The Consumer Financial Protection Bureau (CFPB) today settled a lawsuit against the nation’s largest reverse mortgage lender for allegedly sending consumers reviews of swollen homes.
In a lawsuit filed today in U.S. District Court for the Central District of California, the CFPB alleged that the Irvine, Calif.-Based company Group of American Advisors (AAG) sent deceptive and inflated home estimates to borrowers by direct mail to convince consumers to take out a reverse mortgage. Direct mail announced a significant “estimated home value”, according to the court record, which the CFPB said was inflated.
The agency does not explain how it determined that the values were inflated, nor does it offer documentation to explain how it calculated the difference between the allegedly inflated values and the exact values. According to the trial, the midpoint of these values was inflated by an average of 18%, while at the upper end, the values were on average 28% higher.
The CFPB said that although the lender included a footnote in its marketing materials claiming that it had made “every attempt to ensure that the information provided about the home’s value is reliable,” these efforts were insufficient.
AAG did not perform “any analysis directly related to the appraised values of the homes it advertised in its letters,” the watchdog said.
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The CFPB also alleged that AAG violated a consent order in 2016, which prohibited the lender from violating consumer financial protection law until December 2021.
“American Advisors Group has violated consumer confidence by advertising reverse mortgages with inflated and misleading home valuation estimates,” said David Uejio, acting director of CFPB. “CFPB will act decisively when we uncover harms or consumer practices that seek to benefit vulnerable populations. “
A spokesperson for AAG said estimates of the value of third-party homes to shippers were “not always accurate,” and said the company had fully cooperated with the investigation and taken steps to respond to the concerns of the CFPB.
“AAG is built on its core values of being caring, motivated and ethical,” the spokesperson said. “We take these types of marketing issues seriously and are committed to providing our clients with clear and accurate information to help them responsibly access their home equity. “
Under a proposed settlement, the lender would pay $ 1.3 million in reparations and civil penalties. AAG should also stop advertising the appraised values of allegedly inflated homes to consumers and should refer its clients to certain CFPB reverse mortgage documents.
Reverse mortgages allow borrowers to receive a loan based on the equity in their home, either in a lump sum or in monthly installments. The loan is repaid when the borrower sells their house or dies.
The amount of financing borrowers – who must be 62 or older – can receive from a reverse mortgage, such as term mortgages, depends on the value of the home. The higher the valuation, the more a consumer can potentially borrow. Interest and fees are added to the loan balance each month.
The CFPB significantly increased its enforcement activities under the Biden administration. Under the leadership of its recently confirmed director, Rohit Chopra, who is expected to take office on Monday, the agency is expected to further strengthen its fair supervision of loans.
These actions may soon become more targeted. In a semestrial report, released today, the CFPB said it had “a number of ongoing and recently initiated investigations into equitable lending from institutions.”