In a recent statement to the Senate Financial Institutions Subcommittee, the American Bankers Association said creating an environment where banks can make good business decisions and take prudent risks is the best way to ensure safety and soundness.
“Unfortunately, the pendulum has shifted too far in favor of driving out risk entirely,” ABA said.
With recent and ongoing regulatory changes in the reverse mortgage industry, some lenders are feeling that same sentiment. At what point has the regulatory pendulum swung too far?
“I think it has begun to cost consumers because the regulations have driven business out of so many companies,” says John Mitchell, owner of Reverse Mortgage USA, of the regulatory impact on the reverse mortgage industry. “The new broker law is a good example. Less competition means higher prices for the consumer.”
The new loan officer compensation law that went into effect in early April caused a frenzy for many lenders and brokers, who slowly made their way through the new rule, and spent countless hours and dollars implementing the changes.
Ultimately, brokers see less competition under the new compensation structure, and many said it was at the borrowers’ expense. Without the ability to receive compensation from the borrower and lender, brokers said seniors ultimately paid more and could borrow less.
“The pendulum has certainly swung too far in the direction of regulation in the reverse mortgage industry,” says Ken Klawans, president of iReverse Home Loans. “While it’s important that safeguards are in place for our protected class of borrowers, throwing more rules, restrictions and papers for the senior to sign does nothing to accomplish the desired results.”
The inception of a Consumer Financial Protection Bureau, mandated under the Dodd-Frank Act, is one example of a mechanism in place that can and will have implications for reverse mortgage regulations. Assuming authority from several government bodies, the CFPB will conduct a report on the reverse mortgage industry by July 21, 2012, and already, before its official launch date, has begun to revamp all mortgage disclosure forms, from a consumer protection standpoint.
“The nature and extent of rules from the Consumer Financial Protection Bureau are unknown, but uncertainty about the potential actions creates potential litigation risk as actions taken today may conflict with the changes in rules devised by the Bureau,” the ABA wrote in its statement.” The expectation of significant new disclosures, for example, translates into less willingness to lend (and therefore less credit extended overall), and higher costs to borrowers that still have access to credit to cover the added risks and expenses assumed by banks.”
Other pending changes such as a potential financial assessment that could come into play for reverse mortgages, as well as loan limits scheduled to expire in October could have an additional impact on the industry. Many agree that regulatory changes under the current administration have been burdensome to implement, and their course can be unpredictable.
“We are already being strangled in often conflicting and ambiguous regulations creating unintended consequences that negatively impact those who the rules were intended to protect.” Klawans says. “Our government’s resources would be better spent educating consumers rather than restricting capitalism.”
Written by Elizabeth Ecker
