Reverse mortgages enable eligible borrowers to remain in their homes while accessing their home equity in order to meet emergency needs, supplement their incomes, or, in some cases, purchase a new home â without subjecting borrowers to ongoing repayment obligations during the life of the loan. The use of reverse mortgages could expand significantly in coming years as the U.S. population ages and more homeowners become eligible for reverse mortgage products. If prudently underwritten and used appropriately, these products have the potential to become an increasingly important product for addressing certain credit needs of an aging population.
Reverse mortgages present substantial risks both to financial institutions and to consumers and, as with any type of home-secured loan, it is crucial that consumers understand the product terms and the nature of their obligations. In addition to consumer financial protection concerns that raise corresponding financial institution compliance and reputation risks, reverse mortgage products may present other risks, such as credit, interest rate, and liquidity risks, especially for proprietary reverse mortgage products lacking the insurance offered under the federal HECM program.
The 2010 reverse mortgages guidance is designed to help financial institutions ensure that their risk management and consumer financial protection practices adequately address the compliance and reputation risks raised by reverse mortgage lending. The guidance discusses the general features of reverse mortgage products, relevant legal requirements, and consumer financial protection concerns raised by reverse mortgages. The guidance focuses on the need for banks, thrifts, and credit unions to provide clear and balanced information to consumers about the risks and benefits of these products.
Both proprietary products and HECMs are subject to various laws governing mortgage lending including the Federal Trade Commission Act, RESPA, TILA, and fair lending laws. HECMs are also subject to an extensive regulatory regime established by HUD, including provisions for FHA insurance of HECM loans that protect both lenders and reverse mortgage borrowers. The guidance supplements those requirements by advising lenders about additional practices that should be implemented to manage the risks associated with reverse mortgage products.
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FR 4029_201505_83c.pdf
Policy & Procedures (On-going)