Federal Regulators Issue Final Reverse Mortgage Guidance

The Federal Financial Institutions Examination Council (FFIEC) released guidance for reverse mortgages on Monday.

“The guidance emphasizes the consumer protection concerns raised by reverse mortgages and the importance of financial institutions mitigating the compliance and reputation risks associated with these products,” said the FFIEC.

The six members of the FFIEC are the Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision, the National Credit Union Administration, and the State Liaison Committee of the FFIEC.

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Adopted by each of the federal regulators, the guidance focuses on the need to provide clear and balanced information to consumers about the risks and benefits of reverse mortgages.  The guidance also addresses a range of related policies, procedures, internal controls, and third-party risk management.

One of the interesting comments from the guidance applies to suitability.  According to the FFIEC, some consumer organization and government commenters urged a strong role for lenders in determining the suitability of the loan for the borrower.  In particular, these commenters suggested that “it should be the duty of any lender or broker to articulate and match the consumer’s needs, objectives, and circumstances to the terms of the loan and to reveal any interest that the lender or broker has in arranging the loan.”

However, the FFIEC said, the guidance “does not, and is not intended to, impose suitability obligations on lenders.”  Instead, the agencies said that clear and balanced information and qualified independent counseling in accordance with the guidance will help to ensure that reverse mortgage borrowers do not enter into transactions that are not appropriate for their financial circumstances and needs.

The guidance is scheduled to take effect in 60 days after publication in the Federal Register.

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  • The link in the first sentence leads to a pdf document named: FFIEC_Reverse_Mortgages_FR_notice_081610. That looks like it was published in the Federal Register yesterday. If so, that means if you are a Federally-chartered institution (and even if you are brokering reverse mortgages out to wholesale lenders) you have a deadline of October 16th to establish your own institutions’ written policies and internal controls instead of piggy-backing the lenders’.

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