The CFPB’s analysis of direct mail ads also infers lender intent
On August 9th the Consumer Financial Protection Bureau published it’s analysis of direct mail advertising of reverse mortgages. The CFPB Office for Older Americans opens with the incredible market potential of reverse mortgages with nearly eighty percent of older adults owning their home and wanting to age in place as long as possible adding that home equity will act as a safety net for many to cover retirement shortfalls. By 2060 will comprise nearly a quarter of the U.S. population, the Bureau reports.
Direct mail advertising trends
Direct mail advertising was analyzed between the years 2016-2022. During those six years the following observations were made. 1- reverse mortgage direct mail volume increased significantly between 2021and 2022 when compared to previous five years. Not coincidently, those were the years most Americans saw record home appreciation. 2- These direct mail campaigns were primarily focused on low and middle-income households. 3- A concentration of direct mail campaigns (84%) was seen in the South and Western regions of the U.S. where originations are concentrated and more homeowners self-report having a difficult time in making ends meet. And 4- a higher percentage of direct mail ads introduced the opportunity of refinancing an existing reverse mortgage than in previous years.
Another trend, albeit not surprising, was the preponderance of HECM-to-HECM refinances. In fact data drawn from FHA’s Single Family Portfolio Snapshot reveals that refinance endorsements actually exceeded first-time HECM loans for eight months between 2021-2022. Since 2019 reverse mortgage advertising increased by 400%.
Suspect Intentions?
So who are reverse mortgage lenders and originators most likely to market to? In most cases it’s lower-income households who may be struggling. The CFPB acknowledges stating, “The intent of the HECM program is to meet the needs of older adult homeowners with lower incomes”. However, the bureau goes further and claims…
8 comments
Shannon, the letters I have seen my past clients get “portray” that they are with the FHA. They also falsely claim that the borrower’s line of credit will be closing , since they didn’t use it in time, which false and deceptive.. We are encouraging new legislation, by not policing ourselves and calling out the brokers that are bad for the industry. I send copies of the letters to NRMLA hoping they will punish the deceptive practices of those brokers.
Steve- thank you for pointing that out. Those ads should be reported to the CFPB, state regulators, and NRMLA. The industry policing itself is imperative. Outside these ads, the CFPB’s assumptions of intent just are not supported by mere demographic data alone. Keep up the good work!
Steve,
Back in the early aught years when I came into the industry, our broker encouraged us to advertise through a specific marketer who sent out mailers making them look like they came from HUD including the use of a Washington DC address. Since the marketing firm set our appointments, everything went through them and I was told not to worry about anything. Since I was new to the mortgage industry, I accepted what they said. I was never shown the mailer until months after doing my first few mailers.,
After seeing the mailer, I asked about it but was told that the marketing company was responsible for the mailer, not me. At first I was pleased with that answer but then began having doubts. Soon I withdrew from all activities with that marketer. I learned the hard way. At that time there was no CFPB, just HUD. The broker was not part of NRMLA.
The mailer had no identifiers except a telephone number that could bel linked to the marketer if someone tried to find out who sent it.
Over the years I have to come realize that NRMLA is limited as to what it can do. Shannon is right that reporting these incidences needs to be reported to those who can take the appropriate action including FHA.
If it is a high cost product, it is because another government agency makes it a high cost product. The 2022 report to congress shows no projected losses and the MMI fund has improved every year since 2016, yet HUD continues to charge excessive MI premiums.
Refinances were driven by lower interest rates and higher Principal Limits. Why is it unreasonable to tell existing HECM borrowers that they can benefit from a refinance?
HECM losses are obviously driven by the interaction of HECM rules and Medicaid rules. Many HECM borrowers will end up on Medicaid. Medicaid requires an estate recovery, yet refuses to disclose the size of their claim in a timely manner, hiding behind HIPPA issues. It becomes a prudent business decision for many heirs to abandon the property. Neither FHA nor Medicaid are prepared to preserve the property so it is destroyed by freezing temperatures, vandalism, drug labs, and other issues. People at HUD and Medicaid are aware of the issue because I have contacted them, but they let the destruction continue. Anyone remotely familiar with HECM borrowers will understand the issue and how government actions maximize the losses.
