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Office of the Commissioner of Financial Regulation

 

Reverse Mortgage Guidance Advisory

 

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January 12, 2010

REVERSE MORTGAGE GUIDANCE ADVISORY

Background

On December 16, 2009, the Federal Financial Institutions Examination Council ("FFIEC") published in the Federal Register the proposed guidance Reverse Mortgage Products: Guidance for Managing Compliance and Reputation Risk (the "Guidance").

Reverse mortgages are complex loans secured by the borrower's home and are offered to borrowers who typically have limited income. A reverse mortgage may provide the only funds available to a consumer to pay for health care needs and other living expenses. Accordingly, lenders offering reverse mortgages must institute controls to protect consumers and minimize compliance and reputation risks to the institutions themselves.

The Guidance is intended to be used by financial institutions offering reverse mortgages to ensure that their risk management and consumer protection practices adequately address the compliance and reputation risks raised by reverse mortgage lending. It addresses policies, procedures, internal controls and third party risk management practices associated with offering both HECM and proprietary reverse mortgage products.

Although the Guidance is not yet final, the Commissioner strongly encourages Maryland lenders offering, or considering offering, reverse mortgage products to review the Guidance to help ensure that they have appropriate risk management and consumer protection policies and practices in place. View the Guidance.

Summary

Highlights of the Guidance include that:

  • Consumers receive clear and balanced information about the relative benefits and risks of reverse mortgage products, at a time that will help consumers' decision making processes.
  • Institutions offering proprietary reverse mortgage products follow or adopt relevant Home Equity Conversion ("HECM") requirements for mandatory counseling, disclosures, restrictions on cross-selling of ancillary products and reliable appraisals.
  • Institutions offering either HECMs or proprietary reverse mortgages develop clear and balanced product descriptions and make them available to consumers shopping for a mortgage.
  • Institutions making, purchasing or servicing reverse mortgages through a third party conduct due diligence and establish third party relationships and compensation.
  • Institutions offering reverse mortgage products ensure that they do so in a manner that complies with all applicable laws including, but not limited to, Truth in Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act and Fair Housing Act. Institutions should also be aware that state laws, especially those that prohibit unfair and deceptive practices may also apply to reverse mortgage transactions.

The above highlights are not intended to cover all aspects of the Guidance and, as noted above, we recommend that you review the Guidance in its entirety.