Reverse Requirements Revised

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Proposed reverse mortgage requirements at financial institutions wouldn’t apply to proprietary products. Reverse program updates were announced for Federal Housing Administration loans and for servicers of Federal National Mortgage Association loans, while a trade group hosted an online event about reverse mortgage advertising.

In Mortgagee Letter 2009-49, the U.S. Department of Housing and Urban Development said that no outstanding or unpaid obligations in connection with a home-equity conversion mortgage transaction are allowed to remain except those tied to repairs to the property as required under 24 CFR 206.47 or mortgage servicing charges permitted under 24 CFR 206.207(b). This means subordinate financing cannot accompany an HECM transaction.

But HUD noted that state and local court judgments and judgment liens can remain — though they must subordinate to the HECM first and second liens at closing. Federal judgments and debts can be left outstanding as long as a satisfactory repayment plan between the prospective mortgagor and the federal agency owed is in place.

“Any delinquent Federal debts or liens against the real estate must not be in excess of the mortgagor’s net principal limit, unless the mortgagor has a separate source of funds from which to draw and pay those debts,” the mortgagee letter stated. “Liens against the real estate resulting from outstanding Federal obligations must be satisfied and removed, or subordinated to the first and second HECM liens at closing.”

Mortgagee Letter 2009-47, issued by HUD in November, provided guidance for counselors and lenders about the HECM counselor roster final regulation. The Final Rule established testing standards for HECM counselors and a roster of eligible HECM counselors.

Servicers of reverse mortgages that are managed by Fannie Mae will be required as of April 1 to complete and submit trial balance transaction files to eBoutique by the sixth calendar day of each month, according to Announcement SVC-2010-01 issued on Jan. 15. Additional data fields are needed for loans with balance differences, and the Reverse Mortgage Detail Report and Reverse Mortgage Summary Report must be e-mailed by the 20th calendar day to the appropriate reverse mortgage analyst at Fannie.

Servicers will be fined $500 the first time the fail to comply, while the fine rises to $1,000 for the third occurrence. A fourth occurrence during a 12-month period could result in a transfer of servicing.

Fannie also said that reverse mortgages with unpaid principal balance differences above $250 must be reconciled by March 31, after which a repurchase request could be issued. On future differences, the servicer has 90 days to reconcile the difference before facing a repurchase.

“Fannie Mae is reminding servicers that as a condition of their approval to service reverse mortgages,” the letter said, “they must demonstrate a proven ability to service reverse mortgages and must employ a staff with adequate experience in this area.”

In a public filing last month, the Federal Financial Institutions Examination Council proposed guidance for managing compliance and reputation risks on reverse mortgages. The council includes the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration and the state liaison committee of the council.

The proposed guidance, which indicated that regulated institutions are expected to originate more reverse mortgages as the U.S. population ages in coming years, calls for counseling that recommends alternative bank products in place of a reverse mortgage. It outlines the potential consequences of taking out a reverse mortgage, such as the potential effect on eligibility for public benefits. Lending compensation programs should be analyzed for potential conflicts-of-interest, and promotional materials should describe the costs, terms, features and risks of reverse mortgage products.

The report addressed conflicts-of-interest such as selling annuities that utilize reverse proceeds. The risk of fraud becomes especially strong when the cost of a cross-marketed product accounts for most of the reverse proceeds or when the product provides less emergency cash than the reverse mortgage.

The guidance would not apply to proprietary reverse products because “the market for proprietary reverse mortgages has dissipated to the point that, industry-wide, there are fewer than 10 lenders offering such products.” The proposal suggested falling home equity was responsible for the decline in private programs — though the meltdown in the non-agency securitization market probably played a role. Guidance for proprietary reverse programs will be considered, however, “once this sector of the market recovers.” Until then, proprietary reverse lenders will be encouraged to adopt relevant HECM requirements.

The government noted that proprietary products, as well as home-equity conversion mortgages, are already subject to various laws including the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Federal Trade Commission Act and fair lending laws. HECMs, which were launched in 1989, are subject to “extensive” regulation by HUD.

In order to maintain compliance on third-party originations, institutions should create internal and external policies, conduct due diligence and establish appropriate compensation criteria. Appropriate actions should also be taken when policies are breached.

Comments on its proposal are being accepted until Feb. 16.

Members of the National Reverse Mortgage Lenders Association were instructed about how to avoid unacceptable advertising in a Jan. 12 Webinar. Panelists included the deputy director of FHA’s quality assurance division, a MetLife marketing consultant and the trade group’s president, Peter Bell. The event is one of several planned by the association during the first quarter including managing appraisals, ethical pricing and comprehensive counseling.

The presentation identified ads falsely designed to look like official government documents, which NRMLA called “a definite ‘no-no’ and cause for fine or suspension of license or worse.” Another area addressed was the use of exaggerated promises such as “stay in your house forever.”


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Mortgage Daily Staff

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