Report Shows Progress Being Made to Improve Supervision of Reverse Mortgages

The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) published the first report on multi-state examination efforts to improve supervision of the mortgage industry. 

The Multi-State Mortgage Committee Report to State Regulators identified the following key steps states have taken over the past year:

  • The states formed the Multi-State Mortgage Committee in December 2008 to represent the states in the coordination of examinations of the largest multi-state mortgage companies.
  • All 50 states plus D.C. and Puerto Rico have adopted the nationwide protocol for information sharing and coordination of multi-state exams.
  • The states have begun the first comprehensive multi-state examination of a mortgage company and anticipate expanding this effort significantly next year.

This progress of the coordination of multi-state examination efforts builds on the states’ success in developing a nationwide mortgage licensing system in January 2008.  Forty-six states are scheduled to participate in the nationwide licensing system by January 2010, with all states expected to participate by 2011 said a company statement. 

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Currently, over 11,000 companies and 66,469 loan originators are licensed in the nationwide system.

“This initiative is about uniformity in approach and modernization of processes. States have been hard at work for nearly two years delivering an examination format that is not only effective, but efficient for regulators and stakeholders,” said Steve Antonakes, Massachusetts Commissioner of Banks.

“This report is the latest demonstration of the major steps states have taken to work together to improve supervision in the mortgage industry,” said Mark Pearce, AARMR President and Deputy Commissioner of Banks for North Carolina.  “These efforts have significantly improved our ability to protect consumers from abusive practices in the mortgage industry,” said Pearce.

According to the report, CSBS/AARMR released the Reverse Mortgage Examination Guidelines (RMEGs) in December 2008 as a uniform tool for the review of institutions originating and funding reverse mortgages. CSBS/AARMR set forth three general uses for the RMEGs:

  • A set of examination guidelines that regulators can use to determine whether entities in the reverse mortgage loan industry are operating in an appropriate manner.
  • Uniform standards applicable for multi‐state examinations and enforcement actions or for review by one state of another state’s Report of Examination.
  • Consistent and uniform guidelines for use by institution and broker in‐house compliance and audit departments.
  • As with the MEGs, the MMC will incorporate the RMEGs into the MMC Uniform Examination Manual.

The RMEGs were developed as collaborative effort of several states working under the Reverse Mortgage Regulators Committee.

Multi-State Mortgage Committee

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  • For those with state audit compliance responsibilities, reading the audit guidelines linked above should “cause your hair to turn white and be permanently straightened.” The audit program is divided into various sections. What really stands out are the sections dealing HECMs. Many of the items look like FHA/HUD audit issues. While state laws do impact HECM lending practices, it seems as if this particular program makes double auditing things that are already subject to FHA/HUD review the norm.

    There are several problems with the program. Their referencing has obviously not been reviewed. For example, at one point the program cites HERA as P.L. 189-210 when in fact it is P.L. 110-289. Then the program tries to explain HECM lending limits and somehow confuses forward limits with HECM limits during 2008 along with other errors. There are many items that clearly indicate the creators of the program designed it without adequate knowledge of HECMs; thus making the possibility of reaching errant conclusions a very real issue for concern. The program also veers off into areas which are not germane to all states or even a significant majority.

    While the idea could be very cost effective for multi-state operations, it needs a lot of work before it should be acclaimed by the industry. I hope NRMLA is involved with this process.

  • It really seems to be the “roll out” phase for these examinations. The template gives much more detail than a modern examination checklist. The checklist seems to be a reference tool due to the fact that many examiners may not have a strong knowledge of reverse mortgages.

    I imagine that we will see more state examiners at future reverse mortgage conferences and seminars. Quite a few of the items on the list are items that a lender's QC company would look for as well.

    Call it a starting point.

  • Mr. Chrome,

    You are too kind in your analysis. I do not agree with your statement regarding “modern examination checklists.” Most of the checklists, I used in rendering opinions are much more extensive than this meager document. In fact as part of any good peer review of an audit firm, the reviewers look at programs, checklists, procedures, etc. to identify if the auditors properly considered expanding or modifying the established programs being used.

    Most firms of any size I am familiar with use something audit guides like those of PPC as their starting point for developing audit programs. Audit guides like those of PPC are much better documented and generally include well over 100 (and most of the time much more) pages of reference materials, checklists, audit programs, guidance, documents, samples, etc. But even they refer to AICPA standards, FASB statements, laws, other PPC Guides, and other materials.

    At one point, the document states: “A full scope examination of each type of institution should include the following….” It then goes on to point out which modules to use when auditing specific types of entities. Then it provides less specific information on how to use those same modules for conducting limited scope examinations. If that is not an expectation that the document will not be used as an audit program, I have great difficulty knowing what would be.

