The Federal Reserve Board proposed enhanced consumer protections and disclosures for reverse mortgages on Monday.
According to the Fed, the proposal would improve the disclosures consumers receive for reverse mortgages and impose rules to ensure advertisements contain accurate and balanced information.
“Reverse mortgages are complex products available to older consumers, some of whom may be more vulnerable to abusive practices,” the Fed said. “To help consumers understand these complex products, creditors would be required to provide improved disclosures that explain particular features unique to reverse mortgages.”
Under the proposal, lenders must provide a new two-page disclosure that highlights the basic features and risks of reverse mortgages in simple language. Shortly after filling out the application, consumers would also receive transaction-specific disclosures that reflect the actual terms of the reverse mortgage being offered in a tabular format.
Additionally, the Fed proposal protects consumers from unsuitable reverse mortgage practices by prohibiting lenders from requiring the purchase of another financial or insurance product as a condition of obtaining the loan. Consumers are also required to receive reverse mortgage counseling before any nonrefundable fee can be imposed (except a fee for the counseling itself) to “help ensure that consumers understand these complex products before they become obligated on the loan.”
The Fed is seeking public comment for 90 days after publication in the Federal Register.
