Consumer Protections For Reverse Mortgage Clients Familiarizing With .

Consumer Protections for Reverse Mortgage Clients Familiarizing with Fair Lending Laws 2 Hour SAFE CE Lorraine M. Geraci, Urban Financial of America Mary Katherine Quasarano, Celink

Learning Objectives Review course and expectations Defining Ethics NRMLA Ethics Advisory Board Financial Safeguards for Older Adults Fair Lending Laws End of course assessment Multiple Choice Exam

Overview – Defining Ethics It is important to uphold the Code of Ethics established by the National Reverse Mortgage Lenders Association (NRMLA), the Consumer Financial Protection Bureau (CFPB), and state laws. Together, we can ensure customers have a quality, ethical and positive experience with reverse mortgages. 3

NRMLA Ethics Committee Interprets the Code of Ethics Periodically issues formal interpretations Ensures that NRMLA members engage in ethical advertising practices IMPORTANT: If you are in possession of a marketing piece that contains questionable content and appears misleading, forward it to NRMLA as an “ethics complaint.” The NRMLA Ethics Committee reviews each complaint, investigates serious violations, and rules on them. The Ethics Complaint form is on NRMLA’s website. It is important that we self-police the industry to preserve our reputation! 4

Risks Identified by the CFPB Accurately and thoroughly represent the HECM product at every consumer touchpoint - in both word and deed! Do not use fine print, separate statements, or inconspicuous disclosures to correct potentially misleading headlines. Include timely, clear, and understandable information about the costs, relative risks, responsibilities, and circumstances under which the borrower might be required to pay the loan in full. 5

NRMLA “Dirty Dozen” How many can you identify?

NRMLA “Dirty Dozen” NRMLA Ethics Advisory Opinion 2012-1 1. Advertising a HECM loan as a “government loan” or “benefit,” or the lender’s loan as HUD or AARP “approved.” 2. Stating that a failure to respond may result in the loss of a consumer benefit to which he or she is entitled. 3. Advertising exaggerated or misleading benefits (“We pay off your loan”) without describing risks. 4. Advertising celebrity testimonials or endorsements without describing the paid arrangement. 5. Stating the customer must purchase another product, such as an annuity, to obtain a HECM. 6. Advertising to a business partner a higher than normal compensation from the consumer’s loan proceeds in exchange for its business, even if this is disclosed to the customer in timely fashion. 7. Using terms without accurate and prominent explanations: “no cost,” “no fee,” “no risk,” “no payments.” 8. Advertising celebrity testimonials or endorsements that do not reflect their honest opinions or experiences. 9. Advertising that consumers are “pre-approved” or “pre-qualified” without disclosing conditions to qualify. 10. Misleading the customer to believe he or she will miss a limited opportunity by not promptly responding. 11. Use of simulated checks or currency in advertising. 12. Use of HUD or FHA logos or names in advertising. 7

Case Study 1 The class separates into pairs, and each pair creates a two-line reverse mortgage advertising campaign for their respective sample company. Students read their messages, and the class determines if the ad is appropriate based on the ethical standards of the industry. If it is not appropriate, the class determines how and why. 8

Lead Generators NRMLA Members may not engage in conduct that violates any of the NRMLA Code of Ethics, and any Lead Generation Providers enlisted must comply with the provisions of the law and the NRMLA Code of Ethics applicable to them. NRMLA Ethics Advisory Opinion 2009-2 Your business is responsible for the actions of lead generators. Select the vendors you choose to do business with CAREFULLY! 9

Polling Questions Industry Ethics are overseen by certain entities. Which of the following is not involved in Reverse Mortgage ethics? CFPB AARP NRMLA NCOA USMC NRMLA “Dirty Dozen” applies to which of the following? The number of people on the NRMLA board Advertising guidelines Application processes Steps to learning the reverse mortgage industry 10

Types of Financial Abuse Fraud: A deception deliberately practiced in order to secure unfair or unlawful gain. Scam: To swindle by means of a trick. The American Heritage Dictionary There are three types of abuse: Occasion/Opportunity: The perpetrator wants something the older adult has, and seeks to take it. Desperation: Family, friends or caregivers become so desperate that their morals or character become affected. They rationalize the act against the older person, or feel entitled to take from that person because in exchange for some type of assistance. Predation: This is typically premeditated – “predatory” – and often comes in the form of a scheme that might be very sophisticated. The activity is planned and detailed, and often preys on the goodness and values of older adults.