    When reading the following along with looking at the questions with boxes for responses, the authors anticipate its use as an actual audit program:

    “While RMEGs is not a required standard, it will provide the following:

    • A set of examination guidelines that regulators can use to determine whether entities in the reverse mortgage loan industry are operating in an appropriate manner.
    • Uniform standards applicable for multi-state examinations and enforcement actions, or for review by one state of another state’s Report of Examination.
    • Consistent and uniform guidelines for use by institution and broker in-house compliance and audit departments.

    State regulators may wish to use all or portions of RMEGs depending on the size and complexity of the institution examined and the available resources of the agency.”

    What you propose its use actually should be defeats the whole reason for having a multi state group like this. Generally the goal is to provide agreed upon standards so as to reduce duplicative costs. If standards are deviated from, then other states will feel the need to perform the same audit procedures unless they are agree with those deviations.

    I hope this group will develop strong, efficient, and uniform audit programs so that state audit time and costs can be minimized and duplication of audit procedures by multiple state agencies eliminated. While this is a start, it has much farther to go to call it a good one.

    But a reference tool it is not. Carefully reading the true reference material leaves one wondering if the authors even understand HECMs that well. Along with correct information, as noted in my first comment there is too much that is not. For example in defining tenure payments it states: “Tenure reverse mortgage loan – a reverse mortgage loan where advances are made to the homeowner for the shorter of either a specified period of time or maturity of the reverse mortgage loan.” This is a simple error but sad to say far too representative for comfort.

  • It really seems to be the “roll out” phase for these examinations. The template gives much more detail than a modern examination checklist. The checklist seems to be a reference tool due to the fact that many examiners may not have a strong knowledge of reverse mortgages.rnrnI imagine that we will see more state examiners at future reverse mortgage conferences and seminars. Quite a few of the items on the list are items that a lender’s QC company would look for as well. rnrnCall it a starting point.

  • Mr. Chrome,rnrnYou are too kind in your evaluation and analysis. I do not agree with your statement regarding u201cmodern examination checklists.u201d Most of the checklists, I used in rendering opinions are much more extensive than this meager document. In fact as part of any good peer review of an audit firm, the reviewers looks not only at programs, checklists, procedures, etc. to identify if the auditors properly considered expanding or modifying the established programs being used. Most audits we performed were several expanded notebooks and that generally stayed away from including client generated documents unless they were being used in documenting the procedures used or assertions being made.rnrnMost firms of any size I am familiar with use audit guides like those of PPC as their starting point for developing audit programs. Audit guides like those of PPC are much better documented and generally include well over 100 (and most much more) pages of reference materials, checklists, audit programs, guidance, documents, samples, etc. But even they refer to AICPA standards, FASB statements, laws, other PPC Guides, and other materials.rnrnAt one point, the document states: u201cA full scope examination of each type of institution should include the followingu2026.u201d It then goes on to point out which modules to use when auditing specific types of entities. Then it provides less specific information on how to use those same modules for conducting limited scope examinations. If using the document in developing audit procedures is not an expectation, I have great difficulty in identifying what would be.rnrnWhen reading the following along with looking at the questions with boxes for responses, the authors anticipate its use as an actual audit program:rnrn”While RMEGs is not a required standard, it will provide the following:rnrnu2022tA set of examination guidelines that regulators can use to determine whether entities in the reverse mortgage loan industry are operating in an appropriate manner.rnu2022tUniform standards applicable for multi-state examinations and enforcement actions, or for review by one state of another stateu2019s Report of Examination.rnu2022tConsistent and uniform guidelines for use by institution and broker in-house compliance and audit departments.rnrnState regulators may wish to use all or portions of RMEGs depending on the size and complexity of the institution examined and the available resources of the agency.”rnrnWhat you propose its use actually should be defeats the whole reason for having a multi state group like this. Generally the goal is to provide agreed upon standards so as to reduce duplicative costs. If standards are deviated from, then other states will feel the need to perform the same audit procedures unless they are agree with those deviations.rnrnI hope this group will develop strong, efficient, and uniform audit programs so that state audit time and costs can be minimized and duplication of audit procedures by multiple state agencies greatly scaled down if not eliminated. While this is a start, it has much farther to go to call it a good one.rnrnBut a reference tool the document is not. Carefully reading the material leaves one wondering if the authors even understand HECMs that well. Along with correct information, as noted in my first comment there is too much that is not. For example in defining tenure payments the document states: u201cTenure reverse mortgage loan u2013 a reverse mortgage loan where advances are made to the homeowner for the shorter of either a specified period of time or maturity of the reverse mortgage loan.u201d This is a simple error but sad to say far too representative for comfort.rnrn

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