In comments submitted to the Federal Reserve board, NRMLA called for specific criteria for reverse mortgages in meeting the definition of a qualified mortgage under the risk retention Ability to Repay - Qualified Mortgage rule.
Under the current draft of the rule FHA-insured HECM loans would be defined as a "qualified mortgage" and therefore exempt from the risk retention rules. However, reverse mortgages that are not FHA HECMs are not specifically included and could be subject to the requirement of sponsors to retain a 5% credit risk of the assets underlying securities they issue. The letter points out that the definition of a "qualified residential mortgage loan" under the Risk Retention Rule can be no broader than the definition of "qualified mortgage under the Ability to Repay Rule. Accordingly, NRMLA is seeking specific language to include non-FHA reverse mortgages that meet certain criteria in the definitions of qualified mortgages.
NRMLA expressed concerns that this could slow growth in the market for proprietary reverse mortgages.
“The return of the conventional reverse mortgage sector, we believe, will be stymied if it is not possible for some reverse mortgages (other than FHA-insured HECMs) to meet the exception from the risk retention requirements afforded to qualified residential mortgages to be defined under the Risk Retention Rule yet to be finalized by the Agencies,” the letter said.
NRMLA proposes that a reverse mortgage be considered a "qualified mortgage" exempt from the Ability to Repay requirements as long as it meets the following criteria:
- Requires mandatory counseling prior to origination,
- Requires a financial assessment of the borrower according to procedures consistent with those to be established by HUD for the HECM program based on financial resources that are verified and documented, and taking into consideration applicable taxes, insurance and assessments affecting the collateral property, and
- Carries no prepayment penalty
NRMLA also intends to submit comments directly under the Risk Retention rule calling for an exemption for non-FHA-insured reverse mortgages that meet specific criteria.