Pricing exceptions are widespread in mortgage — and so are the regulatory risks

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MortgageReverse

The Reverse Mortgage Minefield

Woe looms over the reverse mortgage sector as several states look to crack down just as Fannie Mae has raised its insurance fees and tougher counseling mandates are afoot. “A lot of [reverse] originators feel there is an overall attempt to diminish [this] program,” laments one seasoned observer.

On the legislative side, sentiment grows among lawmakers that reverse mortgages are fraught with problems and “the big, bad subprime people are poised to jump in,” this person suggests, “so they feel a need to get out ahead of that curve.”

Meanwhile, prominent government figure Margaret “Meg” Burns, director of the Office of Single Family Program Development at HUD, tells RMD that “a lot of regulatory bodies don’t understand the product, but [are] willing to weigh in with fixes.” In talks with regulators, Burns says candidly she is “struck by how little they know about the mechanics of the program and its basic requirements. Yet, they are convinced they need to make regulatory changes,” she says, adding boldly that “they are barking up the wrong tree.”

Case in point: the State of Minnesota, where a bill is circulating with some controversial regulations like assignee liability, which could burden reverse mortgage companies with an open-ended responsibility for what they originate. And, the prospect of a 10-day rescission provision, could spell further financial troubles, if enacted there. That bill also prohibits any selling of annuities, life insurance policies or long-term-care insurance if the seller is aware the borrower will be using the loan proceeds to buy those products. “Minnesota,” worries one industry trade figure, “would be a model of [a law] we don’t want. It could shut down the business.”

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at [email protected]

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