In light of an environment of rapid regulatory reform, two industry lawyers agreed that there is still much more to come. James Brodksy of Weiner Brodsky Sidman Kider PC and Clint Rockwell of Buckley Sandler reviewed the current enviornment and the likelihood that the next two years will provide continuous change.
Brodsky focused on several key issues he termed "three and a half" regulatory reform issues that legislators and regulatory agencies are currently focused on. Advertising practices are a key issue that is currently under the microscope. Under the authority of Regulation Z, there is current proposed regulations on adversing that specifically relates to reverse mortgages. The rule focuses on 7 specific practices that can be considered abusive, deceptive or unfair related to advertising reverse mortgage products. Brodsky pointed out that much of what the new rule will cover has already been addressed by NRMLA in their Ethics Advisory Opinions, most recently admended in Ethics Advisory Opinion 2010-12.
Another key issued relates to the cross-selling of financial products. Regulators are concerned about issues where a company offers financial products in addition to reverse mortgages and offer inappropriate incentives to sales people to entice consumers to utilize proceeds to purchase those additional products. In order to avoid abusive practics, Brodsky suggested that companies in this scenario should ensure that there is a clear separation of sales forces and that their are no compensation incentives for sales people to cross sell or to tie together the a reverse mortgage with these other products. Additionally, he noted, regulations will include some form of "cooling off" period that some states have already implemented. The rule will probably include a ten day waiting period from when a borrower closes a reverse mortgage and can than utilize the proceeds to purchase another financial product. Some senior advocate groups have called for an even longer period of at least 30 days. The practice of providing other financial products is not deemed illegal, but for companies that do, Brodsky urged caution in how policies and procedures are formed and monitored to ensure that there is not even the slightest appearance of undue pressure on senior borrowers to purchase those products.
In describing the general landscape of the current regulatory environment, Clint Rockwell stated for the next two years, "everything is up for grabs, everything can change." The Consumer Financial Protection Bureau (CFPB) is committed to targeting unfair and deceptive practices related to the selling of financial products and will utilize their full regulatory authority to achieve that goal. A primary goal will be to revise RESPA disclosure rules in their attempt to simplify disclosures and provide consumers with clear information on the terms of their loans.
Due to the fact that the CFPB current lacks the resources and manpower to achieve their goals, Rockwell indicated that the Bureau will likely use their authority to "deputize" state regulatory agencies to help with the creation and implementation of new rules. One area where this type of collaboration is already being seen is related to "multi-state examinations." In this scenario, a state agency that conducts an examination of a company is then able to share their findings with other state agencies. Those states are then able to utilze that information to make their own determinations on findings, including imposing enforcement actions on companies, without being required to conduct their own examinations.
in terms of the loan originator compensation, Rockwell pointed to an interpretation by the Fed as it relates to affiliate companies. Initially, the Fed interpreted cases where jpayments to a bona fide third party affiliate, such as a title company, that is also an affiliate of the mortgage company is consider a violation of the duel payment rule and is illegal. The Fed has since backed off of that interpretation but has not provided additional guidance as to how this will be addressed. Rockwell expects that additional information will be provided in the webinar that the Fed is conducting on Thursday.
The theme for 2011 (and beyond) appears to be complying with the on-going wave of regulatory reform. Although the political landscape might be adjusting in Washington and state governments, it is unlikely to stem the tide of regulations and reforms still to come.