Common Scams and Fraud Telemarketing fraud: Phone solicitors might suggest that they are in some official capacity so the person feels obligated to participate. Internet Fraud: Internet fraud often appears to be “official.” It requires a response, or overstates something that seems too good to be true. Ignore unsolicited offers. Mortgage Fraud: Equity theft schemes (aka straw buyers), foreclosure rescue schemes, investment schemes. 12

Common Scams and Fraud, cont. Health and Healing Remedies: These promise unbelievable results and make unbelievable money for the con artists. They promise pain relief, or sight and hearing restoration. Get Rich Quick: These promise to improve someone’s financial position. This is appealing to any age group, but a group on fixed incomes may be more open to an investment or contest winnings. Medicare/Prescription Fraud: The victim might provide personal information that triggers more solicitations, or credit card or checking account withdrawals. If drugs are provided they may not be appropriate, and could even be dangerous. 13

Financial Safeguards Empowering Older Adults NEVER give out personal information. NEVER send money for something that is free. Pressure tactics like “you must act now” or “only for a limited time” pressure them to make a fast - and questionable - decision. By requesting information by mail, victims can often separate a legitimate opportunity from a dishonest transaction. 14

Home Equity Reverse Mortgage (HECM) Benefits and Safeguards A HECM (“reverse mortgage”) is a loan product available to adults aged 62 or older. It provides financial resources through available home equity. Prospective clients are required to receive third party counseling. Mortgage insurance is incorporated into the program to protect the client. The amount of equity a client can use is limited based on age, product and interest rate. 15

Reverse Mortgage Protections How has the Reverse Mortgage Industry Protected Seniors Against Elder Abuse? The FHA-insured HECM reverse mortgage product has been regulated since 1989. Lending institutions have implemented a variety of safeguards to protect older adults from financial abuse. Older homeowners may be targets for scam artists who offer too-good-tobe-true real estate or investment deals. Sadly, there are also cases where seniors are talked into a reverse mortgage by family members who want to get their hands on the cash. That’s why reverse mortgage counseling is so critical. The counselor helps older adults look at the long-term responsibilities of a loan, not just the short-term benefits. If you suspect that someone has been targeted by a scammer, call 800-347-3735 to file a complaint with HUD. 16

Reverse Mortgage Protections How has the Reverse Mortgage Industry Protected Older Adults Against Elder Abuse? Government-regulated since 1989. Mandatory third-party reverse mortgage counseling. Principal Limit withdrawals Financial Assessment NRMLA-required adherence to a Code of Ethics for all members. 17

Resources Familiarize yourself with these resources. National Committee for the Prevention of Elder Abuse www.preventelderabuse.org National Do-Not-Call registry at www.donotcall.gov or 888-382-1222 National Fraud Information Center-Internet Fraud Watch www.fraud.org 800-876-7060 www.nrmlaonline.org – National Reverse Mortgage Lenders Association U.S Postal Inspection Service www.usps.com/postalinspectors/fraud/seniorwk.htm Better Business Bureau Wise Giving Alliance www.give.org 703-276-0100 American Institute of Philanthropy www.charitywatch.org 773-529-2300 AARP www.aarp.org/bulletin/consumer 888-687-2277 Local Adult Protective Services (refer to your state’s Department of Human 18 Services)

Polling Questions Our industry must be vigilant in its efforts to expose financial abuse of older adults in any form. Which of the following is not a type of financial abuse? Desperation Phone Solicitation Occasion/Opportunity Predation Which of the following statements empowers older adults? You should know better. I can’t believe you fell for that! NEVER give out personal information. You’re looking good! 19

What is Fair Lending? It is an umbrella of consumer protection laws and regulations implemented to promote the availability of credit equally to ALL creditworthy applicants. In other words, it promotes fair lending! ECOA: Equal Credit Opportunity Act, Regulation B FHAct: Fair Housing Act HMDA: Home Mortgage Disclosures Act, Regulation C FCRA: Fair Credit Reporting Act, Regulation V ADA: Americans with Disabilities Act CRA: Community Reinvestment Act

Prohibited Factors Both the ECOA and the FHAct state it is unlawful for a residential mortgage lender to discriminate against, or discourage, credit applicants on a prohibited factor, as shown here: Familial Status: Children under the age of 18 living with a parent or legal custodian, pregnant women, and people securing custody of children under 18. Factor ECOA FHAct Race X X Color X X Religion X X National Origin (includes X X Sex/Gender X X Marital Status X Ethnicity) X Familial Status Age X Public Assistance as an Income X Source X Disability Exercised Rights under Consumer Credit Protection Act X

Compliance All organizational roles must treat potential applicants and customers equally. These include, but are not limited to: Receptionists Marketing Loan Originators Loan Processors Underwriters Servicing Secondary Marketing Management Board of Directors

Two Types of Discrimination Disparate Treatment An individual of a protected group is singled out and treated less favorably than others similarly situated, on the basis of an impermissible criterion. Disparate Impact A policy that seems neutral, but which actually has a disproportionate effect on a protected group of people

Case Study 2 Mrs. Johnson went to apply for a loan, and waited quite a long time for a loan officer to assist her. Other borrowers came in after her, but received assistance first. She noticed they were all younger than her, and were all men. Finally, when she was assisted, the loan officer tried to dissuade her from applying for a loan stating she will probably not qualify. 24

Disparate Treatment Examples Marketing only to selected areas, excluding low- or moderate-income areas. Not lending in high minority areas. Charging higher rates or higher fees for a particular ethnicity or national origin. Having higher denial or withdrawal rates for a particular race. Charging an application fee to a minority applicant, but not a non-minority applicant.