Reverse Mortgage Products: Guidance for Managing Compliance and Reputation Risk; Final Guidance

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Federal Register / Vol. 75, No. 158 / Tuesday, August 17, 2010 / Notices
The collections of information in part
16 are as follows:
Form for Registration. A national bank
offering or selling its own securities to
the public is required to make such offer
or sale through the use of a prospectus
that has been filed with the OCC as part
of a registration statement.
Abbreviated Form for Registration. A
national bank that is a subsidiary of a
company that has securities registered
under the Securities Exchange Act of
1934 (Exchange Act) may offer and sell
securities (nonconvertible debt) only to
accredited investors upon meeting
conditions in 12 CFR 16.6 and by
providing an abbreviated information
statement in a form for registration.
Small Issues. A national bank may
offer and sell securities publicly in a
limited dollar amount by using an
Offering Statement meeting the
requirements of SEC’s Regulation A (17
CFR 230.251 et seq.).
Regulation D. A national bank may
offer or sell its own securities in a
private placement to accredited or
sophisticated investors in compliance
with 12 CFR 16.7.
Form 144. A national bank must file
Form 144, which contains information
on resales of securities originally sold
through the private placement
exemption, only in certain
circumstances.
These information collection
requirements ensure bank compliance
with applicable Federal law, promote
bank safety and soundness, provide
protections for banks, and further public
policy interests.
Affected Public: Businesses or other
for-profit.
Burden Estimates:
Estimated Number of Respondents:
48.
Estimated Number of Responses:
48.
Estimated Annual Burden: 450
hours.
Frequency of Response: On occasion.
Comments: Comments submitted in
response to this notice will be
summarized and included in the request
for OMB approval. All comments will
become a matter of public record.
Comments are invited on:
(a) Whether the collection of
information is necessary for the proper
performance of the functions of the
OCC, including whether the information
has practical utility;
(b) The accuracy of the OCC’s
estimate of the information collection
burden;
(c) Ways to enhance the quality,
utility, and clarity of the information to
be collected;
(d) Ways to minimize the burden of
the collection on respondents, including

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through the use of automated collection
techniques or other forms of information
technology; and
(e) Estimates of capital or start-up
costs and costs of operation,
maintenance, and purchase of services
to provide information.
Dated: August 10, 2010.
Michele Meyer,
Assistant Director, Legislative and Regulatory
Activities Division, Office of the Comptroller
of the Currency.
[FR Doc. 2010–20236 Filed 8–16–10; 8:45 am]
BILLING CODE 4810–33–P

DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
[Docket ID OCC–2010–0015]

FEDERAL RESERVE SYSTEM
FEDERAL DEPOSIT INSURANCE
CORPORATION
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
[Docket ID OTS–2010–24]

NATIONAL CREDIT UNION
ADMINISTRATION
Reverse Mortgage Products: Guidance
for Managing Compliance and
Reputation Risks
Office of the Comptroller of the
Currency, Treasury (OCC); Board of
Governors of the Federal Reserve
System (FRB); Federal Deposit
Insurance Corporation (FDIC); Office of
Thrift Supervision, Treasury (OTS); and
National Credit Union Administration
(NCUA).
ACTION: Final Guidance.
AGENCY:

The OCC, FRB, FDIC, OTS,
and NCUA (the Agencies) are issuing
this final guidance entitled, ‘‘Reverse
Mortgage Products: Guidance for
Managing Compliance and Reputation
Risks’’ (guidance). The Agencies
developed this guidance, in conjunction
with the State Liaison Committee of the
Federal Financial Institutions
Examination Council (FFIEC), to
address compliance and reputation risks
associated with reverse mortgages,
which are complex loan products
typically offered to elderly consumers.
Institutions are expected to use the
guidance in their efforts to ensure that
their risk management and consumer
protection practices adequately address

SUMMARY:

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the compliance and reputation risks
raised by reverse mortgage lending.
DATES: This final guidance is effective
on October 18, 2010. Comments on the
Paperwork Reduction Act burden
estimates only may be submitted on or
before September 16, 2010.
FOR FURTHER INFORMATION CONTACT:
OCC: Karen Tucker, National Bank
Examiner and Senior Compliance
Specialist, or Jesse Butler, Bank
Examiner and Compliance Specialist,
Compliance Policy, (202) 874- 4428;
Stephen Van Meter, Assistant Director,
or Nancy Worth, Counsel, Community
and Consumer Law Division, (202) 874–
5750, Office of the Comptroller of the
Currency, 250 E Street SW.,
Washington, DC 20219.
FRB: Kathleen Conley, Senior
Supervisory Consumer Financial
Services Analyst, (202) 452–2389; Brent
Lattin, Senior Attorney, (202) 452–3667,
Board of Governors of the Federal
Reserve System, 20th and C Streets
NW., Washington, DC 20551. For users
of Telecommunications Device for the
Deaf (TDD) only, contact (202) 263–
4869.
FDIC: Michael R. Evans, Fair Lending
Specialist, Compliance Policy Section,
Division of Supervision and Consumer
Protection, (202) 898–6611; or Richard
M. Schwartz, Counsel, (202) 898–7424,
Legal Division, Federal Deposit
Insurance Corporation, 550 17th Street
NW., Washington, DNC 20429.
OTS: David Adkins, Fair Lending
Specialist, (202) 906–6716, or Richard
Bennett, Senior Compliance Counsel,
(202) 906–7409, Office of Thrift
Supervision, 1700 G Street NW.,
Washington, DC 20552.
NCUA: Robert C. Leonard, Program
Officer, 703–518–6396, Office of
Examination & Insurance, National
Credit Union Administration, 1775
Duke Street, Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
I. Background Information
Institutions under the Agencies’
supervision currently provide two basic
types of reverse mortgage products:
lenders’ own proprietary reverse
mortgage products and reverse
mortgages offered under the Home
Equity Conversion Mortgage (HECM)
program.1 Both HECMs and proprietary
products are subject to various laws
governing mortgage lending including
1 A HECM is a reverse mortgage product insured
by the Federal Housing Administration (FHA),
which is part of the U.S. Department of Housing
and Urban Development (HUD), and subject to a
range of federal consumer protection and other
requirements. See 12 U.S.C. 1715z–20; 24 CFR Part
206.

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the Truth in Lending Act (TILA), the
Real Estate Settlement Procedures Act
(RESPA), the Federal Trade Commission
Act (FTC Act), and the 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.
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—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 credit
product for addressing certain credit
needs of an aging population.
However, reverse mortgages can be
highly complex loan products, and it is
particularly important to provide
adequate information and other
consumer protections. Typically, elderly
borrowers are securing a reverse
mortgage with their primary asset—their
home. Thus, borrowers may depend on
the reverse mortgage proceeds for the
cash flow needed to pay for health care
and other living expenses.
For these reasons, it is critical that
institutions and other entities subject to
the Agencies’ supervision (hereafter
‘‘institutions’’) manage the compliance
and reputation risks associated with
reverse mortgages. To assist institutions
in their efforts to manage these risks, the
Agencies published for comment
Reverse Mortgage Products: Guidance
for Managing Compliance and
Reputation Risks (proposed guidance),
74 FR 66652 (December 16, 2009). The
proposed guidance discussed the
general features of, certain legal
provisions applicable to, and consumer
protection concerns raised by reverse
mortgage products. In addition, it
focused on the need to provide adequate
information to consumers about reverse
mortgage products; to provide qualified
independent counseling to consumers
considering these products; and to avoid
potential conflicts of interest. The
proposed guidance also addressed
related policies, procedures, and
internal controls and third party risk
management.
The Agencies received 18 comments
on the proposed guidance. Comments
were received from financial
institutions (institutions); industry-