It has become clear to me that there are many people in government that want to kill the HECM program.
Ou government is so corrupt on both sides of the aisle! Why do they want to financialy harm a hugh amount of “BOOMERS” who were unable to amass large 401k/IRA qualified accounts. These people (as luck would have) were able to buy a family home, build up great equity to help in their retirement years. These seniors face 4 major risks in retirement. Taxes, inflation, sequence of returns, longevity risk. How heartless to “block” these seniore from using what is for many of them their last option.
Don,
I would love to see the empirical correlation between the Medicaid issue and the high cost of the upfront HECM MIP that led you to these conclusions. I have been reading the annual report from HUD plus the actuarial report from the independent actuaries on the HECM portion of the MMIF and various quarterly reports since December 31, 2008 and have never seen any such correlation.
I understand why staff at both HUD and Medicaid would ignore your conclusions if you have no positive empirical correlation between upfront MIP and Medicaid consumer liabilities. Mere speculation based on subjective belief is hardly the thing that officials at HUD or Medicaid can run government programs on.
Based on the confidence you exude about your conclusions, providing empirical data and the related analysis and evidence leading to your conclusions should be no more than adding a file to an email to Shannon who can forward it to me. As a retired CPA, I will gladly confirm your empirical correlations, analysis, and conclusions; however, I cannot confirm mere speculation based on subjective belief.
Jim,
Why do you ignore the 20% of Boomers who do not own homes? While making money from Boomer homeowners is important, helping even less fortunate Boomers cannot be overlooked. Only advocating for those who are potential customers makes us look crass and greedy.
Why did you skip over the biggest risk to a senior in retirement? Loss of good health. If taxes include income taxes, most seniors are not liable for income taxes. It is rare that a senior who needs a reverse mortgage as a “last resort” is in risk of loss from the sequence of returns; such seniors would need a significant portfolio for that to be a “major” risk. There are several risks related to longevity. One is having inadequate retirement resources upon retirement but even more is the contingent costs of long-term care. Naming the risks associated with longevity makes the topic relevant.
How is anyone “blocking” seniors from using your so called “last resort?” If you are talking about the changes covered in Mortgagee Letter 2017-12 dated 8/29/2017 and taking effect on 10/2/2017, that was needed to protect the HECM portion of the MMIF, not to block eligible seniors from getting HECMs.
The industry needs those who can provide constructive criticism and help not those who merely accuse others for decreased business. For example, provide statistical data on how increases to PLFs will not cause the HECM portion of the MMIF to go under the 2% reserve required under law but will increase the number of seniors who can benefit from HECMs. I have been working on this since mid November 2022 but due to apparent inconsistencies in reporting I have not found the reports available from HUD to provide the necessary information. Try finding your own project and make constructive contributions.
Don,
I would love to see the empirical correlation between the Medicaid issue and the high cost of the upfront HECM MIP that led you to these conclusions. I have been reading the annual report from HUD plus the actuarial report from the independent actuaries on the HECM portion of the MMIF and various quarterly reports since December 31, 2008 and have never seen any such correlation.
I understand why staff at both HUD and Medicaid would ignore your conclusions if you have no positive empirical correlation between upfront MIP and Medicaid consumer liabilities. Mere speculation based on subjective belief is hardly the thing that officials at HUD or Medicaid can run government programs on.
Based on the confidence you exude about your conclusions, providing empirical data and the related analysis and evidence leading to your conclusions should be no more than adding a file to an email to Shannon who can forward it to me. As a retired CPA, I will gladly confirm your empirical correlations, analysis, and conclusions; however, I cannot confirm mere speculation based on subjective belief.