Bank Regulator Publishes Consumer Advisory Alert on Reverse Mortgages

image The Office of the Comptroller of the Currency (OCC) issued a consumer advisory alert last week, to help consumers better understand reverse mortgages. 

The information developed for consumers discusses basic facts about reverse mortgages, which are complex, home secured loans said the statement.  The advisory, Reverse Mortgages: Are They for You also reviews the costs and benefits of reverse mortgages.

In addition, the OCC’s consumer advisory provides basic “rules of thumb” for consumers who are considering a reverse mortgage — the advisory urges consumers to:

  1. Investigate other alternatives in addition to reverse mortgages
  2. Remember that reverse mortgages generally make more sense the longer the consumer remains in the home
  3. Be wary of anyone trying to sell other products along with a reverse mortgage.

The OCC urges consumers to consult with a qualified, independent housing counselor before entering into a reverse mortgage, and explains how consumers may obtain additional information about reverse mortgages.

You can read a copy of the advisory here.

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  • Once, again, I protest calling Long Term Care Insurance (LTCI) an “inappropriate product or service”. Indeed, many states and the federal government through their tax codes allow a limited deduction for LTCI premiums. One hand doesn't see the other when it comes to this very “appropriate” product.
    To its credit, at least they didn't mention the trip to Las Vegas as inappropriate.

  • There is not a lot in the pamphlet about the reverse mortgage itself that I do not tell a potential reverse mortgage borrower myself. Generally speaking I agree with the major points. However, one point that should be made is that although payments are not required on the loan, they certainly can be made, and on the variable rate HECMs, depending on the amount of the payments, those payments can increase the size of the LOC. So when the borrower wants to and can make payments, they are allowed to do so.

  • Here goes another government agency trying to help seniors understand reverse mortgages. This variation is little more than a veiled attempt at laying down the ideas of Comptroller Dugan as to how to correct the taxes and insurance shortage issues on reverse mortgages.

    Even though the pamphlet seems like it will separate HECMs from other reverse mortgages, it fails to meet that objective and in far too many places blurs them together. For example on page 2, the document talks about the three factors that determine the principal limit for HECMs but fails to state that some other reverse mortgages, like most proprietary reverse mortgages, only use (or perhaps more appropriately, only used) age and home values.

    On the first page, the definition of a reverse mortgage is ridiculous. A reverse mortgage is not “a loan secured by your home that lets you receive payments from the lender – either over time or all at once – based on the value of your home at the time of the loan.” First, who says the borrower will receive one dime. If all of the proceeds have to be used to pay off the existing liens and mortgages, what payments will the borrower receive? Second, not all reverse mortgages permit payout of proceeds over time. Then on the second page it add in the other HECM factors besides the value of the home.

    The pamphlet states: “In a reverse mortgage you do not make monthly payments of principal and interest to the lender.” Louise321 is right; borrowers are free to make any payments they desire. It seems almost no borrower has heard they can pay down the balance due on a reverse mortgage down because of how few actually do before termination. Here is the chance to help seniors understand that the loan does not have to grow uncontrollably, but apparently the Comptroller feels the “escrow” idea is far more relevant and better suits his agenda.

    When the pamphlet discusses interest rates it fails to discuss fixed rates. There is little information about lines of credit and at least with HECMs, the guarantees and growth HECMs lines of credit provide. It focuses on monthly payments of insurance and real estate taxes to service providers instead. Oh really, what lender or servicer offers that feature before a failure to pay occurs? Is this Comptroller Dugan, telling us that this is what he will be pursuing?

    The pamphlet is better than some but was it really needed or did it add anything of consequence? Sad to say, it seems to be little more than the Comptroller trying to blaze the trail for monthly payments of taxes and insurance into an “escrow account” or as we call it here in California, an “impound account.” My respect for the Comptroller has just fallen a little more.

  • dduck12
    In his book, “THE NEW REVERSE MORTGAGE FORMULA – How to Convert Home Equity into Tax-Free Income”, Tom Kelly states the following on page 31:

    “The American Homeownership and Economic Opportunity Act, signed by President Clinton in 2000, waived the 2 percent HECM reverse mortgage insurance fee if the proceeds are used to buy long-term health care insurance”. Check it out and hopefully the Act has not been amended as part of the movement to “protect” seniors.

