How the CFPB Could Impact the Future of Reverse Mortgages

While there has been much news and debate over the fledgling Consumer Financial Protection Bureau, its leadership, authority, and pushback from House Republicans to stifle the agency, there is still lingering uncertainty about how much of an impact the CFPB will have on the reverse mortgage industry once it goes live on July 21. While there are still some unknowns, one thing is for certain: it promises to be an extremely powerful organization.

Regardless of its leadership structure, it will have the ability to oversee lending practices—and has already begun to do so.

“They have a very, very broad authority—kind of a superpower” says Steven Kaplan, parter with K&L Gates, LLP. “Nobody knows how they will use it.”

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Additionally, under the Dodd-Frank Act, the bureau must conduct a study on the reverse mortgage industry within a year of its launch. The CFBP has been tight lipped as to the status of the study, but it is required to be completed no later than July 21, 2012.

“This new regulator has authority over financial services generally, and a specific office that is charged with overseeing consumer protection for the elderly,” Peter Bell, President of the National Reverse Mortgage Lenders Association, told RMD in an email. “Furthermore, the enabling legislation that created the agency explicitly requires it to evaluate current practices and consumer safeguards for reverse mortgages and report on that within a year. Obviously, the results of that study and any new recommendations it might lead to are of interest to reverse mortgage lenders.”

A recent NRMLA conference presentation in Washington D.C. this month addressed several specific points on which the CFPB could have implications for the industry. Based on past comments from White House Special Adviser Elizabeth Warren, who is in the process of setting up the CFPB with a team of staff, NRMLA indicated that the industry might expect a strong push for simplification of processes based largely on research and consumer outreach, as well as leveling the playing field to protect small businesses, including banks.

According to the NRMLA presentation, the industry might expect that power to entail substantial consumer research that drives down initiatives. Through its website, the CFPB has already begun to communicate with consumers and those in the industry by soliciting feedback and reaching out to consumers through social media channels and its blog. This week, in a push to cut down documents, the agency published two prototypes of new disclosure forms combining Truth in Lending and Good Faith Estimate forms.

The industry has reacted positively to the new forms, Bell says, but future change remains to be seen pending the mandated study of the industry.

“We’ve never seen a regulator in the mortgage industry with the authority that this burea has,” says Kaplan. However, he adds, “They still have to go through same administrative procedures that everyone else does and folks will have a chance to comment.” The consumer testing, he says, is a good thing that is coming out of the bureau, so far.

Bell notes the transfer of authority as little different from the existing agencies’ current authority. “The difference will be largely in terms of focus,” he says. “The existing agencies monitor lenders for safety and soundness, as well as consumer protection. With the new bureau, these functions will be separated. The exisiting bank regulators will contrinue to focus on safety and soundness. The new bureau will focus solely on consumer protection issues, enabling a more concentrated focus and greater uniformity in treatment of lenders no matter what type of charter a lender is organized under.”

Written by Elizabeth Ecker

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  • A true level playing field  (ie: limited government control of pricing to allow an open market for all lenders and brokers to compete in) and simplified documents would be welcome changes. 

    Government control of pricing is never good for society, but competition is.

    • Lance,

      “Government control of pricing is never good for society….”  Here we disagree.  What Enron did to California in the last decade speaks directly to the myth of that generalization.  Weren’t you in California during those days?  Your statement is the belief of capitalists gone awry.

      You are disturbed about the Dodd-Frank Act which has nothing to do with government control of pricing.  It is rather a matter of placing more control of pricing into the hands of lenders. 

      Competition is yet another matter.  One can have competition with government controls on pricing.  For years there were many different companies looking for gold mines throughout the US despite the government control on the price of gold.    

      While you have every right to raise the issues you do, I question their validity. 

    • Simplified documents is something everyone has asked for a loonnng time.  Given all the new rules and regulations its only going to become worse…more and more docs for clients. 

  • The CFPB’s plan to combine the GFE and TIL should be done very carefully to avoid making the child of that shotgun weddding one that no one loves, especially since there’s some “family history” of that from it’s GFE parentage.