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related trade associations (industry
groups); counselors, consumer and
community organizations (consumer
organizations); government officials;
and members of the public.
II. Overview of Public Comments
The commenters were generally
supportive of the proposed guidance. In
general, institutions and industry
groups sought additional clarity and
flexibility in implementing the
guidance, while consumer organizations
and government commenters sought to
adopt stronger standards, particularly
with respect to policies designed to
avoid conflicts of interest.
A majority of institutions and
industry groups sought more clarity on
the extent to which HUD rules (such as
those relating to fees) should be applied
to proprietary reverse mortgages. They
also sought additional clarity or
flexibility regarding particular
recommendations in the proposed
guidance, including with respect to the
information that should be provided to
reverse mortgage borrowers in
promotional materials, the conduct of
counseling by telephone, and the
restrictions on cross-selling. Institution
and industry group commenters
generally sought clarification that
implementation of the guidance would
be consistent with forthcoming changes
to the HECM counseling protocols and
the FRB’s Regulation Z, the regulation
that implements TILA.
Consumer organizations and a
government commenter generally
supported the provision of balanced
information about reverse mortgage
alternatives, and avoidance of deceptive
marketing by loan originators or brokers.
Among the recommendations made by
these commenters were to establish a
suitability standard, engage in consumer
testing of any new disclosures,
strengthen the requirement for in-person
counseling, and adopt stronger policies
to avoid conflicts of interests. Several
commenters made suggestions for
additional topics that were not included
in the proposed guidance; these related
to data collection on the volume of
reverse mortgages, anti-fraud provisions,
test design for the HECM counseling
roster, and other HECM program rules.
III. Revisions To Address Public
Comments on the Guidance
The Agencies made a number of
changes to the proposal to respond to
commenters’ concerns and to provide
additional clarity. Significant comments
on the specific provisions of the
proposed guidance, the Agencies’
responses, and changes to the guidance
are discussed below.

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Communications With Consumers
Commenters generally asked for a
number of clarifications with respect to
the proposed guidance on
communications between institutions
and potential reverse mortgage
borrowers. Consumer organizations and
a government commenter generally
supported the provision of balanced
information about reverse mortgages
and alternatives, and avoidance of
deceptive marketing by loan originators
and brokers. One government
commenter suggested consumer testing
of new disclosures, if any, to improve
communications.
Some consumer organization and
government commenters urged a strong
role for lenders in determining the
suitability of the loan for the borrower.
In particular, these commenters
suggested that it should be the duty of
any lender or broker to articulate and
match the consumer’s needs, objectives,
and circumstances to the terms of the
loan and to reveal any interest that the
lender or broker has in arranging the
loan.
This reverse mortgage guidance does
not, and is not intended to, impose
suitability obligations on lenders. The
Agencies believe, however, that the
provision of clear and balanced
information and qualified independent
counseling in accordance with the
guidance will help to ensure that
reverse mortgage borrowers do not enter
into transactions that are not
appropriate for their financial
circumstances and needs.
With regard to the commenter’s
recommendations for consumer testing,
as noted in the preamble to the
proposed guidance, the Agencies are
considering whether to issue
illustrations of consumer information
for reverse mortgages. The Agencies will
consider the commenter’s consumer
testing recommendations in connection
with these illustrations. Before adopting
any illustrations, the Agencies will issue
them for notice and comment.
Institution and industry group
commenters generally sought
clarification that implementation of the
guidance would be consistent with
changes to the HECM counseling
protocols and the FRB’s Regulation Z.
One industry commenter asked that the
Agencies clarify whether Regulation Z
or FTC Act standards for proper
disclosures would be applied to
advertisements and promotional
materials for reverse mortgages. These
commenters also sought clarification of
specific points regarding the list of the
information items that should be

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Federal Register / Vol. 75, No. 158 / Tuesday, August 17, 2010 / Notices
provided to reverse mortgage borrowers
in promotional materials.
As a general matter, the Agencies
believe that the guidance is consistent
with the HECM protocols and
Regulation Z, as now in effect. The
current HECM counseling protocols
require that counselors provide to
borrowers the same information that is
listed in the proposed guidance. The
Agencies are not aware of any proposed
changes to the HECM requirement that
counselors provide this information.
While the FRB is reviewing
Regulation Z disclosures for reverse
mortgages, this project is not final. In
light of this review, the Agencies are not
addressing technical requirements that
may be addressed in Regulation Z, and
do not anticipate that the general
recommendations in the guidance will
conflict with any specific disclosure
requirements for reverse mortgages
adopted by the FRB.
In response to a commenter’s inquiry
concerning whether Regulation Z
standards would be applied to all
marketing materials, the Agencies did
not intend to incorporate—in stating
that information should be provided
clearly and conspicuously—Regulation
Z’s standard for ‘‘clear and conspicuous’’
disclosures. Rather, the Agencies sought
to convey simply that important
information should be presented in a
clear and prominent manner. The final
guidance has been clarified accordingly.
Advertisements and other marketing
materials, of course, will continue to be
subject to any relevant requirements
under Regulation Z, the FTC Act, and
other applicable laws and regulations.
In regard to the more specific issues
raised by commenters, the Agencies
have clarified the guidance by
acknowledging that institutions may not
be able to provide all of the information
recommended in this guidance when
advertising reverse mortgages through
certain forms of media, such as radio,
television, or billboards. In these
circumstances, however, institutions
should provide clear and balanced
information about the risks of these
products.2 The Agencies also clarified
the meaning of ‘‘clear and balanced
information’’ in the final guidance; in
particular, information is balanced
when it fairly presents risks and costs as
well as potential benefits. The Agencies
clarified in the final guidance when
more comprehensive information
should be provided, and that
promotional materials should address
2 These clarifications are consistent with other
interagency guidance relating to nontraditional
mortgages. Interagency Guidance on Nontraditional
Mortgage Product Risks, 71 FR 58609, 58617 n.19
(Oct. 4, 2006).

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how disbursements from the reverse
mortgage may affect the borrower’s
ability to obtain public benefits.
Information provided in promotional
materials may cross-reference other
materials, and may refer borrowers to
tax or financial advisors.
Qualified Independent Counseling
Commenters supported the
recommendation in the guidance that
consumers seeking any reverse mortgage
should consult a qualified independent
counselor. Commenters disagreed on the
extent to which the guidance should
encourage in-person counseling (as
opposed to telephonic counseling).
They also disagreed on certain
procedures related to counseling—for
example, how to inform borrowers
about counselors and whether lenders
should contact counselors directly.
A majority of institutions and
industry groups noted the disadvantages
of requiring in-person counseling,
including the shortage of qualified
counselors and the logistical and other
challenges that may make it difficult to
bring the borrower(s) and their advisors
to an in-person counseling session. One
counseling agency also supported
telephonic counseling, and noted that
telephonic counseling may be more
feasible, in particular, when a
multilingual counselor is needed to
provide counseling in the borrower’s
own language. Consumer group and
government commenters, however,
strongly supported in-person
counseling, and advocated that it be
used in all but rare cases. These
commenters stated that in-person
counseling sessions are longer, foster
greater understanding, and give
counselors a better opportunity to assess
the borrower’s needs and understanding
of the transaction.
In order for institutions to best
promote consumer comprehension and
manage compliance risks, the Agencies
intend that the guidance reflect and be
consistent with HUD’s stated preference
for in-person counseling whenever
possible, and have modified the
guidance to clarify that intention.
Industry groups and financial
institutions also requested greater
clarification with respect to how
institutions should refer borrowers to
counselors and ensure that counselors
have appropriate knowledge of
proprietary products. Commenters also
asked whether the Agencies expected
institutions to ensure that counseling
covered all of the topics noted in the
guidance. Several commenters also
referred to the fact that HUD is expected
to release new protocols for HECM
counseling and that these protocols