    • Thanks, Corick, at least someone in the past thought LTCI was an “appropriate” product. Too bad the waiver did not go into effect, there could be fewer people in nursing homes as a result.

      • dduck12,

        In many situations, LTCi probably has significant value. There are some in the LTCi industry who are adamant that HECMs and LTCi are a marriage made in heaven. Unfortunately, it seems many of these individuals are as motivated by their own financial interests as that of seniors.

        Even worse, the law as proposed by the Clinton Administration was ill advised and poorly written. HUD was so bothered by its contents that HUD refused to create the Mortgage Letter needed to implement the new law and sponsored a white paper on the use of HECM proceeds to buy LTCi. If you want to read that study, please go to the following website:

        Before removal by Section 2122 (a)(6) HERA (the Housing and Economic Recovery Act of 2008, PL 110-289), 12 U.S.C. Section 1715z-20(l) read as follows:

        “(l) Waiver of up-front premiums for mortgages to fund long-term care insurance
        (1) In general
        In the case of any mortgage insured under this section under which the total amount (except as provided in paragraph (2)) of all future payments described in subsection (b)(3) of this section will be used only for costs of a qualified long-term care insurance contract that covers the mortgagor or members of the household residing in the property that is subject to the mortgage, notwithstanding section 1709 (c)(2) of this title, the Secretary shall not charge or collect the single premium payment otherwise required under subparagraph (A) of such section to be paid at the time of insurance.
        (2) Authority to refinance existing mortgage and finance closing costs
        A mortgage described in paragraph (1) may provide financing of amounts that are used to satisfy outstanding mortgage obligations (in accordance with such limitations as the Secretary shall prescribe) and any amounts used for initial service charges, appraisal, inspection, and other fees (as approved by the Secretary) in connection with such mortgage, and the amount of future payments described in subsection (b)(3) of this section under the mortgage shall be reduced accordingly.
        (3) Definition
        For purposes of this subsection, the term “qualified long-term care insurance contract” has the meaning given such term in section 7702B of title 26, except that such contract shall also meet the requirements of—
        (A) sections 9 (relating to disclosure), 24 (relating to suitability), and 26 (relating to contingent nonforfeiture) of the long-term care insurance model regulation promulgated by the National Association of Insurance Commissioners (as adopted as of September 2000); and
        (B) section 8 (relating to contingent nonforfeiture) of the long-term care insurance model Act promulgated by the National Association of Insurance Commissioners (as adopted as of September 2000).”

  • This waiver, Mr Corick, if true is a significant addition. Currently, the Insurance Industry tells the American People how consumer friendly with appropriate, affordable products they wish to now be: Why not a special, Lifetime, special Homecare Policy to augment Medicare to help Seniors remain in their homes–which is the reason for the FHA HECM– paid entirely by the MIP.

    • jamesanelson
      That would be nice. I think we all agree, keeping seniors, and others, in their homes, if that's what they want, should be our goal as a society. The tax deductions help for people to purchase existing LTCI products. But others, like cash strapped seniors (low or zero tax bracket), that can qualify for a RM should have some kind of incentive to protect themselves and their families from a long-term illness. It would be a more practical benefit than the one proposed in 2000, for an offset of LTCI premiums against a monthly MIP. (I don't think anyone would vote for a complete waiver of the current 2% upfront MIP.) However, not everyone qualifies for LTCI. For those folks, it might be fair to allow some of the MIP that would otherwise qualify for the premium, to go towards some facet of their long-term care expenses. Hopefully, some of these politicians will wake up and smell the coffee.

  • Mr Kelly had it half right:

    (from a quick google search)

    The authority allowing HUD to waive the upfront mortgage insurance premium in cases where the proceeds from a HECM would be used to purchase long-term care insurance has been repealed. This provision had been on the books since the 2000 Housing Act, but was never implemented.

