MBA Proposes Model Legislation For Proprietary Reverse Mortgage Products

image While the majority of reverse mortgages originated continue to be FHA insured HECMs, regulators and legislators are voicing concerns about the need for consumer safeguards for proprietary reverse mortgage products.

During a speech earlier this month, John Dugan of the Office of the Comptroller of the Currency said, “lenders are likely to develop more attractive proprietary products that will compete with HECMs and also become available for consumers who don’t qualify for HECMs.”  He later added that regulators need to set more standards for proprietary reverse mortgages

States like Washington and Vermont felt the same way and each passed its own bill addressing proprietary reverse mortgages, but both accomplished very different things earlier this year.

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Looking to define a national standard of consumer protections for proprietary products, the Mortgage Bankers Association is about to introduce model legislation to ensure that seniors are protected without having their choices limited due to legislation.     

“When your doing FHA HECM’s you have rules, you have certain fee restrictions and practices that protect seniors,” said John Courson, President of the MBA, at the Mortgage Bankers Secondary Marketing Conference in Chicago.  “We really need model legislation for proprietary reverse mortgages that we can take to the states and have it implemented.”

In an interview with RMD, Courson said the MBA’s Reverse Mortgage Task Force created model legislation that establishes a set of standards and best practices for proprietary reverse mortgage products.  “The model legislation is finished and is in the process of being vetted through AARP, so they can give their input and then we will introduce it and work with the states,” said Courson.

According to the MBA’s spokesperson, the task force is leaning towards a release next week.

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  • Even more to the point, whose fees will be restricted and how? Also will the loans be self-insured by the banks offering them or is that not something considered as safe-guarding the seniors?

  • Good morning,

    If John Dugan's office is so concerned about the proprietary products and wants rules and restrictions imposed, Use the HECM underwriting guide lines. In addition to the underwriting guide lines, use the same rules that govern the HECM.

    One issue that needs to be addressed is the origination fee. This is one area that I think flexibility would be needed. I feel on a proprietary loan the $6,000 cap that is on the HECM, needs to be removed.

    Why do we want to complicate things? The HECM guide lines and HUD rules governing them for proprietary loans would work. It would also set standard guidelines for all reverse mortgages. That is my take on it, I welcome any one's constructive criticism of my proposal.

    Thanks,

    John A. Smaldone

  • Good morning again,

    I want to add to my previous comment. The insurance issue is a problem to recon with. Either the proprietary loan will not have insurance, which means a lower LTV, or, do we continue to work with the PMI companies to see if they can work with the proprietary loan?

    Thanks again,

    John A. Smaldone

  • The original intent of Congress in creating the HECM program was not to dominate the reverse mortgage market with an FHA-insured product, but to stimulate innovation by the private sector. Many proprietary programs have come and gone, both before and after the introduction of the HECM program, including a Fannie Mae product known as the HomeKeeper.

    The HomeKeeper, when first introduced, was available with an optional equity share feature, which allowed the homeowner to obtain a higher principal limit relative to the home value than was available without the feature. Unfortunately, because some proprietary products that had shared equity or shared appreciation features that were, in the end, disadvantageous to seniors, Fannie Mae avoided a P.R. problem by pulling its equity share product from the market. It also made a decision not to enforce that provision on its existing portfolio of HomeKeeper loans.

    I am in favor of strong protections for seniors, who do not have the capacity to earn back money they may lose because they bought an inappropriate financial product. At the same time, we do not need for various state legislatures to impose unreasonable regulations on reverse mortgages, such as allowing only the FHA-insured product, that would stifle innovation in this marketplace that still is in its infancy.

  • With a background in state income taxation and to a limited degree in U.S. Income Tax Treaties, a model reverse mortgage act for the states seems worthwhile and a natural fit. When talking about it at NRMLA a few years ago, there was no positive reception, instead it was believed that time and energy was more effectively expended in working on state issues as they arose. Of course, several at this juncture are pointing to Vermont and wondering how effective that strategy really is.