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would likely cover many of the topics
discussed in the guidance.
The Agencies have modified the
guidance to address some of these
specific concerns. In particular the
guidance now indicates that lenders
may provide borrowers with a list of
reverse mortgage counselors, consistent
with HUD guidelines for HECM
counseling, and may provide borrowers
with a substantial array of materials—
including information about proprietary
products—before the borrower meets
with a reverse mortgage counselor. The
guidance also has been modified to
clarify that institutions are not expected
to supervise or monitor the activities of
qualified independent counselors. The
Agencies expect that counselors’
activities would conform to new HUD
protocols when they are released.
Avoidance of Potential Conflicts
Generally, consumer organizations
and one regulatory agency supported
the guidance’s view that institutions
should take all reasonably necessary
steps to avoid any appearance of a
conflict of interest, though some
consumer organizations urged the
adoption of stricter standards than
proposed. Institution and industry
groups sought additional clarifications
to this portion of the proposed
guidance.
The proposed guidance recommended
that policies prohibit the reverse
mortgage from being conditioned on the
purchase of ‘‘any other financial or other
product’’ from the lender (‘‘anti-tying
provision’’). Consumer organizations
urged stricter standards, including the
adoption of further restrictions
prohibiting yield spread premiums
(YSPs) and limiting sales of other
products by lenders or their affiliates.
Industry commenters noted that this
provision, as stated, was broader than
applicable federal anti-tying rules, and
would prohibit, for example, restricting
the availability of reverse mortgages to
consumers having a deposit relationship
with the institution.
In response to these comments, the
Agencies are clarifying the anti-tying
and conflict avoidance provisions so
that they more clearly address
applicable federal rules, including the
anti-tying rules contained in the Bank
Holding Company Act Amendments of
1970 and the Home Owners’ Loan Act;
the rules relating to insurance sales
adopted by the OCC, FRB, FDIC, and
OTS; and the provisions applicable to
HECMs. The Agencies provide, as an
example, that an institution may risk
violations, depending on the specific
law that applies, if it requires
consumers to obtain annuity products—

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or any other product that is not a
traditional banking product—in order to
obtain a reverse mortgage or varies the
price of the reverse mortgage based on
a condition that the borrower purchase
such other product from the institution
or affiliate. The Agencies believe that
this example will help prevent
violations of rules, as applicable.
The guidance also clarifies the
Agencies’ expectation that institutions’
policies and procedures will be
designed to ensure that brokers with
whom they do business as agents also
will not condition or vary the price of
the loan on the consumer’s obtaining
some additional product or service
(other than a traditional banking
product). The Agencies also have added
a related recommendation that
institutions’ policies and procedures
will be designed to ensure that neither
lenders nor brokers require the borrower
to obtain any insurance, annuity, or
similar product (other than appropriate
title, flood, or hazard insurance as
permitted or required by applicable
law). This recommendation reflects
insurance sales restrictions currently
applicable to HECMs.
The proposed guidance also
contained recommendations to guard
against inappropriate incentives for the
origination of reverse mortgages or the
sale of other products. Several
commenters sought clarification on the
extent to which they could offer or refer
consumers to other products,
particularly where those products are
provided by third parties or are
typically required in connection with
mortgage settlements.
The Agencies believe that the
clarifications described above help to
address these commenters’ concerns.
The final guidance stresses that
institutions must comply with relevant
anti-tying rules, and, further, should
consider other appropriate measures
necessary to guard against improper
incentives or potential conflicts of
interest. The Agencies also removed an
example included in the proposed
guidance to address commenters’
concerns that it exceeded the scope of
the anti-tying rules by implying that the
Agencies wished to ban the offering of
any other products or any referral to
providers of other products in
connection with a reverse mortgage. In
addition, the Agencies emphasized in
the final guidance that policies relating
to cross-selling—offering or referring
consumers to other products—should be
designed to ensure that the activities are
clearly consistent with FTC Act
standards.

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Other Issues
Fees. An industry commenter
requested clarification on what
limitations the Agencies intended by
recommending in the proposed
guidance that institutions adopt relevant
HECM requirements for proprietary
mortgages, including requirements with
respect to ‘‘affordable origination fees.’’
The Agencies note that HECM
origination fees are expressly limited by
statute. In response to this comment, the
Agencies have deleted the specific
reference to affordable origination fees.
The Agencies do not intend to set fee
limits in this guidance. However, 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. Consistent with safe and sound
banking practices in setting interest
rates, fees, and other charges, an
institution should consider, among
other factors, the costs incurred in
originating the loan and the risks
associated with the loan. While HECM
origination fees are expressly limited by
statute, the costs and risks of proprietary
loans may be different from those of
HECMs. For example, the lack of FHA
insurance on proprietary loans will
mean that the institution (and not HUD)
bears the risk that the borrower lives
longer than expected, that the interest
rates are higher than expected, or that
the collateral value does not increase as
rapidly as projected. The Agencies also
note that HECMs may carry substantial
other costs—principally insurance
premiums—that proprietary reverse
mortgages may lack. In addition to
considering safe and sound banking
practices in setting fees, institutions
should comply with any applicable law
or regulation, and follow guidance
governing fees.
Taxes and Insurance. Financial
institutions and industry group
commenters requested clarification
regarding the Agencies’ expressed
concern about ensuring borrowers’
ability to pay taxes and insurance.
These commenters were concerned that
this requirement would require them to
set traditional credit underwriting
standards for reverse mortgages and
deny loans to consumers if these
standards were not met. The Agencies
are not imposing a credit underwriting
standard in this guidance. There are a
number of other ways that institutions
can take appropriate steps to determine
or ensure that a consumer has the ability
to pay taxes and insurance. These

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include escrows, in compliance with
applicable laws,3 and set-aside
arrangements.
Third Party Risk Management. One
consumer organization commenter
urged that loan originators should
ensure that brokers do not advertise
reverse mortgages as ‘‘government
benefits.’’ In this regard, the Agencies
note that lender due diligence and
monitoring activities should include a
review of promotional materials used by
third parties to ensure compliance with
TILA, the FTC Act, and other laws, as
applicable. The guidance has been
modified to clarify this position.
Other. One consumer organization
recommended that the Agencies collect
data on reverse mortgages. Later in
2010, the Agencies will begin collecting
data on reverse mortgages on the Call
Report and Thrift Financial Report.4
Several commenters requested that HUD
change certain requirements relating to
the HECM counseling roster or the
origination or termination of HECMs.
These matters relate to HUD’s operation
of the HECM program and it would not
be appropriate for the Agencies to
address these issues in the guidance.
IV. Paperwork Reduction Act
In accordance with section 3512 of
the Paperwork Reduction Act of 1995,
44 U.S.C. 3501–3521 (PRA), the
Agencies may not conduct or sponsor,
and the respondent is not required to
respond to, an information collection
unless it displays a currently valid
Office of Management and Budget
(OMB) control number. To implement
this information collection contained in
this guidance, the OCC, FDIC, OTS, and
NCUA will seek OMB approval. The
FRB has approved this information
collection under its delegated authority
from OMB.
On December 16, 2009,5 the agencies
sought comment on the burden
estimates for this information collection.
No comments were received regarding
the burden estimates.
Comments continue to be invited on:
(a) Whether the collection of
information is necessary for the proper
performance of the Federal banking
agencies’ functions, including whether
the information has practical utility;
(b) The accuracy of the estimates of
the burden of the information
collection, including the validity of the
methodology and assumptions used;
(c) Ways to enhance the quality,
utility, and clarity of the information to
be collected;
3 See

