How to Advertise FHA Reverse Loans, aka HECMs – Home Equity Conversion Mortgages

What are the rules for advertising an FHA Reverse Mortgage Loan?

These new rules from the US Department of HUD came out on June 18, 2014 via HUD Mortgagee Letter 2014-10. Read below if you are putting out ads on FHA Reverse Mortgage Loans, aka HECMs. When advertising these HUD reverse mortgage programs, The main rule is you can’t imply that your product has been endorsed by FHA or HUD. Portions of the HUD Mortgagee are shown below along with a link to the full mortgagee letter.

Prohibition on Misleading or Deceptive Advertising

Mortgagees are prohibited from using any misleading or misrepresentative advertising or marketing materials in connection with the HECM program. Mortgagees are prohibited from making any statement or representation that could mislead a mortgagor as to his or her rights under a HECM. Mortgagees may not state or imply that as a result of their approval to participate in FHA programs that any of their products have been endorsed by FHA or HUD.

Mortgagees continue to be responsible for compliance to the marketing and advertising requirements defined in Mortgagee Letter 2011-17.

Advertisement and Marketing Disclaimer

All advertisements or marketing materials used in connection with the HECM program for the purpose of describing and illustrating, to the public the types of loan products offered by the mortgagee must include a disclaimer that clearly informs the public that such materials are not from HUD or FHA and the document was not approved by the Department or Government Agency. The disclaimer must be displayed in a conspicuous location.

Effect of Noncompliance

Mortgagees are responsible for ensuring their branches, employees and agents comply with all FHA requirements. Failure to follow HUD/FHA requirements as outlined in this Mortgagee Letter may result in sanctions, including civil money penalties or administrative action against any person, party, company, firm, partnership or business, including non-FHA-approved institutions and individuals.

Specific Rules – Prohibition on Misleading Product Descriptions

Mortgagees are required to explain in clear, consistent language all requirements and features of the HECM program. Mortgagees must ensure that mortgagors are properly informed of all features available to HECM mortgagors and may not mislead or otherwise cause a mortgagor to believe that the HECM product contains any features or limitations that are inconsistent with FHA’s requirements. For example, the mortgagee must explain:

  • FHA insures fixed interest rate mortgages, as well as annual and monthly adjustable interest rate mortgages;
  • the mortgagor has the ability to change the method of payment under the HECM at any time provided funds are available;
  • fixed interest rate mortgages are limited to the Single Disbursement Lump Sum payment option where there is a single, full draw at loan closing and the mortgage does not provide for future draws by the mortgagor under any circumstances;
  • adjustable interest rate mortgages provides for five, flexible payment options, and allows for future draws;
  • the amount of funds available to the mortgagor is currently determined by the age of the youngest mortgagor, and
  • the disbursement of mortgage proceeds during the first twelve-month disbursement period is subject to an initial disbursement limit as determined by requirements set by the Secretary.

Prohibition on Restriction of Mortgagor’s Freedom of Choice

Under the National Housing Act, a mortgagor has the statutory right to select his or her interest rate (fixed or adjustable) at the time the reverse mortgage is originated under the HECM program. On or after the effective date of Mortgagee Letter 2014-11, if the mortgagor selects a fixed interest rate, the mortgagor will receive a Single Disbursement Lump Sum payment option at loan closing, with no future draws available to the mortgagor. If the mortgagor selects an adjustable interest rate on or after the effective date of Mortgagee Letter 2014-11, the mortgagor will be permitted to choose from the following payment options:

  • Line of Credit;
  • Term;
  • Tenure;
  • Modified Term; or
  • Modified Tenure.

Additionally, after origination, in connection with any insured HECM providing for future draws, the mortgagor has the ability to change payment plans at any time throughout the life of the loan, provided that funds are available to be withdrawn.

For more information, please review HUD Mortgagee Letter 2014-10