Pennsylvania Policy Defines Proper Conduct of Reverse Mortgage Lenders

The Pennsylvania Department of Banking released new policy for the reverse mortgage industry to define proper conduct of lenders and help protect the states older homeowners.

“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 Steve Kaplan,  Secretary of Banking. “Our policy is designed to make these products, which can be useful to some, available under the right circumstances.”

According to the statement of policy, the Department is concerned about the potential for older consumers to be victimized by bad advice or outright fraud.  “As reverse mortgage loans become more available, licensees may not be fully cognizant of the propriety of, and the necessary business practices required to limit risks to consumers in this Commonwealth who use, reverse mortgage loans.”

In Pennsylvania, mortgage lenders who are licensed under the Mortgage Licensing Act are required to have a minimum net worth of $250,000, but the department “believes that it may be necessary for such a licensee who makes reverse mortgage loans to take additional precautions to ensure that it has the ability to make disbursements and service its reverse mortgage loans.”

The Department said it will review a licensee’s capital, liquidity and other factors, such as the licensee’s business model and available financial resources to replenish capital, that affect the licensee’s ability to service its reverse mortgage loans, particularly with respect to licensees that make or service proprietary reverse mortgage loans.

The policy also addresses topics like suitability, which states that a “licensee should not offer reverse mortgage loans that the licensee knows, or reasonably should have known, is unsuitable for, or contrary to the wishes or expectation of, an applicant.”

”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 John Michael Hall, Secretary of Aging. “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.”

RMD contacted the department and was told the guidance is only a statement of policy, not a rule or regulation.  “This is just guidance for people in the industry and gives them a fairly clear idea about what the DOB’s position is,” said Ed Novak, spokesperson for the Pennsylvania Department of Banking.

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