24 CFR 206.205(e)(1) and 24 CFR 3500.17.
74 FR 68314 (Dec. 23, 2009) and 74 FR
68326 (Dec. 23, 2009).
5 74 FR 66652.
4 See

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(d) Ways to minimize the burden of
the information collection on
respondents, including through the use
of automated collection techniques or
other forms of information technology;
and
(e) Estimates of capital or start up
costs and costs of operation,
maintenance, and purchase of services
to provide information.
Comments on these questions should
be directed to:
OCC: Communications Division,
Office of the Comptroller of the
Currency, Mailstop 2–3, Attention
1557–NEW, 250 E Street, SW.,
Washington, DC 20219. In addition
comments may be sent by fax to (202)
874–5274, or by electronic mail to
[email protected]. You may
personally inspect and photocopy
comments at the OCC, 250 E Street,
SW., Washington, DC. For security
reasons, the OCC requires that visitors
make an appointment to inspect
comments. You may do so by calling
(202) 874–4700. Upon arrival, visitors
will be required to present valid
government-issued photo identification
and to submit to security screening in
order to inspect and photocopy
comments.
FRB: You may submit comments,
identified by Docket No. OP–1362, by
any of the following methods:
• Agency Web Site: http://
www.federalreserve.gov. Follow the
instructions for submitting comments at
http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• E-mail:
[email protected].
Include the docket number in the
subject line of the message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Jennifer J. Johnson, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551.
All public comments are available
from the FRB’s Web site at
www.federalreserve.gov/generalinfo/
foia/ProposedRegs.cfm as submitted,
unless modified for technical reasons.
Accordingly, your comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed in electronic or
paper form in Room MP–500 of the
FRB’s Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m.
on weekdays.
FDIC: Interested parties are invited to
submit written comments. All

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comments should refer to the name of
the collection, ‘‘Reverse Mortgage
Products Guidance.’’ Comments may be
submitted by any of the following
methods:
• http://www.FDIC.gov/regulations/
laws/federal/propose.html.
• E-mail: [email protected].
Include the name and number of the
collection in the subject line of the
message.
• Mail: Leneta G. Gregorie (202)
898.3719, Counsel, Federal Deposit
Insurance Corporation, PA1730–3000,
550 17th Street, NW., Washington, DC
20429.
• Hand Delivery: Comments may be
hand-delivered to the guard station at
the rear of the 550 17th Street Building
(located on F Street), on business days
between 7 a.m. and 5 p.m.
OTS: Send comments, referring to the
collection by title of the proposal or by
OMB approval number, to OMB and
OTS at these addresses: Office of
Information and Regulatory Affairs,
Attention: Desk Officer for OTS, U.S.
Office of Management and Budget,
725—17th Street, NW., Room 10235,
Washington, DC 20503, or by fax to
(202) 395–6974; and Information
Collection Comments, Chief Counsel’s
Office, Office of Thrift Supervision,
1700 G Street, NW., Washington, DC
20552, by fax to (202) 906–6518, or by
e-mail to
[email protected].
OTS will post comments and the related
index on the OTS Internet Site at
www.ots.treas.gov. In addition,
interested persons may inspect
comments at the Public Reading Room,
1700 G Street, NW., by appointment. To
make an appointment, call (202) 906–
5922, send an e-mail to
[email protected], or send a
facsimile transmission to (202) 906–
7755.
NCUA: You may submit comments by
any of the following methods (Please
send comments by one method only):
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• NCUA Web Site: http://
www.ncua.gov/Resources/
RegulationsOpinionsLaws/
ProposedRegulations.aspx. Follow the
instructions for submitting comments.
• E-mail: Address to
[email protected]. Include ‘‘[Your
name] Comments on Reverse Mortgage
Products: Guidance for Managing
Compliance and Reputation Risks,’’ in
the e-mail subject line.
• Fax: (703) 518–6319. Use the
subject line described above for e-mail.
• Mail: Address to Mary F. Rupp,
Secretary of the Board, National Credit

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Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314–
3428.
• Hand Delivery/Courier: Same as
mail address.
Public inspection: All public
comments are available on the agency’s
Web site at http://www.ncua.gov/
Resources/RegulationsOpinionsLaws/
ProposedRegulations.aspx as submitted,
except as may not be possible for
technical reasons. Public comments will
not be edited to remove any identifying
or contact information. Paper copies of
comments may be inspected in NCUA’s
law library, at 1775 Duke Street,
Alexandria, Virginia 22314, by
appointment weekdays between 9 a.m.
and 3 p.m. To make an appointment,
call (703) 518–6546 or send an e-mail to
OGC Mail @ncua.gov.
You should send a copy of your
comments to the OMB Desk Officer for
the agencies, by mail to U.S. Office of
Management and Budget, 725 17th
Street, NW., #10235, Washington, DC
20503, or by fax to (202) 395–6974.
Title of Information Collection:
Reverse Mortgage Products.
OMB Control Numbers: New
collection; to be assigned by OMB.
Abstract: The Agencies previously
determined that certain provisions of
the guidance contain information
collections. However, a number of the
guidance provisions are currently
standard business practice for
proprietary and HECM reverse
mortgages and, therefore, under the
‘‘usual and customary’’ standard, PRA
clearance is not warranted. There are
also requirements currently covered
under approved TILA-related
information collections for proprietary
and HECM reverse mortgages, and an
approved HUD information collection
for HECM reverse mortgages.
Proprietary reverse mortgage
products, however, are not subject to the
consumer protection provisions of the
HECM program, so these guidance
provisions would normally be
submitted for approval under PRA.
However, recent research has shown
that, despite the significant growth in
reverse mortgages since inception of the
HECM program in 1989, currently the
market for proprietary reverse mortgages
has dissipated to the point that,
industry-wide, there are fewer than 10
lenders offering such products.6 This is
likely due to the recent decline in
6 See the FRB’s Divisions of Research & Statistics
and Monetary Affairs Finance and Economics
Discussion Series paper ‘‘Reversing the Trend: The
Recent Expansion of the Reverse Mortgage Market,’’
http://www.federalreserve.gov/pubs/feds/2009/
200942/200942pap.pdf.

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housing values, resulting in decreased
equity in homes.
Given the minimal number of lenders
currently offering proprietary reverse
mortgages, the agencies are not now
seeking OMB approval for the consumer
protection provisions in the guidance
applicable to proprietary reverse
mortgages. The agencies will, however,
seek PRA approval once this sector of
the market recovers.
Lastly, there are provisions in the
guidance that apply to both proprietary
and HECM reverse mortgages that do
not meet the ‘‘usual and customary’’
standard, are not covered by already
approved information collections and,
therefore, require PRA clearance.

