FHA Warns Lenders: Don’t Mislead Borrowers On Reverse Mortgages

15598_fha_logo FHA Warns Lenders: Don't Mislead Borrowers On Reverse Mortgages The Federal Housing Administration (FHA) is warning lenders to make certain that senior borrowers are fully informed of all their options when applying for reverse mortgages through the agency's Home Equity Conversion Mortgage (HECM) Program.

In addition, the agency is reminding lenders that using misleading or deceptive advertising in connection with the HECM program is strictly prohibited.

In its mortgagee letter sent to lenders on Thursday, the FHA explains that its guidance is ‘intended to protect HECM borrowers from misleading advertising and presentations that appear to limit their options rather than informing them of the full range of available HECM offerings.’

‘Senior borrowers deserve freedom of choice when considering whether a reverse mortgage is appropriate for them,’ says Carol Galante, commissioner of the FHA, in a release. ‘This guidance is intended to make sure lenders know we're keeping a watchful eye on their marketing and advertising practices that might steer borrowers toward reverse mortgage options that limit their available choices."

The mortgagee letter warns lenders that they must be careful about what they are telling seniors – and not telling them – when they apply for reverse mortgages.  For example, the FHA wants to ensure that lenders are informing borrowers that the FHA insures fixed rate mortgages, as well as annual and monthly adjustable rate mortgages.

In addition, lenders must tell borrowers that they have the ability to change the method of payment for their HECM loan at any time provided funds are available.

Lenders must also inform borrowers that fixed interest rate mortgages are limited to the single disbursement lump sum payment option, where there is a one-time draw at loan closing and no future draws post loan closing.

Perhaps most important, the FHA is reminding lenders that they are prohibited from using any "misleading or misrepresentative advertising or marketing materials in connection with the HECM program or from making any statement or representation that could mislead a mortgagor as to his or her rights under a HECM."

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