Three mortgage companies are facing regulatory action from the Consumer Financial Protection Bureau for misleading consumers with advertisements implying U.S. government approval of their products.
The CFPB is suing reverse mortgage lender All Financial Services and ordering Flagship Financial Group and American Preferred Lending to stop their false advertising.
All Financial Services, based in Maryland, is a mortgage broker and lender in Maryland, New Jersey, Pennsylvania and Washington, D.C.
The 2011 Mortgage Acts and Practices Advertising Rule prohibits misleading claims in mortgage advertising, including implying a government affiliation. The CFPB alleges that mailings from the three companies imitated U.S. government notices. While government programs insure or guarantee certain mortgages, the private lenders that make these loans are not government entities and have no government affiliation.
Federal Housing Administration (FHA) loans are loans from private lenders that are regulated and insured by the FHA, a government agency. Veterans Affairs (VA) loans are similarly made by private lenders to eligible veterans, current servicemembers, and surviving spouses; they are guaranteed by the Department of Veterans Affairs.
The CFPB alleges that from November 2011 to December 2012, All Financial used deceptive advertisements. The CFPB alleges that the company misrepresented the source of the advertisements and that the FHA-insured reverse mortgage program was time-limited or had a deadline. For example, one mailer sent to nearly 200,000 consumers advertising All Financial Services reverse mortgages had an eagle resembling the Great Seal of the United States. Furthermore, the header read, "GOVERNMENT LENDING DIVISION and Housing and Recovery Act of 2008 Eligibility Notice."
The CFPB also alleges in the complaint filed in U.S. District Court for the District of Maryland that All Financial falsely said that no monthly payments are required under a reverse mortgage "as long as you and your spouse live in the home.
The CFPB alleges this ad is misleading for two reasons. First, homeowners who take out a reverse mortgage are still required to pay taxes and insurance. Second, at the time the ads were disseminated, the reverse mortgages they advertised could be due upon the death of the last borrower, regardless of whether a non-borrowing spouse still lived in the home.
The CFPB seeks a civil fine and a permanent injunction to prevent future violations. The complaint is not a finding or ruling that the defendant has actually violated the law.
Each of these companies has misled consumers with false advertising, said CFPB Director Richard Cordray. The U.S. government is very serious about stopping companies from falsely claiming federal authority, and we are particularly concerned about false or deceptive statements made in advertisements about reverse mortgages that target older Americans.
Flagship Financial Group, based in Utah, is licensed as a mortgage broker or lender in 35 states. The company originates conventional loans and VA loans. It also brokers FHA loans on behalf of other originators.
The CFPB investigation discovered that, from August 2011 to December 2012, Flagship Financial sent mailings implying that its VA loans were endorsed or sponsored by the U.S. Department of Housing and Urban Development. The company claimed, in more than one million mailers, that it was "HUD-Approved.
For example, the ads included text about federal legislation, and said, "HUD-Approved Flagship Financial Group has been directed to get VA homeowners instant relief by lowering their monthly payments."
The company also sent tens of thousands of mailers advertising mortgage credit products that looked like a government notice. For example, the mailings had a heading, PURSUANT TO THE FEDERAL HOUSING ADMINISTRATION (FHA) HUD No. 12-045, instructed consumers to call their assigned FHA loan specialist, and obscured the companys name as the source of the advertisements.
With todays action, the company will be prohibited from falsely implying a government affiliation in future advertisements. It will also pay a civil penalty of $225,000.
American Preferred Lending, based in California, originates mortgage credit products, including FHA and VA residential loans. The company is a mortgage lender and mortgage broker in California; and it is a mortgage loan originator in Florida.
CFPBs investigation revealed that the company, from August 2011 to February 2013, sent mailings to potential consumers that appeared as if they were U.S. government notices, obscuring that they were actually from American Preferred Lending.
More than 100,000 mailings were sent that had an FHA-approved lending institution logo, and referenced the web address, www.FHAdept.us. These factors combined gave the impression that the ads were from the U.S. government, or an entity affiliated with the government. Although the company is authorized to originate VA and FHA loans, it is not an agent of, or affiliated with, the U.S. government.
The company is prohibited from falsely implying a government affiliation in future advertisements. It also will pay a civil penalty of $85,000.