NY Times Editorial on Reverse Mortgages

NewImage.jpgAn editorial piece from the New York Times takes issue with reverse mortgages and the proposal from the Federal Reserve to enhance consumer protections.

The author —who is anonymous but sounds a lot like AARP— writes that the Housing and Economic Recovery Act “law prohibited “cross selling,” in which lenders required reverse-mortgage borrowers to use some of the loan proceeds to buy other financial products, such as annuities or long-term care insurance policies, that in many instances made no sense for the borrowers.”

While the Fed’s proposal prohibits a creditor or broker from requiring consumers purchase another financial or insurance product as a condition for obtaining a reverse mortgage, a safe harbor is provided if the reverse mortgage transaction is consummated (or the account is opened) at least ten calendar days before the consumer purchases another financial or insurance product.


“As the AARP and other advocates have pointed out, the proposal is at odds with both the 2008 law and this year’s Dodd-Frank reform law, which requires the new Consumer Financial Protection Bureau to study and update the rules for protecting reverse-mortgage borrowers,” said the author.

Read the rest at the link below.

Borrowers as Prey, Again

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  • I would not be surprised if Snoopy and other lobbyists got to them. Ten days is ridiculous. And as you know I am a fan of LTCI, I just don’t like coercive sales practices.

  • The author gets it wrong. Cross-selling as presented in PL 110-289 (or HERA) is much, much different than claimed. Specifically 12 U.S.C. 1715z-20 subsections (n) and (o) state in part:

    “(n) Requirements On Mortgage Originators.—
    (1) In General.—The mortgagee and any other party that participates in the origination of a mortgage to be insured under this section shall—
    (A) not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity; or
    (B) demonstrate to the Secretary that the mortgagee or other party maintains, or will maintain, firewalls and other safeguards designed to ensure that—
    (i) individuals participating in the origination of the mortgage shall have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product; and
    (ii) the mortgagor shall not be required, directly or indirectly, as a condition of obtaining a mortgage under this section, to purchase any other financial or insurance product.

    (o) Prohibition Against Requirements To Purchase Additional
    Products.—The mortgagor or any other party shall not be required by the mortgagee or any other party to purchase an insurance, annuity, or other similar product as a requirement or condition of eligibility….”

    Subsection (o) is a direct prohibition against required purchases (with exceptions not included in the quotation above). Subsection (n)(1) is a can of worms but nothing in that subsection seems to prohibit anyone who is not participating in the origination of HECMs from selling any insurance or financial product to any mortgagor of the lender once rescission has passed. In fact the prohibition is less restrictive for those who are not participating in the origination of HECMs than I indicate; however, one must deal with the indirect issue in Subsection (n)(1)(B)(ii) so waiting until after rescission seems the safest approach.

    So how does a 10 day rule come into play? There is no rule against an affiliate of the lender or someone in the lender who does not participate in the origination of HECMs from selling other products to the mortgagor. I suggest rescission simply to avoid the indirect issue if one is relying on (n)(1)(B) which most in the industry appear to be doing.

    The article is over the top. Like the Fed, the author wants to make up non-statutory rules. The best suggestion to both is to provide regulations that implement the existing law, not write new law without authorized enactment.

    While I would back amending 12 U.S.C. 1715z-20 to provide stricter rules against cross-selling, I fully back anyone who wants to challenge either set of non-statutory rules. Law is law.

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