New guidance from the Federal Financial Institutions Examination Council (FFIEC) says that institutions are encouraged to follow or adopt relevant HECM requirements for mandatory counseling, disclosures, restrictions on cross-selling of ancillary products, and reliable appraisals for proprietary or jumbo reverse mortgage products.
While private reverse mortgages have been non-existent until recently, the agency emphasizes the importance of financial institutions mitigating the compliance and reputation risks associated with the loans.
Unlike HECM origination fees, which are expressly limited by statute, the FFIEC said the costs and risks of proprietary loans may be different and therefore does not intend to set fee limits.
“The Agencies expect institutions offering proprietary reverse mortgages to reasonably price such products, including with respect to origination fees, consistent with safe and sound banking practices, and with appropriate consideration of costs, risks, and returns,” said the agency.
Institutions should comply with any applicable law or regulation, and follow guidance governing fees.
“Taking these steps would help to ensure that institutions are addressing the full range of consumer protection concerns raised by reverse mortgages,” said the FFIEC. “Moreover, the Agencies expect institutions to take appropriate steps to determine or ensure that consumers will be able to pay required taxes and insurance.”
While the regulator is not imposing a credit underwriting standard, institutions are expected to take appropriate steps to determine or ensure that borrowers have the ability to pay taxes and insurance. Possibly through escrow or set-aside arrangements.
Rather than establish any of these type of arrangements, Generation Mortgage decided to use a credit underwrite earlier this year when it released the first jumbo reverse mortgage product in at least two years.
Jeff Lewis, Chairman of Generation, told RMD that eventually the industry will see a credit underwrite in all reverse mortgage products. ”It is better for the investor when the borrower has the means to stay current on their other obligations and maintain the home properly,” he said. The company requires that borrowers have a minimum FICO of 700.
The guidance will be effective 60 days after publication in the Federal Register.
