The Reverse Mortgage Sector: A Well-Regulated Lot

Perhaps nowhere else in the entire housing finance chain can it be said that potential customers are so well informed about the product they may be acquiring than in the reverse mortgage sector. It seems hardly any stone has been left unturned in protecting senior borrowers against misunderstanding, misrepresentations and mistakes.

Among the latest to weigh in on the protection scene is the Office of Thrift Supervision, which issued guidance this summer stating that “institutions should, among other things, require that consumers obtain counseling from a qualified independent counselor, and adopt policies that prohibits steering a consumer to any one particular counseling agency.”

On virtually the same hot day, the Federal Reserve announced its own “final rules regarding loan originator compensation practices, requiring counseling about reverse mortgages before a creditor can impose any nonrefundable fees or close a reverse mortgage loan.”

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Only weeks earlier, HUD published “new procedures governing the process for seniors who are counseled for federally insured Home Equity Conversion Mortgages (HECMs).” The new procedures provide more detailed information, which must be provided ahead of the counseling session, including:

–what must be covered,

–who must attend, and

–topics that the counselor can and cannot discuss with the prospective borrower.

Then, there are the states, like Arizona, which has a new law that requires reverse mortgage originators prior to accepting a borrower application, to provide the borrower with a list containing several housing counseling agencies, and collect certification of counseling from the borrower. (Borrowers also must obtain counseling from a HUD-approved housing counselor within six months of applying for a reverse mortgage in Arizona, always a top volume origination state.)

Not to be left out, late last year, the Federal Financial Institutions Examination Counsel (FFIEC) released proposed guidance on reverse mortgage products “encouraging” financial institutions to provide their customers with “clear and balanced information about the risks and benefits of reverse mortgage products.” In addition, the guidance recommends that financial institutions “assist consumers with their product selection decisions by supplying them with promotional materials and other product descriptions that would inform them about the costs, terms, features, and risks of reverse mortgage products.”

Reacting to this one, Shannon Hicks, vice-president of product development at Reverse Fortunes, asks: “Why does the FFIEC have to ‘suggest’ again that customers receive independent counseling? Don’t we already require this? My initial impression is while the FFIEC’s objectives are well intentioned, many of their points duplicate protocols that are already exist and have for some time.”

Just another day in the regulatory jungle for reverse mortgage practitioners.

Written by Neil Morse