CUNA Regulatory Comment Call

January 4, 2010

Agencies Issue Proposed Guidance for Reverse Mortgages

Executive Summary

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at and to Senior Assistant General Counsel Jeff Bloch at; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. You may also contact us if you would like a copy of the proposed Guidance or you may access it here.


Reverse mortgages enable eligible borrowers to remain in their home while accessing their home equity in order to meet their financial means in a manner so as not to subject borrowers to ongoing repayment obligations during the life of the loan. Funds may be accessed either as a lump sum, credit line, or monthly cash advances.

Reverse mortgages are geared towards those over the age of 62 and repayment is generally not required until the borrower dies, moves, or if there is default, such as failure to pay taxes, insurance, or to properly maintain the property. There are two types of reverse mortgages. These include the lenders’ own proprietary reverse mortgage products and reverse mortgages offered under the Home Equity Conversion Mortgage (HECM) program. Loans issued under the HECM program are subject to a range of consumer protection, counseling, and other requirements.

Reverse mortgages are often geared to elderly individuals who may need to access their home’s equity in order to meet expenses during retirement. These products are very complex and are expected to grow substantially in the future as the population ages.

As a result, the FFIEC is proposing the Guidance at this time to help financial institutions ensure that their risk management and consumer protection practices adequately address the compliance and reputations risks associated with reverse mortgages. When finalized, the Federal financial institution regulators will issue the Guidance as supervisory guidance for the institutions they supervise and the FFIEC is also expected to issue sample disclosures at that time. State regulators will also be encouraged to issue similar guidance.


General Information

In addition to the proposed Guidance, financial institutions are subject to other statutes and rules that may apply to reverse mortgages. These include the Federal Trade Commission Act prohibition of unfair or deceptive acts or practices provisions; the Truth in Lending Act; the Real Estate Settlement Procedures Act; the Equal Credit Opportunity Act; the Fair Housing Act; the National Flood Insurance Act; State laws and rules; and rules issued under the HECM Program, such as those that address mandatory counseling for borrowers, disclosures, fee restrictions, and conflicts of interest. The regulators also expect that financial institutions will determine whether the borrower will be able to make the required taxes and insurance payments, which are generally not escrowed when there is a reverse mortgage.

Communications with Consumers

Financial institutions should provide consumers with information designed to help them make informed decisions when selecting financial products, including reverse mortgages, and the options for receiving advances from them. Advertisements and marketing materials should ensure that important information is disclosed clearly and conspicuously and that borrowers are not misled or deceived about the features, terms, risks, or about the borrowers continuing obligation with regard to taxes, insurance and home maintenance.

Financial institutions should give attention to the timing, content, and clarity of the information presented to borrowers. This includes developing clear and balanced product descriptions and making them available when the consumer is shopping for a mortgage, not just when an application is submitted or when the loan is consummated. This should describe how disbursements may be received, as well as include the following information:

Qualified Independent Counseling

Financial institutions offering proprietary reverse mortgage loans should require counseling from qualified, independent counselors before the consumer submits the application or pays an application fee. (This is already required under the HECM Program). Policies should be adopted to prevent the steering of a consumer to a specific counseling agency and prohibit the lender from contacting the counselor on the consumer’s behalf, unless the consumer is involved. Borrowers should be encouraged to attend counseling in person, as opposed to by telephone or otherwise, and to attend with other family members.

Counselors should be able to inform borrowers about the following:

Avoidance of Potential Conflicts

Financial institutions should take all reasonably necessary steps to avoid any appearance of a conflict of interest, which would include adopting:

Policies, Procedures, and Internal Controls

Financial institutions should have policies and procedures to address the issues outlined in the Guidance, including those involving conflicts of interest and consumer information. Institutions should also have effective internal controls to monitor whether actual practices are consistent with their policies and procedures.

Training should be designed so that lending personnel are able to convey information to consumers about the product terms and risks in a timely, accurate, and balanced manner. Legal and compliance reviews should include oversight of compensation programs to ensure lending personnel are not improperly encouraged to direct consumers to certain products. Institutions should also review consumer complaints.

Third Party Risk Management

When making, purchasing, or servicing reverse mortgage loans through a third party, such as a broker or correspondent, institutions should take steps to manage the compliance and reputation risks presented by such relationships.


  • Do you agree with all of the elements of the Guidance? Do you have any suggested changes, either additions or deletions? Do you have any suggestions for tailoring the Guidance for credit unions?

  • Other comments?

    Eric Richard • General Counsel • (202) 508-6742 •
    Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 •
    Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 •
    Luke Martone • Senior Regulatory Counsel • (202) 508-6743 •