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Proprietary Reverse Mortgages
Institutions offering proprietary
reverse mortgages are encouraged under
the guidance to follow or adopt relevant
HECM requirements for mandatory
counseling, disclosures, restrictions on
cross-selling of ancillary products, and
reliable appraisals.
Proprietary and HECM Reverse
Mortgages
Institutions offering either HECMs or
proprietary reverse mortgages are
encouraged to develop clear and
balanced product descriptions and make
them available to consumers shopping
for a mortgage. They should set forth a
description of how disbursements can
be received and include timely
information to supplement the TILA
and other disclosures. Promotional
materials and product descriptions
should include information about the
costs, terms, features, and risks of
reverse mortgage products.
Institutions should adopt policies and
procedures that prohibit directing a
consumer to a particular counseling
agency or contacting a counselor on the
consumer’s behalf. They should adopt
clear written policies and establish
internal controls specifying that neither
the lender nor any broker will require
the borrower to purchase any other
product from the lender in order to
obtain the mortgage. Policies should be
clear so that originators do not have an
inappropriate incentive to sell other
products that appear linked to the
granting of a mortgage. Legal and
compliance reviews should include
oversight of compensation programs so
that lending personnel are not
improperly encouraged to direct
consumers to particular products.
Institutions making, purchasing, or
servicing reverse mortgages through a
third party should conduct due
diligence and establish criteria for third
party relationships and compensation.

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They should set requirements for
agreements and establish systems to
monitor compliance with the agreement
and applicable laws and regulations.
They should also take corrective action
if a third party fails to comply. Third
party relationships should be structured
in a way that does not conflict with
RESPA.
Affected Public:
OCC: National banks, their
subsidiaries, and federal branches or
agencies of foreign banks.
FRB: Bank holding companies, state
member banks, branches and agencies of
foreign banks (other than federal
branches, federal agencies, and insured
state branches of foreign banks),
commercial lending companies owned
or controlled by foreign banks, and
organizations operating under section
25 or 25A of the Federal Reserve Act.
FDIC: Insured state nonmember
banks.
OTS: Savings associations and savings
and loan holding companies.
NCUA: Federally-insured credit
unions.
Type of Review: Regular.
Estimated Burden:
OCC:
Number of respondents: 77.
Burden per respondent: 40 hours to
implement policies and procedures and
to provide training; 8 hours annually to
maintain program.
Total estimated annual burden: 3,696
hours.
FRB:
Number of respondents: 18.
Burden per respondent: 40 hours to
implement policies and procedures and
to provide training; 8 hours annually to
maintain program.
Total estimated annual burden: 864
hours.
FDIC:
Number of respondents: 48.
Burden per respondent: 40 hours to
implement policies and procedures and
to provide training; 8 hours annually to
maintain program.
Total estimated annual burden: 2,304
hours.
OTS:
Number of respondents: 20.
Burden per respondent: 40 hours to
implement policies and procedures and
to provide training; 8 hours annually to
maintain program.
Total estimated annual burden: 960.
NCUA:
Number of respondents: 85.
Burden per respondent: 40 hours to
implement policies and procedures and
to provide training; 8 hours annually to
maintain program.
Total estimated annual burden: 4,080
hours.

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The text of the final guidance follows:
V. Guidance
Reverse Mortgage Products:
Guidance for Managing Compliance
and Reputation Risks
Introduction
The Office of the Comptroller of the
Currency (OCC), Office of Thrift
Supervision (OTS), Board of Governors
of the Federal Reserve System (FRB),
Federal Deposit Insurance Corporation
(FDIC), National Credit Union
Administration (NCUA) (the Agencies)
are issuing this guidance to assist their
regulated financial institutions 1 in
managing risks presented by reverse
mortgage products. Reverse mortgages
are home-secured loans, typically
offered to elderly consumers, which
present consumer protection issues that
raise compliance and reputation risks
for the institutions offering them.
Expected increases in the elderly
population of the United States and
other factors suggest that the use of
reverse mortgages could expand
significantly in coming years as more
homeowners become eligible for reverse
mortgage products. These loan products
enable eligible borrowers to access the
equity in their homes in order to meet
emergency needs, to supplement their
incomes, or to purchase a new home.2
Reverse mortgages can meet these
objectives without subjecting borrowers
to ongoing repayment obligations during
the life of the loan, while enabling
borrowers to remain in their homes. As
a result, the Agencies believe that
reverse mortgages, offered
appropriately, could become an
increasingly important mechanism for
institutions to address credit needs of an
aging population.
Nevertheless, reverse mortgages are
complex loan products that present a
wide range of complicated options to
borrowers. Moreover, the need to
provide adequate information about
reverse mortgages and to ensure
appropriate consumer protections is
1 This guidance applies to all banks and their
subsidiaries, bank holding companies (other than
foreign banks) and their nonbank subsidiaries,
savings associations and their subsidiaries, savings
and loan holding companies and their subsidiaries,
credit unions, U.S. branches and agencies of foreign
banks engaged in reverse mortgage transactions, and
any other entity supervised by those adopting the
guidance. The guidance refers to all of those
covered as ‘‘institutions.’’
2 The Federal Housing Administration (FHA) has
a program that enables eligible borrowers to use the
proceeds of a federally-insured reverse mortgage for
the purchase of a new principal residence. See U.S.
Department of Housing and Urban Development
(HUD) Mortgagee Letter 2008–23 (October 20, 2008)
and HUD Mortgagee Letter 2009–11 (March 27,
2009).

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particularly high. This is because
reverse mortgages are typically secured
by the borrower’s primary asset—his or
her home. Consequently, a reverse
mortgage may provide the only funds
available to a consumer to pay for health
care needs and other living expenses.3
For these and other reasons, reverse
mortgages present substantial risks both
to institutions and to consumers, and, as
with any type of loan that is secured by
a consumer’s home, it is crucial that
consumers understand the terms of the
product and the nature of their
obligations. While this guidance
addresses consumer protection concerns
that raise compliance and reputation
risks, the Agencies recognize that
reverse mortgage products may present
other risks to lenders, too, such as
credit, interest rate, and liquidity risks,4
especially for proprietary reverse
mortgage products lacking the insurance
offered under the federal Home Equity
Conversion Mortgage (HECM) program.5
As explained in further detail below,
the complex nature of reverse mortgages
presents the risk that consumers will
not understand the costs, terms, and
consequences of the products.
Consumers also may be harmed by any
conflicts of interest or abusive or
fraudulent practices related to the sale
of ancillary products or services. In
contrast to HECM reverse mortgages,
proprietary reverse mortgages also
present the risk that lenders will be
unable to meet their obligations to make
payments due to consumers.6
As with other lending products,
institutions should manage the
compliance and reputation risks
associated with reverse mortgages. This
guidance is intended to assist
institutions in their efforts to manage
these risks. This guidance focuses on
ways an institution may provide
3 In 2007, the typical reverse mortgage borrower
was 73 years old, had a home valued at $261,500,
and had financial assets of less than $33,000.
AARP, Reverse Mortgage: Niche Product or
Mainstream Solution, Dec. 2007 (available at
http://assets.aarp.org/rgcenter/consume/
2007_22_revmortgage.pdf).
4 Institutions also should manage these other risks
appropriately. In this regard, institutions are
advised to conform their reverse mortgage lending
activities to any applicable guidance from their
respective supervisory agencies, and to consult with
those agencies with respect to any such safety and
soundness issues.
5 A HECM is a reverse mortgage product insured
by the FHA, part of HUD, and is subject to a range
of consumer protection and other requirements. See
12 U.S.C. 1715z–20; 24 CFR 206. A lender making
a HECM loan may assign it to HUD when the
outstanding balance reaches 98% of the maximum
claim amount. See 24 CFR 206.107(a)(1).
6 Under the FHA insurance program for HECM
loans, HUD will make payments to a consumer if
a HECM lender fails to make a payment due to the
consumer. See 24 CFR 206.117 and 206.121.

