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Guidance
proposed on Reverse Mortgages
IThe
Federal Financial
Institution’s Examinations Council (FFIEC) issued a request
for comments on behalf of its member agencies
(the Agencies) on
“Reverse Mortgage Products: Guidance for Managing Compliance and
Reputation Risks” (Guidance). Once comments are reviewed and the
Guidance completed, the Agencies will issue the document as
supervisory guidance to the agencies they supervise and the State
Liaison Committee (SLC) of the FFIEC will encourage state regulators
to adopt the guidance.
The
Agencies believes it is important to issue this Guidance because as
the population continues to age it is expected that the number of
reverse mortgage applications will rise dramatically. While these
products, if underwritten prudently and used appropriately, have the
potential to become an increasingly important credit product for
addressing certain credit needs of an aging population, they can be
highly complex loan products.
The
Guidance is intended to aid financial institutions in ensuring that
their risk management and consumer protection practices adequately
address the compliance and reputation risks that can be raised by
reverse mortgage lending.
Understanding
Reverse Mortgages
Characteristics of reverse mortgages include:
·
It is generally
a non-recourse, home-secured loan;
·
Requires the
borrower to occupy the home as a principal dwelling and be at least
62 years of age;
·
Provides one or
more cash advances
·
Has no
repayment requirement until the last living borrower sells the home
or has not lived in it for a year;
·
Becoming due
and requiring that the home must be sold or the borrower or
surviving heirs must repay the full amount of the loan, including
accrued interest, even if the balance is greater than the property
value
The
reverse mortgage market currently consists of two basic types of
reverse mortgage products. One is the proprietary products offered
by an individual institution. The other is FHA-insured reverse
mortgages offered under the Home Equity Conversion Mortgage (HECM)
program. Because these mortgages are usually requested by consumers
who have limited income and few other assets than the home on which
they are requesting the loan, lenders must have effective controls
in place to protect the consumers and minimize the risks to
themselves.
FFIEC agencies include the Federal Deposit Insurance
Corporation (FDIC); Federal Reserve Board (FRB); National Credit
Union Administration (NCUA); Office of the Comptroller of the
Currency (OCC); Office of Thrift Supervision; and the State
Liaison Committee (SLC).
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