    While it is unfortunate NMRLA did not choose to lead the way on this issue, I am glad to see the MBA has at least put something together. However, its approach seems doomed to failure.

    The normal way model acts get written and gain recognition and acceptance is not for trade associations to create them but rather facilitate the critical parties getting together and working together to write the document. Normally the principal participants in these situations are state lawmakers and their staffs. I am surprised to see this approach being adopted.

    How effective will it be to address AARP at the national level? Because this is a state matter, why wouldn’t the individual state chapters be involved?

    While this is a great idea, the political strategy seems dubious. I really wish the MBA had reached out to NRMLA to make it a joint project; if presented jointly, it would have a better chance.

    How can one get a copy of the proposal?

  • Mr. Smaldone,

    I believe that you will be surprised to see you and Mr. Dugan share similar views on this matter. Please see the RMD story from June 26th titled: “Lewis Fights Back Against Regulators Comments About Reverse Mortgages.” In the actual ABA Banking Journal article referenced, Mr. Dugan is cited as expressing the view that proprietary RMs should have consumer protections similar to HECMs.

  • I have refrained from commenting on the state model legislation until now.

    First I fully support a model act that can be adopted in every state. Having said that, I do not agree with the approach that seems to be taken by the MBA.

    Several years ago I inquired why NRMLA had not sponsored a model act. Like others I was disappointed to hear that NRMLA believed a state by state response was preferred. Then I was asked why I thought that creating our own act and presenting it to the various state legislatures would be perceived as anything other than an arrogant attempt to get what we wanted. Actually I agree with that assessment if the approach was NRMLA simply got its legal counsel along with industry participants to write it. But that is not and was not the approach I advocate.

    Having some experience with state tax model acts, it seems the right approach is not to have a trade association write the model act. Those model acts that have been most successfully and substantially adopted by the states were written by a group consisting of trade association representatives, state legislators and their staffs from states with the greatest concerns and influence, plus advocacy organizations. Such a process is harder and more costly but usually wide scale general acceptance by the state legislatures is much easier to obtain.

    The greatest fear for the proposed MBA legislation is that the approach being taken will be perceived as arrogant and will result in unwillingness to accept it or participate in any convention to write such an act that might take place in the future.

    Before recommending the contents of the MBA product, it would be helpful if RMD or the MBA could make it available to RMD readers. Who knows what is in this proposal?

  • Mr. Smaldone,rnrnI believe that you will be surprised to see you and Mr. Dugan share similar views on this matter. Please see the RMD story from June 26th titled: u201cLewis Fights Back Against Regulators Comments About Reverse Mortgages.u201d In the actual ABA Banking Journal article referenced, Mr. Dugan is cited as expressing the view that proprietary RMs should have consumer protections similar to HECMs. rn

  • I have refrained from commenting on the state model legislation until now.rnrnFirst I fully support a model act that can be adopted in every state. Having said that, I do not agree with the approach that seems to be taken by the MBA. rnrnSeveral years ago I inquired why NRMLA had not sponsored a model act. Like others I was disappointed to hear that NRMLA believed a state by state response was preferred. Then I was asked why I thought that creating our own act and presenting it to the various state legislatures would be perceived as anything other than an arrogant attempt to get what we wanted. Actually I agree with that assessment if the approach was NRMLA simply got its legal counsel along with industry participants to write it. But that is not and was not the approach I advocate.rnrnHaving some experience with state tax model acts, it seems the right approach is not to have a trade association write the model act. Those model acts that have been most successfully and substantially adopted by the states were written by a group consisting of trade association representatives, state legislators and their staffs from states with the greatest concerns and influence, plus advocacy organizations. Such a process is harder and more costly but usually wide scale general acceptance by the state legislatures is much easier to obtain.rnrnThe greatest fear for the proposed MBA legislation is that the approach being taken will be perceived as arrogant and will result in unwillingness to accept it or participate in any convention to write such an act that might take place in the future. rnrnBefore recommending the contents of the MBA product, it would be helpful if RMD or the MBA could make it available to RMD readers. Who knows what is in this proposal?rnrn

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