FHA Releases Guidance on HECM Advertising

HUD issued a new Mortgagee Letter warning lenders participating in the Federal Housing Administration's (FHA) reverse mortgage program against using deceptive advertising regarding the program.

In a guidance letter issued Wednesday, FHA reminded lenders that they are required to use clear and consistent language when explaining the agency’s Home Equity Conversion Mortgage (HECM) program and may not "mislead or otherwise cause a senior borrower to believe that the HECM product contains any features or limitations that are inconsistent with FHA's requirements."

FHA Commissioner Carol Galante explained the guidance "is intended to make sure lenders know we're keeping a watchful eye on their marketing and advertising practices that might steer borrowers toward reverse mortgage options that limit their available choices."

"Senior borrowers deserve freedom of choice when considering whether a reverse mortgage is appropriate for them," Galante said.

Among other points, lenders are required to explain that fixed interest rate mortgages are limited to only the Single Disbursement Lump Sum payment option, while adjustable-rate mortgages provide for five payment options and allow future draws.

Mortgagees must also make clear that borrowers have the ability to change payment methods under reverse mortgage ARM products at any time, provided funds are available.

In prohibited practices, FHA reminds lenders they may not state or imply that any of their products have been endorsed by FHA or HUD as a result of their approval to participate in certain programs.

"All advertisements or marketing materials used in connection with the HECM program must include a prominently displayed 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 agency said.