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adequate information about reverse
mortgage products and qualified
independent counseling to consumers
and on ways to avoid potential conflicts
of interest. The guidance also addresses
related policies, procedures, internal
controls, and third party risk
management for institutions.
This guidance may be particularly
useful for institutions that offer
proprietary reverse mortgage products
that are not subject to the regulatory
requirements applicable to reverse
mortgages offered under the HECM
program. Depending on how they are
structured, proprietary reverse mortgage
products may contain a higher degree of
risk than HECMs. Therefore, to address
these risks effectively, proprietary
products may warrant careful scrutiny
under the principles, considerations,
and risks discussed in this guidance.
The Agencies expect institutions to
use this guidance to ensure that risk
management practices adequately
address compliance and reputation risks
associated with reverse mortgages.
Failure to address the risks discussed in
this guidance could significantly affect
the overall effectiveness of an
institution’s compliance and risk
management efforts with respect to
reverse mortgages. The Agencies will
review risk management processes in
this area during examinations of
regulated institutions and will request
remedial actions if institutions do not
adequately manage these risks.
Background
The reverse mortgage market
currently consists of two basic types of
reverse mortgage products: proprietary
products offered by an individual
institution and FHA-insured reverse
mortgages offered under the HECM
program. HECM reverse mortgages have
accounted for approximately 90% of all
reverse mortgages.7
Reverse mortgages generally are nonrecourse, home-secured loans that
provide one or more cash advances to
borrowers and require no repayments
until a future time. Both HECMs and
proprietary reverse mortgages generally
must be repaid only when the last
surviving borrower dies, all borrowers
permanently move to a new principal
residence, or the loan is in default. For
example, repayment would be required
when the borrower sells the home or has
not resided in the home for a year. A
borrower may be in default on a reverse
mortgage when the borrower fails to pay
7 AARP, Reverse Mortgage: Niche Product or
Mainstream Solution, Dec. 2007, at 1 (available at
http://assets.aarp.org/rgcenter/consume/
2007_22_revmortgage.pdf).

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property taxes, fails to maintain hazard
insurance, or lets the property fall into
unreasonable disrepair. When a reverse
mortgage becomes due, the home must
be sold or the borrower (or surviving
heirs) must repay the full amount of the
loan (including accrued interest), even if
the balance is greater than the property
value. If the home is sold, the borrower
or estate generally would not be liable
to the lender for any amounts in excess
of the value of the home.8
To obtain a reverse mortgage, the
borrower must occupy the home as a
principal residence and generally be at
least 62 years of age. Reverse mortgages
are typically structured as first lien
mortgages, and generally require that
any prior mortgage be paid off either
before obtaining the reverse mortgage or
with the funds from the reverse
mortgage.9
The funds from a reverse mortgage
may be disbursed in several different
ways:
• A single lump sum 10 that
distributes up to the full amount of the
principal limit 11 in one payment;
• A credit line that permits the
borrower to decide the timing and
amount of the loan advances;
• A monthly cash advance, either for
a fixed number of years selected by the
borrower or for as long as the borrower
lives in the home; or
• Any combination of the above
selected by the borrower.
Generally, the size of the loan will be
larger when the borrower is older, the
home is more valuable, or interest rates
are lower. Interest rates on a reverse
mortgage may be fixed or variable.
Legal Considerations
Both HECMs and proprietary reverse
mortgage products are subject to laws
and regulations governing mortgage
lending. The following are particularly
8 For a further explanation of the non-recourse
features of a HECM, see HUD Mortgagee Letter
2008–38.
9 HECMs must be first lien mortgages. 12 U.S.C.
1715z–20(b)(3). Only certain subordinate liens are
permissible in connection with HECM loans. See
HUD Mortgagee Letter 2009–49.
10 While HECM payment plans do not include a
separate ‘‘lump sum’’ option, HECMs provide an
effective substitute for such an option through a
line of credit that can be fully drawn at
consummation.
11 The principal limit is the maximum payment
that can be made to the borrower. The principal
limit depends on the age of the youngest borrower,
the expected interest rate, and the ‘‘maximum claim
amount.’’ The maximum claim amount is either (1)
the lower of the actual value or FHA loan limit (for
HECMs) or (2) the loan-to-value ratio established by
the lender (for proprietary mortgages). The
maximum claim amount includes the principal
limit (cash available to the borrower), accrued
interest, and any set-asides for repairs or servicing
fees required by the loan terms.

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relevant to the issues addressed in this
guidance:
• Federal Trade Commission Act
(FTC Act). Section 5 of the FTC Act
prohibits unfair or deceptive acts or
practices.12 The OCC, the FRB, the
FDIC, and the OTS enforce this
provision of the FTC Act and any
applicable regulations under authority
granted in the FTC Act and section 8 of
the Federal Deposit Insurance Act. The
NCUA enforces this provision of the
FTC Act and any applicable regulations
under authority granted in the FTC Act
and sections 120 and 206 of the Federal
Credit Union Act.13 Practices may be
found to be deceptive and thereby
unlawful under section 5 of the FTC Act
if: (1) There is a representation,
omission, act, or practice that is likely
to mislead the consumer; (2) the act or
practice would be deceptive from the
perspective of a reasonable consumer;
and (3) the representation, omission,
act, or practice is material.14 A practice
may be found to be unfair and thereby
unlawful under section 5 of the FTC Act
if (1) the practice causes or is likely to
cause substantial consumer injury; (2)
the injury is not outweighed by benefits
to the consumer or to competition; and
(3) the injury caused by the practice is
one that consumers could not
reasonably have avoided.15
• Truth in Lending Act (TILA). TILA
and the FRB’s implementing Regulation
Z contain rules governing disclosures
that institutions must provide for
mortgages in advertisements, with an
application, before loan consummation,
and when interest rates change. Reverse
mortgage borrowers must receive all
disclosures that are required under
12 Supervisory guidance to financial institutions
has been issued concerning unfair or deceptive acts
or practices. See OCC Advisory Letter 2002–3—
Guidance on Unfair or Deceptive Acts or Practices,
March 22, 2002; Joint FRB and FDIC Guidance on
Unfair or Deceptive Acts or Practices by StateChartered Banks, March 11, 2004; and OTS CEO
Mem. # 347, ‘‘Unfair or Deceptive Acts or Practices:
Examination Procedures,’’ May 7, 2010. Federally
insured credit unions are prohibited from using any
advertising or promotional material that is
inaccurate, misleading, or deceptive in any way
concerning its products, services, or financial
condition. 12 CFR 740.2. The OTS also has a
regulation that prohibits savings associations from
using advertisements or other representations that
are inaccurate or misrepresent the services or
contracts offered. 12 CFR 563.27. This regulation
supplements its authority under the FTC Act.
13 12 U.S.C. 1766 and 1786.
14 These principles are derived from the Policy
Statement on Deception, issued by the Federal
Trade Commission on October 14, 1983.
15 15 U.S.C. 45(n). See also the Policy Statement
on Unfairness, issued by the Federal Trade
Commission on December 17, 1980.

