With the mortgage loan application form in its final stages of revision, the CFPB wants to focus on “the other end of the transaction,” saying it would like that disclosure to be “just as clear and effective as the application disclosure will be.”

This latest step comes after receiving more than 24,000 comments on its Know Before You Owe initiative, and the CFPB thanked respondents in a recent blog post for making the project “such a success.”

The CFPB included the newest prototype for the mortgage loan application, which compares a fixed-rate and an adjustable rate loan and is currently being tested in Albuquerque, NM, and welcomed further feedback.

Soon, the bureau will share a prototype closing disclosure form and ask for consumer and industry feedback. However, even though they’ve moved on to the next round, the CFPB says this isn’t the last of the application disclosure and invites respondents to “stay with them.”

The two forms will need to work together, and it will be asking for feedback on both in the future, says the CFPB, going on to request continued help as it embarks on this latest effort.

Compare the fixed-rate and adjustable rate mortgage application disclosure forms.

Written by Alyssa Gerace

With the volume of reverse mortgage activity expected to dramatically increase, the agencies said they need to collect information from financial institutions involved in the reverse mortgage activities to monitor and mitigate risks.

Specifically, the OTS sounds more concerned with proprietary products:

For example, proprietary reverse mortgages structured as lines of credit, which are not insured by the federal government, expose borrowers to the risk that the lender will be unwilling or unable to meet its obligation to make payments due to the borrower. Additionally, in those circumstances in which housing prices are declining, there is the risk that the reverse mortgage loan balance may exceed the value of the underlying collateral value of the home.

The U.S. Department of Housing and Urban Development provides a monthly report for reverse mortgages endorsed for federal insurance, by fiscal year, for those loans that are part of the federally sponsored HECM program.

While this monthly report provides information such as average expected interest rates, average property values, average age of the borrower, and the number of active insured accounts, there is no aggregate monthly data nor is there institution-specific information that identifies the institutions participating in the program.

For proprietary reverse mortgage loans, there is no known data on the volume of reverse mortgages, dollar amounts outstanding, or the institutions offering these products.

Therefore, OTS is proposing that a new Schedule RM—Annual Supplemental Consolidated Data on Reverse Mortgages be added to the TFR to collect reverse mortgage data on an annual basis beginning on December 31, 2010.

The other federal banking agencies are similarly proposing new items for the Call Report to collect reverse mortgage data on an annual basis beginning on December 31, 2010.

Collecting this information will provide the agencies the necessary information for policy development and the management of risk exposures posed by institutions’ involvement with reverse mortgages.

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For the first time in more than 30 years, HUD is updating mortgage rules to help consumers shop for the lowest cost mortgage, avoid costly and potentially harmful loan offers, and save an average of $700 according to HUD’s announcement.  

Meanwhile, HUD is withdrawing, and announcing its intent to propose revised language relating to, a narrow provision of the final RESPA rule that redefines a prohibited practice called ‘required use’ where consumers are steered toward higher cost mortgage services provided by affiliated businesses.

"We will implement the new RESPA rules as part of broader reforms to the mortgage process. And after further consultation with the public, stakeholders and Congress we will propose a clearer and more effective "required use" definition that truly protects borrowers from those who force them to use affiliated businesses. Needed consumer protections are too important to allow confusion over one specific provision to hold up needed RESPA reforms."

Donovan indicated after a thorough review of more than 1,200 public comments, HUD has rescinded a rule that would’ve restricted builders abilities to forge partnerships with lenders. HUD will propose a new ‘required use’ definition which will help protect home buyers from the influence of disingenuous discounts and incentives that steer consumers to the use of affiliated businesses. 

Builders having preferred lenders has caused some problems in the reverse mortgage industry, specifically because of the HECM for purchase.  Several companies who are preferred lenders with builders aren’t familiar with the HECM and don’t offer it as an option to borrowers.

The decline in house prices has adversely affected the projected credit performance of Home Equity Conversion Mortgages. As a result, the program has a positive subsidy rate. The Budget provides both fixed and variable appropriations of credit subsidy to support continuous operation of the program even if actual loan activity exceeds projections. The Budget projects insurance of $300 billion in single-family forward mortgages and $30 billion in Home Equity Conversion Mortgages with an additional $70 billion in commitment limitation available in case these amounts are exceeded during execution.

There has been lots of debate about how the HECM program is performing and it’s clear that HUD is paying attention.  NRMLA’s President Peter Bell provides RMD readers some more information here or just scroll down for his comment.White House Requests Taxpayer Subsidy For Reverse Mortgages

Technorati Tags: Reverse Mortgage,News,HECM,FHA,HUD,Obama,Budget

One of the bills, AB 329 would put into place the Reverse Mortgage Elder Protection Act of 2009 which would do the following:

• Prohibit a lender from referring a prospective borrower to a counseling agency, or paying any counseling service fees without first informing the prospective borrower in writing that this may create a conflict of interest.
• Require a lender to disclose to the prospective borrower in writing any other payment arrangements or business affiliations between the lender and a counseling agency.
• Require the lender to provide the prospective borrower with a list of all nonprofit counseling agencies in the state that have been approved by the United States Department of Housing and Urban Development for counseling.
• Grant borrowers the right to cancel a reverse mortgage within 30 days for any reason and would require a lender to provide a notice to this effect.
• Establish a new fiduciary duty between reverse mortgage sales people and consumers.