    The reverse industry has a long history of suffering unintended surprises because a new law or rule designed for the forward industry has different consequences for reverses. I hope NRMLA communicates the reverse industry’s interest in having reverse mortgage-specific matters treated separately.

    However, I believe that the CFPB could have a significant and faster impact on the size of the document pile by consolidating the many and simpler one-page disclosures created for this Act of Congress or that rule but needed in all or most applications and/or closing documents. Shorten and combine them into basic multi-disclosure document groups requiring only one set of signatures.

    Lets hope they don’t overlook this low-hanging fruit. Complexity is not the only problem; the “document fatigue” of the application and the closing is something we all have to prepare our senior borrowers for. 

  • The three words which jump out when reading the comments in the article itself are stoic but bothered.  There is reason to be concerned about this Democratically controlled Bureau.  Will the Bureau be the pawn of Senators McCaskill (D-MO) and Kohl (D-WI), or will it reflect the outlook of Representative Frank (D-MO)?  No one knows.  It certainly will not be the pawn of Senator Coburn (R-OK). 
     
    Wisely Ms. Warren has not allowed her real feelings about HECMs or proprietary reverse mortgages to be revealed.  At least one individual who has commented on this website has stated he has heard her comment on reverse mortgages and while it was not shockingly negative, it was not exactly poitive either.  She made it clear she did not like them. 
     
    Make no mistake about it, Ms. Warren will run the Bureau she created and the reverse mortgage document the Bureau will present Congress will have her fingerprints all over it.  The Bureau will most certainly reflect the views of its creator and first Director, now overwhelmingly believed to be Ms. Warren.  Since it is such a badly kept secret, the President might as well announce the recess appointment of Ms. Warren now rather than allowing it to fester any further.
     
    The strong and long-time supporters of Ms. Warren do not come from the ranks of those who support reverse mortgages.  They are found in Consumers Union (parent of Consumer Report), National Consumer Law Center, and other (less than friendly to the reverse mortgage industry) groups.  The CFPB is not the place where one would expect to find those who will provide an environment of expansion for HECMs or other reverse mortgages.  It is not HUD.

    Of course I am no Pollyanna.

  • I see my favorite subject is coming up again, the CFPB and the bill the bureau was born out of. The new forms may be accepted this go around? Did we need new disclosure forms? What we are seeing is the beginning of the end for our financial system as we know it in this country. We have already seen that the CFPB is wanting to target the reverse mortgage industry. Keep in mind, their authority does not come to fruition until July. However, this is not stopping them from exercising their to be power! There has never been a committee given this much authority over our financial system. The Financial Regulatory Reform Bill has powers built in it beyond our imagination. There was just a bill proposed to the senate to nominate one of the commission of the CFPB to be an oversight lord for the committee. This bill would put one of the members of the wolf squad in charge of overseeing actions that this oversight Lord was part of. This shows real common sense. You would think a separate panel of three that are not associated with the CFPB would be an oversight committee, Does this not tell all of us the direction this is all going in? The power of the CFPB will be the kylies heal of the entire lending and banking industry. I feel Peter bell is to gentle in his approach about the CFPB. This committee is dangerous for our industry and the American people as a whole!I say this again and I will continue to say it, the “Financial Regulatory Reform Bill” needs to be repealed completely and started all over again!!John A. Smaldone

  • There is little question that Mr. Peter Bell is right in many of his observations about the impact of the CFPB on the industry.  The problem is not with the observations but with our interpretation. 
     
    For example, making a level playing field means one thing to one group of individuals and a completely different thing to others.  Rather than cutting back on regulation, it could mean that regulations should apply equally to all. Specifically that could mean that NMLS and state licensing should apply to all originators.  It might also mean that the Fed comp rule would remain in place as is since it cuts down on pricing differentials.

    Does cutting down on processes mean that FHA will be required to take on more HECM risk or that lenders will be required to pick up the risk created by less processing?  Will Ms. Warren lean to more home ownership or more safeguards to mitigate against future mortgage meltdowns? 
     
    Then there is the question over the influence of our detractors on the CFPB.  Or how the CFPB will work with HUD to improve and facilitate the availability of HECMs for more seniors.
     
     

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