CFPB concerned about reverse mortgage advertising

The report focused primarily on direct mail, and takes issue with increased advertising volume and targeting for low-to-moderate income seniors

The Consumer Financial Protection Bureau (CFPB) this week released a new trends report primarily focused on advertising trends in the reverse mortgage industry, with a particular focus on materials sent via direct mail.

After the onset of the COVID-19 coronavirus pandemic, targeted advertising via direct mail was sent to older homeowners who had “high [home] equity, lower incomes, and in regions where homeowners have somewhat less ability to stay current on their housing payments.”

“To assess market trends, the CFPB analyzed reverse mortgage direct mail advertising volume from 2016 through 2022,” the report said. “Advertisements are often an older adult’s entry point to the product and can provide key details about the loan. Analyzing ad content may reveal deficient or otherwise problematic disclosures, while looking at ad volume can show the targeting of certain populations and provide insights into emerging new products and markets.”

Rate of advertising, income levels of targeted consumers

The CFPB said direct mail reverse mortgage advertising increased “significantly” in 2021 and 2022, registering 44 million and 48 million ads, respectively. These figures represent a sharp rise from levels observed in 2019 and 2020, two years in which the average total was 11 million.

CFPB also observed that the ads were targeted toward people with lower incomes.

“Nearly three-quarters (74%) of reverse mortgage direct mail advertising volume went to consumers with low and moderate incomes (household income below $75,000) in 2021-2022,” the report said. “This suggests direct mail advertising disproportionally targets low and moderate-income households, since only 53% of households headed by an older homeowner have incomes below $75,000.”

Geographic targeting, refinances

The targeting of direct mail ads was also to people in the Southern and Western regions of the U.S.

“Approximately 84% of direct mail reverse mortgage ads went to consumers living in states in the South and West during this period,” the report said. “This is a larger share than the portion of older homeowners living in those regions. The share of direct mail reverse mortgage ads to consumers was similar to the share of [Home Equity Conversion Mortgage (HECM)] loans endorsed in the South and West region during this period (87%).”

There were variations in the nature of the ads between the two regions, however, as “both advertising and endorsements far more concentrated in the West compared to the share of older homeowners in that region,” the report said.

Older homeowners in these regions “display some unique characteristics that raise potential concerns about the financial circumstances of borrowers there,” the Bureau said. Both regions have shown that larger shares of older homeowners report that they have difficulty covering their living expenses, while “a slightly larger share of older adults” in these regions have also reported having issues with paying their mortgages.

“There are also noteworthy differences in the racial/ethnic profile of older homeowners in these regions,” CFPB said. “Specifically, the South and West regions have a higher share of non-white older homeowners than Northeast and Midwest regions, with a high share of Black older homeowners in the South and a high share of Hispanic older homeowners in the West.”

The Bureau noted that ads pertaining to reverse mortgage refinances spiked considerably in 2021 and 2022, a time in which the industry endured a boom in refi activity. Refi activity comprised more than half of the industry’s total activity in 2021-2022.

Echoes of prior concerns

While reverse mortgage lenders have made appeals in recent years to homeowners with higher net worths, the industry and product have garnered a persistent reputation among certain people as offering a “loan of last resort” since most of the customer base of the industry tends to be seniors who have a lot of home equity with little access to liquid cash.

Industry professionals in the past have also explained that the nature of targeting reverse mortgage advertising toward older people is not because lenders are seeking more vulnerable populations, but are instead aiming to remain compliant with laws that dictate the kind of customer that can make use of a reverse mortgage.

In 2019 when Meta-owned social media platform Facebook made a change to its ad policies in an effort to limit targeted ads for protected classes — including seniors — a reverse mortgage professional explained for RMD that the industry’s advertising efforts remain focused on older people is because younger people simply don’t qualify for the product that reverse mortgage companies sell.

“No matter how you look at it, reverse mortgage ads are not targeted to younger borrowers simply because they do not qualify for the loans – not due to any desire to exclude those who could use the program or possible Real Estate Settlement Procedures Act (RESPA) violations,” said Cliff Auerswald, president of All Reverse Mortgage to RMD in 2019.

CFPB caution remains

However, CFPB acknowledges the general use cases for reverse mortgage loans and is maintaining a level of concern related to this targeting activity, according to the report.

“Although the intent of the HECM program is to meet the needs of older adult homeowners with lower incomes the data nevertheless suggests that reverse mortgage lenders are potentially targeting vulnerable populations with an expensive product that may not be best suited for their individual housing and financial needs,” the Bureau said.

An increase in ads regarding refinances was also of noted concern, according to the report.

“Moreover, the increase in ads for reverse mortgage refinances are concerning in that they suggest lenders may be targeting existing reverse mortgage borrowers for costly closing costs rather than providing them with a new product that reduces the effect of economic hardship,” it said.

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