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Reverse mortgage compliance risk guidance to be updated, says OCC

The Office of the Comptroller of Currency (OCC), a division of the U.S. Department of the Treasury, is seeking input and feedback regarding proposed updates to be made to guidance issued in 2010 regarding compliance risk and reputation management for reverse mortgage products. This is according to a notice published by OCC in the Federal Register at the end of January.

The guidance, “Reverse Mortgage Products: Guidance for Managing Compliance and Reputation Risks,” first began gaining traction in late 2009 before ultimately being adopted through initial publication in the Federal Register in August 2010. After initial publication in the Register, the guidance became effective that October and has stood unaltered ever since.

In its current form, the guidance aims “provide adequate information to consumers about reverse mortgage products; to provide qualified independent counseling to consumers considering these products; and to avoid potential conflicts of interest.”

Current efforts to update 2010 guidance

In the January 28 update to the Register, OCC states that updates to the reverse mortgage guidance is being made to “reduce paperwork and respondent burden, invites the general public and other Federal agencies to comment on the renewal of an information collection” related to reverse mortgage industry information sharing with borrowers and the requirement for a potential borrower to receive independent counseling prior to engaging in such a loan.

The information-gathering OCC is seeking to accomplish in any new revision focuses on five points, according to the entry in the Register. The first is whether the collection of information “is necessary for the proper performance of the OCC’s functions, including whether the information has practical utility,” 

The Register also seeks to ascertain the “accuracy of the estimates of the burden of the information collection, including the validity of the methodology and assumptions used,” while also aiming to find ways in which the “quality, utility and clarity of information” can be enhanced. Minimizing the burden of information collection on respondents is also a goal of the new effort, OCC says, including whether or not it would be prudent to incorporate “the use of automated collection techniques or other forms of information technology,” according to the notice.

Finally, OCC seeks capital or startup costs estimates and “costs of operation, maintenance, and purchase of services to provide information,” the notice reads. Comments related to this matter will be due to OCC by March 29.

The National Reverse Mortgage Lenders Association (NRMLA) is aware of the new notice in the Federal Register and is determining its next courses of action according to Steve Irwin, the association’s president.

“Yes, we did see this posted and have briefly discussed our approach to responding with our Executive Committee last week,” Irwin told RMD in an email. “We will be crafting and submitting comments before the March 29 deadline, but we aren’t prepared for comment to press as to what those comments will be.”

Read the notice in the Federal Register.

History of the reverse mortgage guidance

In mid-December of 2009, the Federal Financial Institutions Examination Council (FFIEC) proposed to the Federal financial institution regulatory agencies guidance on managing compliance and reputation risks presented by reverse mortgage products.

This guidance primarily focused on “the need to provide adequate information to consumers about reverse mortgage products, to provide qualified independent counseling to consumers considering these products, and to avoid potential conflicts of interest,” the Register notice reads. It also addressed policies, procedures, internal controls, and third-party risk management for the reverse mortgage industry.

The guidance focused particular attention on the relationship between the industry itself and the requirement for reverse mortgage counseling. Institutions offering reverse mortgages, the guidance said, require written policies and procedures that prohibit the practice of directing a client to a particular counseling agency, and which prohibits a loan originator from contacting a counselor on the client’s behalf.

Policies should also provide clear restrictions on reverse mortgage loan originators do not appear to have conflicts of interest related to the sale or “appear linked to the granting of a mortgage,” while also allowing for regular reviews of compensation practices in order to ensure originators or brokers do not have incentive to sell particular products or services.

The guidance also recommended the creation of training materials to ensure that “relevant lending personnel are able to convey information to consumers about product terms and risks in a timely, accurate, and balanced manner,” the guidance reads.

The creation of this initial guidance prior to the effective date was supported at the time by the Mortgage Bankers Association (MBA), which submitted a letter to FFIEC in support of the move.

“MBA supports supervisory action to provide guidance to lenders on reverse mortgage consumer protections and reputation risk management,” the February 2010 letter said. “MBA recognizes that reverse mortgages are relatively new and complex financial products designed to provide assistance to a uniquely vulnerable consumer population. For these reasons, MBA believes all reverse mortgages should be accompanied by strong consumer protections.”

Read the original guidance at the Federal Register.

Recent reverse mortgage counseling issues

The timing of the newly-proposed guidance corresponds with other issues related to reverse mortgage counseling in particular states. In Massachusetts, reverse mortgage business has been effectively paused due to issues of the state’s in-person counseling requirement conflicting with the realities of the COVID-19 coronavirus pandemic, which presents a greater risk of developing severe illness for seniors and immunocompromised persons.

Recently, a new bill advanced to the desk of Gov. Charlie Baker which would restore remote counseling relief through the summer, and recent indications show the potential for a revived legislative debate which could lead to a more permanent fix for the issue.

A state representative in Pennsylvania also recently took aim at reverse mortgage counseling in a newly-proposed piece of legislation designed to curb the “pitfalls” of engaging with reverse mortgage products by restricting the counseling process to face-to-face sessions only in the state, with some exceptions.

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