WASHINGTON (6/23/14)--The Federal Housing Administration has published a guidance warning lenders that deceptive reverse mortgage marketing could lead to fines or administrative action.
The guidance, released last week, reminds financial institutions that they're forbidden from leading consumers to believe that a reverse mortgage "contains any features or limitations that are inconsistent with FHA's requirements."
The federal mortgage insurer told lenders that: it must explain that the FHA backs both fixed- and adjustable-rate mortgages; borrowers may change the method of adjustable-rate payment at any time; fixed-rate loans must be disbursed in a single sum; adjustable-rate mortgages allow for five payment options and future draws, and that the age of the youngest borrower (or non-borrowing spouse) determines the amount of funds available (American Banker June 19).
Borrowers must also clearly publish a disclaimer that "informs the public the information was not compiled by the Department of Housing and Urban Development or FHA."
Reverse mortgages are referred to in the guidance as Home Equity Conversion Mortgages (HECM).
American Banker reported that the guidance was specifically issued to protect senior citizens, a prime market for reverse mortgages.