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TILA,16 including notice of their right to
rescind the loan, where applicable.17
Reverse mortgages may be structured
as open-end credit or as closed-end
credit within the meaning of Regulation
Z. Disclosures required by TILA relating
to open-end or closed-end mortgages
must be provided, as appropriate.18 For
closed-end, variable rate loans, lenders
must provide the variable rate program
disclosures,19 as well as required
notices of interest rate adjustments.20
In addition, TILA requires that a loan
cost disclosure form be provided to
reverse mortgage borrowers.21 The total
annual loan cost shown on the form
includes the upfront costs (e.g.,
origination fee, third-party closing fee,
and any upfront mortgage insurance
premium), interest, and ongoing charges
(e.g., monthly service fee and any
annual mortgage insurance premium).
• Real Estate Settlement Procedures
Act (RESPA). RESPA and HUD’s
implementing Regulation X contain
rules that, among other things, require
disclosure of early estimated and final
settlement costs and prohibit referral
fees and other charges that are not for
services actually performed. As a
general matter, an institution may
neither pay nor accept any fee or other
thing of value in exchange for the
referral of business related to a reverse
mortgage transaction.
Institutions that offer reverse
mortgage products must ensure that
they do so in a manner that complies
with the foregoing and all other
applicable laws and regulations,
including the following Federal laws:
• Equal Credit Opportunity Act;
• Fair Housing Act; and
• National Flood Insurance Act.
State laws, including laws regarding
unfair or deceptive acts or practices,
also may apply to reverse mortgage
transactions. Currently, more than
twenty states have laws or regulations
governing various aspects of reverse
mortgages. In addition, all state
financial institution regulators have the
authority to supervise the mortgagerelated activities of entities subject to
16 See 12 CFR 226.33(b), 226.5b(d), 226.18, and
226.19
17 12 CFR 226.15 and 226.23. Requirements
related to rescission rights and notices are not
applicable, however, for home purchase
transactions.
18 See 12 CFR 226.33(b), 226.5b(d), 226.18, and
226.19.
19 12 CFR 226.19(b)(1).
20 12 CFR 226.20(c).
21 See 15 U.S.C. 1648; 12 CFR 226.33(b)(2) and
226.33(c)(1) and related commentary in Supplement
I to 12 CFR 226; and 12 CFR 226, Appendix K.

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their respective jurisdictions, including
activities related to reverse mortgages.22
HECM reverse mortgages also are
subject to the consumer protections and
other special provisions set forth in
HUD regulations.23 HECM consumer
protections include information
provided to consumers through
qualified independent counselors.
Before obtaining a HECM reverse
mortgage, the borrower must receive
counseling from a HUD-approved
housing counseling agency.24 The
counseling agency is required to discuss
with the borrower: (1) Alternatives to
HECMs, (2) the financial implications of
entering into a HECM (including tax
consequences), (3) the effect on
eligibility for assistance under Federal
and State programs, and (4) the impact
on the estate and heirs of the
homeowner.25 HUD encourages, but
does not require, that HECM counseling
be conducted in person.26 HECMs also
carry particular disclosure requirements
under HUD rules, including a
requirement that the lender provide
copies of the mortgage, note, and loan
agreement to the borrower at the time
that the borrower’s application is
completed.
Recent statutory changes to the HECM
program established additional
consumer protections.27 For example,
Congress adopted consumer protections
to guard against potential conflicts of
interest, including: (1) Special
requirements for HECM lenders that are
associated with any other ‘‘financial or
insurance activity,’’ (2) a prohibition on
lenders’ conditioning the availability of
the HECM on the purchase of other
financial or insurance products (with
limited exceptions), and (3) a
requirement that the HECM borrower
receive adequate counseling from an
independent third party who is not
compensated by or associated with a
party connected to the transaction.
22 Federal financial institution regulators also
have the authority to supervise entities subject to
their respective jurisdictions.
23 HUD also provides model forms for HECMs.
See Home Equity Conversion Mortgage Handbook
4235.1 (available at http://www.hud.gov/offices/
adm/hudclips/handbooks/hsgh/4235.1/index.cfm).
24 Counselors are required to pass an examination
to be included on a HUD roster before they can
provide counseling on HECMs. See 24 CFR 206.300
et seq.
25 See 12 U.S.C. 1715z–20.
26 Applicable state laws, however, may have other
requirements pertaining to counseling for reverse
mortgages, including requirements that counseling
be conducted in person.
27 Housing and Economic Recovery Act of 2008
(HERA), Public Law 110–289, § 2122(a)(9) (July 30,
2008).

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Compliance and Reputation Risks
While reverse mortgages may provide
a valuable source of funds for some
borrowers, they are complex homesecured loans offered to borrowers who
typically have limited income and few
assets other than the home securing the
loan.28 Thus, lenders must institute
controls to protect consumers and to
minimize the compliance and
reputation risks for the institutions
themselves. These concerns and risks
are especially pronounced with respect
to proprietary products that are not
subject to the core consumer protection
provisions of the HECM program.
The Agencies are concerned that:
(1) Consumers may enter into reverse
mortgage loans without understanding
the costs,29 terms, risks, and other
consequences of these products, or may
be misled by marketing and
advertisements promoting reverse
mortgage products;
(2) Counseling may not be provided to
borrowers or may not be adequate to
remedy any misunderstandings;
(3) Appropriate steps may not be
taken to determine and to assure that
consumers will be able to pay required
taxes and insurance; and
(4) Potential conflicts of interest and
abusive practices may arise in
connection with reverse mortgage
transactions, including with the use of
loan proceeds and the sale of ancillary
investment and insurance products.
Consumer Information and
Understanding—Litigation, consumer
complaints, and testimony before
Congress about reverse mortgage
products have provided both anecdotal
evidence of misrepresentations to
consumers and clear indications that
borrowers do not consistently
understand the terms, features, and risks
of their loans.30
For example, consumers are not
always adequately informed that reverse
mortgages are loans that must be repaid
(and not merely ways to access home
equity). In fact, some marketing material
has prominently stated that the
consumer is not incurring a mortgage,
even though the fine print states
otherwise. Consumer misunderstanding
28 See

note 3, supra.
a HECM borrower finances his or her closing
costs, the closing costs are included in the
outstanding balance of the loan. Costs of a HECM
loan include an origination fee, third-party closing
costs, a monthly servicing fee, and mortgage
insurance premiums determined by an FHA
formula.
30 See Testimony presented at Hearings of the
U.S. Senate Special Committee on Aging conducted
on December 12, 2007, available on the internet at
http://aging.senate.gov/
hearing_detail.cfm?id=296507. See also AARP
report reference in note 7, above.

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about these matters also may be the
result of advertisements declaring that
reverse mortgage borrowers have no risk
of losing their homes or are guaranteed
to retain ownership of their homes for
life. These advertisements do not clearly
indicate the circumstances in which the
reverse mortgage becomes immediately
due and payable or in which borrowers
may lose their homes. For example,
advertisements that are potentially
misleading include ‘‘income for life,’’
‘‘you’ll never owe more than the value
of your home,’’ ‘‘no payments ever,’’ and
‘‘no risk.’’ Consumer misunderstanding
also may be the result of
misrepresentations that reverse
mortgages constitute ‘‘government
benefits’’ or a ‘‘government program,’’
with no explanation that the products
are loans made by private entities and
that the only government program for
reverse mortgages is the federallyinsured HECM program.31
In addition, consumers may not be
provided sufficient information about
alternatives to reverse mortgages that
may be more appropriate for their
circumstances. Such alternative
products include home equity lines of
credit, sale-leaseback financing (under
which the consumer sells the home and
then leases it from the purchaser), and
deferred payment loans. Consumers
may not be aware that the fees for both
HECMs and proprietary reverse
mortgages—particularly up-front costs—
may be higher than those for other types
of mortgages, such as home equity lines
of credit, that can be used to access a
consumer’s home equity.32 Borrowers
also may not receive sufficient
information about other potential
alternatives to reverse mortgages that
may meet their financial needs,
including state property tax relief
programs, other public benefits, and
community service programs.
The complex structure of reverse
mortgages may prevent a borrower from
fully understanding the products. For
example, the ability to access the loan
proceeds in a variety of ways may
provide flexibility for a borrower.
However, some payment options may
31 Regulation Z prohibits misrepresentations
about government endorsements in advertisements
for closed-end credit secured by a dwelling. 12 CFR
226.24.
32 For example, HECMs carry upfront origination
and mortgage insurance fees that may total four
percent of the loan amount (in addition to other
closing costs and ongoing insurance and servicing
fees). In HERA, Congress required the U.S.
Government Accountability Office (GAO) to study
ways of reducing borrower costs and insurance
premiums. See GAO report entitled: ‘‘Reverse
Mortgages: Policy Changes Have Had Mostly
Positive Effects on Lenders and Borrowers, but
These Changes and Market Developments have
Increased HUD’s Risk’’ (GAO–09–836).

