As part of Dodd-Frank, the Federal Reserve Board and other regulators are required to establish a rule on risk retention for certain mortgage products.
While the HECM product is exempt from the 5% risk retention requirement, the National Reverse Mortgage Lenders Association is asking the Feds to create alternative criteria for certain reverse mortgages not insured by the Federal Housing Administration.
“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,” said the letter from NRMLA.
NRMLA is proposing that a reverse mortgage be deemed a “qualified mortgage” if it requires mandatory counseling prior to origination, a financial assessment of the borrower according to procedures consistent with HUD regulations, and carries no prepayment penalty.
Loans that meet these standards would therefore meet the definition of a qualified mortgage under the Fed’s Ability to Repay and be exempt from the risk retention requirements.
In 2008, private reverse mortgage products made up as much as 16% of the market according to Reverse Market Insight. Since then, the market has been dominated by the Federal Housing Administration’s HECM program, but NRMLA members are seeing a pent up demand for a conventional reverse mortgage product.
“Until a viable securitization market returns, access to conventional credit for this important financial services tool for seniors will be constrained,” said the letter.
View a copy of the letter here.
