CUNA Comment Letter
Reverse Mortgage Comments
February 16, 2010
Mr. Paul Sanford
Federal Financial Institutions Examination Council
L. William Seidman Center
Mailstop: D 8073a
3501 Fairfax Drive
Arlington, VA 22226-3550
|RE:||Docket Number FFIEC - 2009-0001 - Reverse Mortgage Comments|
Dear Mr. Sanford:
The Credit Union National Association (CUNA) appreciates the opportunity to submit comments in response to the proposed guidance for reverse mortgage loans. The goal of the guidance is to help ensure that a financial institutions risk management and consumer protection practices adequately address the compliance and reputation risks associated with reverse mortgage loans. By way of background, CUNA is the largest credit union advocacy organization in this country, representing approximately 90% of our nations 7,900 state and federal credit unions, which serve 93 million members.
Summary of CUNAs Comments
- CUNA generally supports the proposed guidance, especially since reverse loans are very complex, often with significant fees, and will become more prevalent as the population ages and seeks to use their current home equity to supplement their retirement income.
- CUNA specifically supports the requirement for financial counseling and believes that, with limited exceptions, such counseling should be done in-person, as opposed to telephone conversations. We also agree that general guidance and information on reverse mortgages should be provided to the consumer before the application is submitted. However, the specific counseling as envisioned in the proposed guidance should not occur until after the application is submitted, as this will be more targeted and, therefore, more beneficial after the consumer applies for the loan.
- CUNA supports the provisions addressing conflicts of interests, which will likely be a problem, considering the complexities of these loans and the abuses that have already occurred in this area by other types of lenders.
- CUNA also supports the provisions addressing the policies, procedures, and internal controls that lenders should have, as well as the provisions on managing third-party relationships, which are to a significant extent addressed in previous guidance issued by the National Credit Union Administration (NCUA).
In general, CUNA supports the guidance and believes it will help ensure that consumers are aware of the risks and benefits of reverse mortgage loans. Although not many credit unions at this time offer reverse mortgage loans, either under the Home Equity Conversion Mortgage program or through their own proprietary reverse mortgage programs, we believe those that do are likely already compliant with the principles outlined in the guidance.
However, we understand the need for this written guidance, since these loans are very complex and confusing, which may lead to abuses and excessive fees by other types of lenders, similar to the complex mortgage loans that were a major cause of the recent economic crises. Without such guidance, these abuses would likely grow as the population ages rapidly in coming years, resulting in greater demand for reverse mortgage loans from those who will need to access their home equity to help support themselves during their retirement years.
Specifically, CUNA strongly supports the requirements with regard to consumers receiving independent financial counseling, which we believe is essential for these types of loans. As stated in the guidance, we believe that financial counseling with regard to reverse mortgage loans should be in the form of an in-person discussion between the counselor and the borrower.
In this regard, we believe the language in the guidance should be even stronger in emphasizing that this counseling should be an in-person meeting, as opposed to a telephone discussion. One means to emphasize this form of counseling is to make it clear that there should only be very limited exceptions to the requirement that the counseling be performed in-person. An example may be when the consumer is ill or otherwise incapacitated. This is the approach followed in North Carolina in which the independent, nonprofit financial counselors are state-regulated and licensed, and we believe the proposed guidance should be modeled after this approach.
Furthermore, we believe telephone counseling is ineffective. Such counseling is usually in the form of brief 5-15 minute discussion, as opposed to an in-person discussion, which is usually an hour or so in length. The in-person session also gives the consumer ample opportunity to learn all the details of the reverse mortgage loan, as well as possible options, and to have all questions answered. Such counseling is vital for reverse mortgage loans as they are very complex and not easily understood by consumers.
As for the timing of the counseling, we certainly agree that general guidance and information about reverse mortgage loans should be provided before the application is submitted. However, the specific counseling as envisioned in the proposed guidance should not occur until after the application is submitted. To provide such counseling earlier in the process will not allow the counselor to discuss the ramifications of the specific loan that the consumer has chosen. Therefore, we believe this type of counseling should occur after the loan disclosures are provided by the lender so that the counselor can provide advice that is specifically tailored to the loan chosen by the borrower.
We also support the provisions in the guidance that address conflicts of interest, which outline inappropriate compensation and incentives, such as those that encourage consumers to purchase other products and services at the time they obtain the reverse mortgage loan. Due to the potential for abuses, as described above, we agree that such conflicts should be avoided.
In addition, we agree with the provisions that address the policies, procedures, and internal controls that financial institutions should have in order to address the issues in the guidance, which would include adequate training and compliance reviews. We also agree with the provisions that outline the responsibility of financial institutions to mange third-party relationships as they apply to reverse mortgage loans. This includes the compliance and reputation risks presented by such relationships, much of which is already outlined in separate guidance that has been issued previously by NCUA.
Thank you for the opportunity to comment on the proposed guidance for reverse mortgage loans. If you have questions about our comments, please contact Senior Vice President and Deputy General Counsel Mary Dunn or me at (202) 638-5777.
Senior Assistant General Counsel