgages Acts and Practices Advertising Rule. The rule is often referred to as Regulation N.
Mortgage lenders have a legal obligation to be truthful in all statements made to borrowers.
Regulation N requires mortgage company ads to:
- Fully explain how reverse mortgages work;
- Plainly state the interest charged for the loan including monthly payments;
- Disclose the loan’s annual percentage rate (APR);
- Indicate whether interest is simple or compounded;
- Disclose any fees or costs to the consumer;
- Disclose how taxes and insurance will be collected;
- Disclose of any prepayment penalties and fees;
- Explain how the default process works and what could cause a default; and
- Describe any restrictions or limitations on the borrower’s ability to modify the loan or refinance.
American Advisors Group CFPB Consent Order
In addition to paying a fine, the American Advisors Group also entered into a consent order. The order requires AAG’s ads comply with Regulation N. Specifically its advertisements cannot suggest:
- That a consumer will have “no payments” or “no monthly payments” if
he takes out a reverse mortgage;
- That a consumer with a reverse mortgage cannot lose his home;
- That a consumer with a reverse mortgage has the right to stay in the
home for the remainder of his life;
- That a consumer with a reverse mortgage is completely out of debt;
- That a reverse mortgage eliminates a consumer’s debt;
- That a reverse mortgage is a free government benefit or a loan from the
government, rather than a loan from a private company;
- That a homeowner has no ongoing financial obligations after obtaining
a reverse mortgage;
- That property taxes or insurance payments are not required with a
- That there are no risks associated with a reverse mortgage; or
- Any other fact material to consumers concerning any consumer
financial product or service, such as: the total costs; any material
restrictions, limitations, or conditions; or any material aspect of its
performance, efficacy, nature, or central characteristics.
CFPB Warns Reverse Mortgage Industry
In announcing the consent order and settlement, CFPB Director Richard Cordray said, “These companies tricked consumers into believing they could not lose their homes with a reverse mortgage. All mortgage brokers and lenders need to abide by federal advertising disclosure requirements in promoting their products.”
Abusive Practices and State Laws
In addition to Regulation N, the federal Dodd Frank law includes a prohibition against Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). Many states have similar laws that impact reverse mortgages on properties within that state.
Under most of these rules, an abusive act or practice is one that an act that interferes with the ability of a consumer to understand a term or condition of a financial service product.
Illinois Lawsuit Targets American Advisors Group
In 2015, a 67-year-old African American woman claimed she was “deceived and unfairly induced” to obtain a $100,000 reverse mortgage. The woman claimed she signed up for a reverse mortgage after a door-to-door solicitor explained that she could obtain a loan which would not have to be paid back.
Although the people who came to the woman’s door did not work for AAG, the loan she received was underwritten by the company. The door-to-door solicitor claimed she was helping the elderly and “black people” make repairs to their homes. The scheme appeared very high pressure with the title company even sending a notary to the woman’s home to help close the deal.
If you think you know how the story ends, you are probably right. The same people who solicited the loan also promised to make the repairs. The repairs didn’t get made, the homeowner says she lost $115,000 in equity and received no money. Of course, she owes tens of thousands of dollars and interest continues to accrue on the loan.
Although the misrepresentations were not made by American Advisors, the homeowner claims that no one from the mortgage company ever explained the mortgage or how it works.
Despite our and CFPB’s concerns, the company has maintained a relatively favorable rating in on line reviews. At this point, our investigation is in our early stages. We hope to here from both homeowners and present / former AAG employees.
American Advisors Group and Whistleblower Awards
AAG is the largest lender presently writing reverse mortgages. (Wells Fargo has the most outstanding reverse mortgage loans but has not written any new loans in years.)
Many of the reverse mortgages written by AAG are HECM loans. That means are backed by the FHA. If American Advisors is violating Regulation N or misleading seniors, there may be whistleblower awards available for those with inside information about reverse mortgage scams.
The federal False Claims Act pays awards of between 15% and 30% of whatever the government collects. While the awards are a big draw, most whistleblowers come forward simply because they don’t like seeing fraud and corrupt greed. In this case, reverse mortgage schemes often have real victims. Victims who are frequently elderly and lacking in financial sophistication.
Whether a whistleblower case filed on behalf of an American Advisors Group employee or a class case filed on behalf of homeowners, we certainly want to hear from you. All inquiries are kept confidential.
For more information, contact attorney Anthony Dietz at Whistleblowers (present or former employees) can contact attorney Brian Mahany as well ().
MahanyLaw – America’ Whistleblower and Fraud Recovery Lawyers – “We Sue Banks”