The member agencies of the Federal Financial Institutions Examination Council (FFIEC) released final guidance entitled, “Reverse Mortgage Products: Guidance for Managing Compliance and Reputation Risks” that addresses consumer protection concerns raised by reverse mortgages and the importance of mitigating the compliance and reputation risks associated with these products. The guidance published on August 17 also addresses the general features of reverse mortgage products, relevant legal requirements and consumer protection concerns raised by reverse mortgages. The guidance focuses on the need for depository institutions to provide clear and balanced information to consumers about the risks and benefits of reverse mortgage products while consumers are making decisions about these products, including informing consumers of available alternatives to reverse mortgages. The guidance also states that institutions should take steps to avoid any appearance of a conflict of interest and requires that consumers receive qualified independent counseling. The guidance addresses related policies, procedures, internal controls, and third-party risk management. The guidance will be effective on October 18, 2010.
Nutter Notes: According to the guidance, depository institutions under the supervision of the FFIEC agencies generally appear to provide two basic types of reverse mortgage products: the lenders’ own proprietary reverse mortgage products and reverse mortgages offered under the Home Equity Conversion Mortgage (HECM) program. A HECM loan is a reverse mortgage product insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD). Both HECM loans and proprietary products are subject to the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Federal Trade Commission Act, and various other laws governing mortgage lending. HECM loans are also subject to an extensive regulatory regime established by HUD, including provisions for FHA insurance of HECM loans that protect both lenders and reverse mortgage borrowers. The guidance suggests that the use of reverse mortgages could expand significantly in coming years as more homeowners become eligible for reverse mortgage products as the elderly population of the United States increases. The guidance addresses consumer protection concerns that raise compliance and reputation risks, but recognizes that reverse mortgage products may also present other risks to lenders, such as credit, interest rate and liquidity risks, particularly for proprietary reverse mortgage products lacking the insurance offered under the federal HECM program.