June 15, 2011
Federal law, including FHA regulations and requirements, govern how loans and many real estate services may be advertised or marketed to the consumer.
But in spite of these laws, some companies choose to include misleading or intentionally vague wording about some loan products that may seem to imply that company is endorsed by the government or that the services offered are somehow in connection with the FHA or HUD.
For example, not all reverse mortgages are FHA Home Equity Conversion Mortgages or HECM loans. But it would be very easy for a company to describe something very similar to an FHA HECM or reverse mortgage and allow the public to draw their own conclusions–however true or false–about whether that program is FHA approved.
There are three basic types of reverse mortgage products as described on the FHA official site. One is called the single purpose reverse mortgage, which the FHA describes as something offered by state or local government agencies, “in which the borrower may use the proceeds in only one specific way.” This type of loan may be offered exclusively for low-to-moderate income borrowers depending on the terms of the loan.
Another type of reverse mortgage is the “Proprietary reverse mortgage” which, according to the FHA official site, is offered by private lenders for a variety of purposes. This loan is not insured by the FHA or any other government agency.
In cases where advertising seeks to associate a proprietary reverse mortgage with a similar government-insured loan, borrowers should ask the lender direct questions about the loan. “Is this loan insured by the FHA?” and “Are you specifically offering an FHA Reverse Mortgage or is this a loan similar to an FHA HECM loan but without the government guaranty?”
The answers to those questions can make a lot of difference when it comes to choosing the loan you want.
The third type of reverse mortgage is the type insured by the Federal Housing Administration. These FHA reverse mortgages, or HECM loans, are described as “a reverse mortgage insured by the Federal government through FHA. FHA insures participating lenders against losses on HECM loans, and designs and administers the guidelines governing lender and borrower eligibility and use of HECM loans.”
In the last year, the federal government has cracked down on private companies using FHA logos, seals, and other official emblems in advertising to suggest that a private company has been endorsed by the government when it has not been, or when it would not be appropriate to do so.
In cases where it’s not clear whether a company is offering a private loan or one that has been insured by the FHA, it’s best to ask direct questions, get the answers in writing when possible, and consult the FHA for additional information if necessary.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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