CFPB Begins Reverse Mortgage Exams, Tells Lenders to Prepare

During a session last week during the National Reverse Mortgage Lenders Association conference in San Antonio, Texas, reverse mortgage lenders and compliance experts discussed the role of the Consumer Financial Protection Bureau in auditing reverse mortgage lending companies.

The process has begun, according to one NRMLA member who attended the session. She said the agency spent time on site inquiring into not only current loans but also “dead deals,” or those that never closed or had been withdrawn. Those on site included representatives from several states in which the company is licensed.

“They spend several weeks on site and may have 12 to 15 people traveling to the audit,” said NRMLA legal counsel Jim Milano. “They bring attorneys.”

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In terms of the basis on which the CFPB may conduct an exam, they come in several forms, Milano explained. Horizontal reviews, for example, examine across entities on a single product or service. They may also look at the products the company offers, its geographic footprint and the prior history the company has had with state regulators.

The CFPB also wants to know about the company’s treatment of consumer complaints.

“They’re interested in responses to consumer complaints,” Milano said. “They’re looking for folks to be knowledgable and well versed in the product or service they’re offering. They want to see formal compliance policies written by a chief compliance officer.”

In terms of the warning companies may receive prior to an exam, there is some time to prepare in advance.

“An invitation comes in the mail and says ‘We’ll be there in a month. Here are some things we’d like you to do,'” Milano said. Typically, the agency does not review the documentation before they arrive on site, but will review it once they do arrive, he said.

“Risk assessment, consumer complaints, and patterns of complaints will drive their examination,” he said. “This is what goes into their planning.”

The CFPB has not yet issued any formal reverse mortgage enforcement actions, although it has begun to issue those actions among credit card companies. Both CapitalOne and Discover have been charged with multi-million-dollar fines and retributions in response to deceptive marketing findings of the CFPB through its exams.

“We’re probably going to see more headline grabbing enforcement actions,” Milano said. “But there is an upside longer term which is to the extent that the approach of a federal banking regulator process finds its way into a non-bank.”

Written by Elizabeth Ecker

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  • Uncertainty about the CFPB process and how they will handle things is part of the reason that mortgage lending capacity is down relative to demand, resulting to higher costs to consumers.  Hopefully things will clarify soon.

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