Guidance on Compliance and Reputation Risks from Reverse Mortgages Issued for Federal Regulators

image The Federal Financial Institutions Examination Council (FFIEC) proposed to the Federal financial institution regulatory agencies guidance on managing compliance and reputation risks presented by reverse mortgage products.

According to the statement from the agency, reverse mortgages present safety and soundness challenges since they rely primarily on the sale of the collateral property for repayment, and they have not been tested through the credit life cycle.

It adds that although reverse mortgages are growing in popularity, they are complicated products for consumers. This, combined with the fact that they are offered to seniors who may be vulnerable to misleading marketing techniques, prompted the FFIEC to propose guidance for lenders.

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The guidance focuses on the following compliance and reputation risks:

  1. consumers may enter into reverse mortgage loans without understanding the costs, terms, risks, and other consequences of these products, or may be misled by marketing and advertisements promoting reverse mortgage products;
  2. counseling may not be provided to borrowers or may not be adequate to remedy misunderstandings;
  3. appropriate steps may not be taken to determine and assure that consumers will be able to pay required taxes and insurance; and
  4. potential conflicts of interest and abusive practices may arise in connection with reverse mortgage transactions, including with the use of loan proceeds and the sale of ancillary investment and insurance products.

To address these issues, the guidance provides advice on communicating with consumers;obtaining qualified independent counseling; avoiding conflicts of interest; making use of appropriate internal controls, and managing third parties.

The six members of the FFIEC are the Federal financial institution regulatory agencies (the Office of the Comptroller of the Currency (OCC); the Board of Governors of the Federal Reserve System (Board); the Federal Deposit Insurance Corporation (FDIC); the Office of Thrift Supervision (OTS); the National Credit Union Administration (NCUA)), and the State Liaison Committee (SLC) of the FFIEC.

Comments should be submitted by February 16, 2010.

Reverse Mortgage Products: Guidance for Managing Compliance and Reputation Risks

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  • I assume NRMLA/Peter Bell will submit comments, and I hope he shares those with the membership.

    If NRMLA wants the members to also submit comments, then we need to know what they want emphasized so we have a united front.

  • I agree. This Council was alluded to during the Policy conference in June. Peter, If NRMLA wants our help, we need to know what needs to be emphasized so we can “present a united front.”

  • So long as there as there is an occasional anecdotal story about a senior who had a bad outcome after taking out a reverse mortgage, you can bet there will be further regulation and legislation affecting reverse mortgages and those who originate them.

  • There are two prominent and oversimplified views of regulation. Most regulation has the best interests of the some parties who need protection and the regulations are written with their interests in mind and at heart. Then there are those who believe that no regulation is good no matter how well intended.

    It is my contention that regulation can be very good but at no time are regulations written by many different agencies ever good for the parties whose interests are intended to be protected. Regulators need to justify their authority over parties and thus they have a tendency to try to find a reason to regulate whether it is necessary or not. This is exactly what is going on here.

    Sam Collins is precisely right; this all has been addressed before. Somehow these brilliant regulators have no time to research what regulations may be in place and how they are integrated into the overall program. Instead they read newspaper stories and decide they are the right party to come to the rescue. Yes, HUD gets upset over these intrusions but they do not have the authority to overrule these regulators.

    I am not against regulation but I am against too much regulation by too many regulators. While it is understandable that the states must enter into the fray, why do federal agencies other than HUD have to be involved? If they limited their regulation to non-FHA products, that would be understandable but they are not. This kind of regulation is unwarranted and should be stopped. I am afraid this Administration only encourages this type of nonsense.

  • And they don't make it easy to remember acronyms like HUD (Paul Newman), FNMA (great porno book), WPPSS (whoops) anymore. Who can remember FFIEC? How about calling it FEAR, Federal Enmity Anything Regulator.

  • There are two prominent and oversimplified views of regulation. Most regulation has the best interests of the some parties who need protection and the regulations are written with their interests in mind and at heart. Then there are those who believe that no regulation is good no matter how well intended.rnrnIt is my contention that regulation can be very good but at no time are regulations written by many different agencies ever good for the parties whose interests are intended to be protected. Regulators need to justify their authority over parties and thus they have a tendency to try to find a reason to regulate whether it is necessary or not. This is exactly what is going on here.rnrnSam Collins is precisely right; this all has been addressed before. Somehow these brilliant regulators have no time to research what regulations may be in place and how they are integrated into the overall program. Instead they read newspaper stories and decide they are the right party to come to the rescue. Yes, HUD gets upset over these intrusions but they do not have the authority to overrule these regulators.rnrnI am not against regulation but I am against too much regulation by too many regulators. While it is understandable that the states must enter into the fray, why do federal agencies other than HUD have to be involved? If they limited their regulation to non-FHA products, that would be understandable but they are not. This kind of regulation is unwarranted and should be stopped. I am afraid this Administration only encourages this type of nonsense.rn

  • And they don’t make it easy to remember acronyms like HUD (Paul Newman), FNMA (great porno book), WPPSS (whoops) anymore. Who can remember FFIEC? How about calling it FEAR, Federal Enmity Anything Regulator.

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