State regulators in Pennsylvania issued new guidelines that dictate the business operations of reverse mortgage originators. Primarily, the new guidelines compel originators to adhere to a code of conduct and not intentionally mislead a borrower into obtaining a reverse mortgage. “Because reverse mortgage products are specifically designed for — and marketed to — older residents, we feel a particular responsibility to safeguard their interests by making sure that they are not unfairly taken advantage of,” said Pennsylvania secretary of banking Steve Kaplan in a press statement. “Our policy is designed to make these products, which can be useful to some, available under the right circumstances.” Reverse mortgages allow borrowers age 62 or older to borrow against the equity in their home and receive either a lump sum, monthly payments, as a line of credit, or a combination of the three. The loan does not have to be repaid unless the borrower dies, the house is sold, or is no longer the borrower’s primary residence. The home equity conversion mortgage (HECM) product is the most popular form of reverse mortgage and is backed by the Federal Housing Administration (FHA). The guidelines requires originators to be trained in the reverse mortgage business, and encourages originators to suggest sources for free reverse mortgage counseling, and make other suggestions, like having the borrower speak to his or her family, before the loan is made. “While not appropriate in every situation, reverse mortgages can be an option for some older homeowners who want to keep their homes, age in place and protect their hard-earned resources,” said Pennsylvania secretary of aging John Michael Hall. “However, some types of loans carry increased risk to the borrower. I applaud the Department of Banking for developing safeguards to protect borrowers against bad advice and outright fraud by some lenders.” Write to Austin Kilgore.
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