Earlier this month, Comptroller of the Currency, John C. Dugan warned that reverse mortgages pose significant compliance risks and said regulators should get out in front of this issue, before real problems develop, so that these loans are made “in a way that is prudent for both lenders and borrowers.” This statement has brought up comments and concerns in the press and public that reverse mortgages maybe the next subprime mortgage product.
Dugan stressed that the regulatory agencies should ensure that interagency guidance being worked on is sufficiently robust to ensure that consumers are adequately protected, and he said the OCC would examine national banks to ensure compliance with the guidance as well as relevant existing regulations.The Comptroller also expressed concern about misleading marketing claims, especially if the product’s incentives and fees put more of a premium on making the loan than on ensuring it is appropriate for the borrower. Mr. Dugan said one area that deserves particular attention is whether to impose additional requirements with respect to escrows of taxes and insurance. Nonpayment of taxes or insurance can trigger foreclosure. However, the new Federal Reserve Board escrow requirements for “higher-priced” mortgages do not apply to reverse mortgages, and HUD does not require escrows to be established in connection with HECMs.
“Given the predominance of the HECM product in reverse mortgage lending, I think it would be a major step forward for HUD to issue guidelines or requirements addressing the escrow issue for HECMs, and I would like to begin a dialogue with them on the issue,” he said. “Once they set the standards for escrows, we would ensure that they are followed by national banks for HECM products, and would ensure – by regulation, if necessary – that comparable standards apply in connection with proprietary reverse mortgages offered by national banks.”
The statement has garnered attention from the like of CNBC, CBS and NBC’s Today Show and each has run at least one segment on reverse mortgages since the statement was released.
For more information on the OCC’s Statement, click here.