If you read through the text of AB 329, it’s clear that Feuer has a problem with the word “refer”.  Instead of the word refer, he would like it to say “provide”.  You can read the text of AB 329 here.

Feuer isn’t the first politician to introduce a bill to provide protections for reverse mortgage borrowers without understanding the product, Minnesota’s Attorney General did the same thing earlier this month. 

SEC. 12004. FHA REVERSE MORTGAGE LOAN LIMITS FOR 2009.

For mortgages for which the mortgagee issues credit approval for the borrower during calendar year 2009, the second sentence of section 255(g) of the National Housing Act (12 U.S.C. 171520(g)) shall be considered to require that in no case may the benefits of insurance under such section 255 exceed 150 percent of the maximum dollar amount in effect under the sixth sentence of section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)).

Now the bill moves to the Senate, where debate is expected to begin as early as this week on a companion measure already taking shape. 

House passes economic stimulus bill (USA Today)

James A. Heist, assistant inspector general for audit, testified that FHA needs to increase personnel, increase training for personnel and increase oversight of appraisal and underwriting.  The agency’s market share has grown to 12.55% of single-family home loans in fiscal 2008 from 4.12% in the prior year. In September 2008, FHA’s market share reached 21.13%, up from 6.35% in October 2007.

Heist also expressed his concern about different aspects of the HECM program.  Below are the comments made regarding the HECM program:

Another area of concern is the growing Home Equity Conversion Mortgage program. As an internal matter, in 2007, FHA’s independent auditors identified a significant deficiency in the financial statement audit that showed the program being supported by a combination of servicer-provided applications, vendor databases, modification of existing FHA legacy systems and manually performed input to the FHA’s general ledger.

From an external standpoint, we are aware that the larger loan limits can be attractive to exploiters of the elderly, whether it is by third parties or by even family members, who seek to strip equity from senior homeowners. Due to the vulnerability of the population this program serves, we are also concerned about evasions of statutory counseling requirements or even fraud by counseling entities. We are working with the Chairman and members of the Senate Committee on Aging to address some of their concerns regarding these issues.

Some HECM-related fraud activities involve flipping where an investor sells the property to an elderly straw buyer and enters into a quit claim deed with the straw buyer. The buyer applies for the HECM loan within a short time frame and the appraisal used to originate the HECM loan is then fraudulently inflated. This allows the investor to illegally divert the proceeds of the loan. Straw buyers are “recruited” in residential areas with a high rate of renters. The buyers are often unaware that they must pay property taxes and some are unaware that the cash due to them at closing has been diverted. A current investigation involves recruiting elderly homeless to live in properties victimizing these seniors who often have desperate needs.

Another activity that we currently have under investigation involves financial professionals convincing HECM borrowers to invest HECM proceeds in a financial product such as an annuity. The financial professionals receive increased fees and, in the case of annuities, the victims are unable to get access to their savings for many years or even past their projected life expectancy. We have been partnering with the AARP and other groups to foster consumer protection education awareness. We are also a key participant in the mortgage fraud task forces nationwide coordinated by the Department of Justice.

To read a copy of his testimony click the link below.

Statement of James A. Heist before the Committee on Financial Services

While there is big opportunity in catering to the aging demographic, the report notes that financial institutions have been slow to enter reverse mortgage lending due to the unique servicing and risk management challenges. For example, when the reverse mortgage was first introduced, banks were wary of booking potentially long-term loans that increase over time, do not have a predefined scheduled repayment stream, and for which there was no established secondary market. Lenders also faced uninsured crossover risk.

However, the market changed in 1988 when the Federal Housing Administration launched the Home Equity Conversion Mortgage Insurance Demonstration.  The pilot was eventually adopted permanently by HUD and the HECM was born.  The HECM presented banks with a commercially viable loan product with strong consumer protections.

The FDIC lists the following as concerns in regards to reverse mortgage lending:

• Property appraisals – Lenders must ensure that property appraisals are conducted in accordance with the requirements of the appraisal regulations in Part 323 of the FDIC Rules and Regulations.
• Real estate lending standards – Lenders must comply with Part 365 of the FDIC Rules and Regulations, which requires insured state nonmember banks to adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens on or interests in real estate, or that are made for the purpose of financing permanent improvements to real estate.
• Third-party risks – Lenders must manage potential risks associated with third-party involvement. This is particularly relevant to situations in which lenders either conduct wholesale activities or act as brokers or agents themselves.
• Servicing complexity – Specialized loan servicing functions must be implemented, including processes for disbursing proceeds over extended periods of time and monitoring maturity events that will necessitate repayment.
• Securitization and liquidity – Although a secondary market for reverse mortgage lending exists, it is relatively new, and financial institution expertise in this area may be limited.
• Collateral – Lenders/servicers must ensure that collateral condition is maintained during the term of the loan.

The report goes into more detail about various aspects reverse mortgage lending and gives some good background information.  To read a copy of the report click the link below.  (Reverse Mortgages info starts on page 14)

FDIC-What Consumers and Lenders Should Know