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Reverse Market Update

Regulators and reverse mortgage lenders hope to relieve pressure on borrowers who feel obligated to purchase ancillary financial products in order to close on their reverse mortgage. A trade group has addressed lead generation practices in developing reverse prospects, and Fannie Mae is discontinuing an adjustable-rate home-equity conversion mortgage program.

Comptroller of the Currency John C. Dugan issued a June 8 warning that reverse mortgages pose significant compliance risks, and more regulatory standards need to be adopted to provide consumer protections. He noted that 90 percent of all reverse mortgages are insured by the U.S. Department of Housing and Urban Development.

Dugan said some of the riskiest features of subprime loans are also present with reverse mortgages, which can be very complex — especially when combined with misleading marketing. He cautioned about borrowers who overlook excessive fees because no payments are required. He also mentioned borrowers who may frivolously spend the proceeds and have nothing left for home repairs or maintenance.

The comptroller drew attention to the lack of escrow accounts for reverse borrowers, leaving them facing the threat of foreclosure for unpaid taxes. He warned against companies that attempt to cram down ancillary financial products.

On Wednesday, the National Reverse Mortgage Lenders Association announced two new ethics advisories — including one that addresses one of the OCC’s concerns.

Advisory 2009-01, Ethical Offers of Other Financial and Insurance Products and Services, outlines when it is ethical to refer, recommend, originate or sell other financial or insurance products in conjunction with home-equity conversion mortgages. The advisory also includes a structure for implementing relevant provisions of the Housing and Economic Recovery Act of 2008.

“Important points here include the need to act in the client’s best interest and the need to provide a bona fide advantage to the client,” NRMLA said.

Advisory 2009-02, Lead Generation State Licensing Requirements and Ethical Advertising, reviews lead generation practices. The trade group intends to report to government authorities unethical non-members and members who are dismissed over ethics violations.

The NRMLA hopes to educate its members with a transcript from an actual counseling session with a reverse mortgage borrower, a June 22 statement said. A session with a Consumer Credit Counseling Service counselor in Montana was recorded by Reverse Mortgage Magazine. The record of the session provides insight for many who have not previously been present for a counseling session.

As of Sept. 1, Fannie Mae will no longer purchase adjustable-rate HECM’s that use the weekly average yield on one-year Treasury securities as the index, according to Announcement 09-16. Fannie will continue to purchase, however, adjustable-rate HECMs with the London Interbank Offered Rate as the index.

Fannie said it hopes the move will help standardize the product and boost liquidity for it in the secondary market.

HUD Secretary Shaun Donovan said on June 6 that he was open to raising premiums or restricting eligibility for FHA reverse mortgages, Generation Mortgage reported. The increase would help avoid a $798 million taxpayer subsidy for the program.

Golden Gateway Financial issued a statement Tuesday indicating that reverse mortgages can be utilized to prevent foreclosures. The company cited a Kansas borrower who it helped negotiate a short sale on her traditional mortgage.

Golden Gateway said on June 2 that it was endorsed by Brookdale Senior Living, “the largest owner and operator of senior living communities,” as a preferred provider of life settlement solutions for current residents.

Next Generation Financial Services hopes to attract reverse prospects with a new educational worksheet, a press release Wednesday said. The worksheet focuses on home values in a volatile real estate market.

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