  • Thank you, Mr. DDUCK, for the response: Remember I said a SPECIAL
    Homecare Policy (In fact I'm getting so senile I said it twice I now see). Why not a new inovative program created by the Insurance Industry tied in with the FHA HECM program. Just Lifetime Homecare enhancing Medicare. There are some very smart people in the Insurance Industry and I have no doubt something could be added. So not all of the MIP is used–keeping Seniors in their homes is still a great deal cheaper and more humane than forcing them into nursing homes.

    • jamesanelson
      The insurance industry is regulated by 50 state insurance commissioners and adding new policies sometimes takes years (and tears). It would be easier and faster to have some kind of federal MIP/LTCI offset and it would apply in 50 states.

  • Yes DDUCK, I've written about the reason for all 50 State Insurance
    Offices being involved (It's just like our current new State L.O. Licensing
    program–no State wishes to lose Fees to the Feds). Somewhere along the way, others either forgot or conviently overlooked the meaning of the word Interstate. I have no doubt that our growing National debt will force inovation
    in many parts of our National life, Government and Private. Like other Seniors, I hope I live long enough to see it.

  • It is interesting to read how so many people are willing to give away the MIP. Is that you want the PL reduction to be 25% instead so that there is more insurance for seniors? Which seniors should benefit? I would be happy if there was just enough money in the budget to avoid the 10% reduction to PLs.

      • dduck12,

        As my great uncle once admonished: “Don't believe all that is in print….” This is truer today in the age of the Internet than when I first heard this old adage, decades ago.

        These vague and ridiculous charges of misappropriation are not only wrong, they are damaging. They damage HUD and they make our industry look like individuals who do not understand basic financial transactions. If there is any validity to the charges, let those who have such knowledge present them to the HUD Inspector General; otherwise, stop the accusations.

  • To The Critic: All my great uncle said to me was “pass the stuffed cabbage”.
    So I retract the accusation that another poster (you know who you are, fess up) made on misuse (happens all the time with money the feds pull in) of MIP funds. I hope it is not true.
    Mr. Veale: per your statement “Unfortunately, it seems many of these individuals are as motivated by their own financial interests as that of seniors.”, I don't now how you came up with your conclusion. How many financial sellers of LTCI do you know, how many did you poll. LTCI is a very serious product and “many” planners don't make a fortune on it, nor do they want to; they, like you, just want seniors to have the option of home care during a serious, prolonged illness.

    • dduck12,

      The paragraph you find fault opened as follows:

      “In many situations, LTCi probably has significant value. There are some in the LTCi industry who are adamant that HECMs and LTCi are a marriage made in heaven. Unfortunately, it seems many of these individuals ….”

      I carefully pulled out some from the whole of LTCi sales people as being adamant, and then commented on the attitude not of the majority among the some, but truly the “many” among this “some”. I have been introduced to the very limited “many” through the reverse mortgage industry. Most stressed the benefits of having double commissions from the same seniors more than the benefits of LTCi or the RM to those seniors.

      In every single industry there are bad apples. In some industries there seem to more than others. Because we supply money, our industry seems to attract more than its fair share from other industries.

      I have also met many (with no qualifier) from being a CPA, through the reverse mortgage industry, and through insurance industry product training, who like you are concerned about what LTCi brings their clients.

      If how the opening paragraph was worded offended you, I apologize and will bear that in mind in the future.

      • Oops, sorry Critic, of course I meant the Cynic.
        To make good stuffed cabbage, like good regulatory policy, you need three key elements or ingredients: 1/3 beef, 1/3 pork and 1/3 veal.
        Regulators need 1/3 common sense, 1/3 careful review with their industry, and 1/3 careful timing.

      • I'm sure your uncle knew what it took to make good stuffed cabbage. I am not so confident about some regulators.

  • Oops, sorry Critic, of course I meant the Cynic.rnTo make good stuffed cabbage, like good regulatory policy, you need three key elements or ingredients: 1/3 beef, 1/3 pork and 1/3 veal.rnRegulators need 1/3 common sense, 1/3 careful review with their industry, and 1/3 careful timing.

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