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adversely affect a borrower’s ability to
qualify for needs-based public benefits,
such as Supplemental Security Income.
In addition, reverse mortgages are not
typically structured with a requirement
to escrow for taxes and hazard
insurance (or for the lender to pay these
amounts and add them to the loan
balance). If the borrower does not pay
taxes and insurance, the reverse
mortgage itself may become due, which
could result in the borrower losing the
home. Without adequate analysis of the
borrower’s ability to make these
required payments through available
assets or loan proceeds, or the
establishment of a set-aside or an
escrow, in compliance with applicable
laws,33 both the borrower and the lender
can face substantial risks. To ensure
consumer understanding, institutions
offering reverse mortgages should
clearly advise consumers about their
obligation to make direct payments for
taxes and insurance if there is no
provision for an escrow or set aside to
pay these obligations.
Existence and Effectiveness of
Consumer Counseling—Another risk to
the consumer is that consumer
counseling may not be effective.
Further, while counseling is considered
an integral part of the reverse mortgage
process and is mandatory for HECM
transactions, it may not be required for
proprietary products, depending on
applicable state law. Even when
provided, consumer counseling may not
be fully effective in helping borrowers
make informed decisions about reverse
mortgage products. Counseling
conducted over the telephone, in
particular, may not be adequate in all
cases, in part because it may be more
difficult for counselors to assess a
borrower’s understanding of the product
over the telephone. More generally,
counseling may not always provide all
the relevant information or answer all
questions and concerns raised by
homeowners. For example, at least one
study has suggested that a significant
proportion of HECM borrowers who
received counseling did not understand
the costs and other features of their
loans.34
Conflicts of Interest and Abusive
Practices—The potential for
inappropriate sales tactics and other
abusive practices in connection with
reverse mortgages is greater where the
lender or another party involved in the
transaction has conflicts of interest, or
33 See

24 CFR 206.205(e)(1) and 24 CFR 3500.17.
AARP, Reverse Mortgage: Niche Product or
Mainstream Solution, Dec. 2007, at 72, 98 (available
at http://assets.aarp.org/rgcenter/consume/
2007_22_revmortgage.pdf).
34 See

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has an incentive to market other
products and services. For example,
when a consumer obtains funds through
a reverse mortgage, the consumer could
also be offered financial products, such
as annuities, or non-financial products,
such as home repair services. Such
products and services may be
inconsistent with consumers’ needs,
and, on occasion, have been known to
be associated with fraud. The risk is
especially strong where, for example:
(1) The lender or its affiliate engages in
cross-marketing of another financial
product; (2) the other product is sold at
the same time as the reverse mortgage
product; (3) a significant portion of the
proceeds of the reverse mortgage is used
to purchase another product; or (4) in
contrast to the reverse mortgage itself,
the other product would not provide the
consumer with funds to meet emergency
needs or to pay ordinary living
expenses.
Guidance
The consumer protection concerns
discussed above raise compliance and
reputation risks for institutions offering
reverse mortgages. The Agencies have
developed the guidance set forth below
to assist institutions in managing these
risks effectively. Institutions should
manage the compliance and reputation
risks raised by reverse mortgage lending
through implementation of
communication, disclosure, and
counseling practices such as those
discussed below and by taking actions
to avoid potential conflicts of interest.
The Agencies will assess whether
institutions have taken adequate steps to
address the risks discussed in this
guidance.
Lenders offering proprietary products
should be especially diligent regarding
effective compliance risk management
since proprietary reverse mortgages are
not subject to the consumer protection
requirements applicable to HECM
reverse mortgages.35 Institutions
offering proprietary reverse mortgage
products should follow or adopt as
appropriate, relevant HECM
requirements, as amended from time to
time, in the general areas of mandatory
counseling, disclosures, restrictions on
cross-selling of other products, and
reliable appraisals. In addition, the
Agencies expect institutions offering
proprietary reverse mortgages to
reasonably price such products,
including with respect to origination
35 HECM lenders must comply with requirements
of the HECM program. This guidance is intended
to supplement, and not conflict with, existing
guidance and rules for HECM lenders. It is also
intended to provide HECM lenders guidance on
managing compliance and reputation risks.

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fees, consistent with safe and sound
banking practices, and appropriate
consideration of costs, risks, and
returns. Taking these steps would help
to ensure that institutions are
addressing the full range of consumer
protection concerns raised by reverse
mortgages. Moreover, the Agencies
expect institutions to take appropriate
steps to determine or ensure that
consumers will be able to pay required
taxes and insurance.
Communications with Consumers—
Many of the consumer protection
concerns regarding reverse mortgages
relate to the adequacy of information
provided to consumers. Institutions
offering reverse mortgage products
should take steps to manage compliance
and reputation risks by providing
consumers with information designed to
help them make informed decisions
when selecting financial products,
including reverse mortgages and the
options for receiving loan advances
from them.
To promote effective risk
management, institutions should review
advertisements and other marketing
materials to ensure that important
information is disclosed clearly and
prominently. For example, institutions
should review the prominence of
marketing claims and any related
clarifying statements to ensure that
potential borrowers are not misled or
deceived. Institutions also are
responsible for ensuring that marketing
materials do not provide misleading
information about product features, loan
terms, or product risks, or about the
borrower’s obligations with respect to
taxes, insurance, and home
maintenance. The Agencies will
evaluate potentially misleading
marketing materials and take
appropriate action to address any
marketing that violates the FTC Act
prohibition on deception or any other
applicable law.
Institutions also should be attentive to
the timing, content, and clarity of all
information presented to consumers,
from the moment a consumer begins
shopping for a loan to the time a loan
is closed. For example, institutions
should develop clear and balanced
product descriptions and make them
available when a consumer is shopping
for a mortgage—such as when the
consumer makes an inquiry to the
institution about a reverse mortgage and
receives information about reverse
mortgages, or when marketing materials
relating to reverse mortgage are
provided by the institution to the
consumer—not just upon the
submission of an application or at

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consummation.36 Information is
balanced when it fairly presents the
risks and costs as well as the potential
benefits of the product. The provision of
timely and descriptive information
would serve as an important
supplement to the disclosures required
by specific laws and regulations. The
Agencies will review any information
provided to consumers and take
appropriate action to address any
marketing that violates the FTC Act
prohibition on deception or any other
applicable law.
Accordingly, in order to assist
consumers in their product selection
decisions, an institution should use
promotional materials and other
product descriptions that provide
information about the costs, terms,
features, and risks of reverse mortgage
products. This information would
normally include but need not be
limited to:
• Borrower and property eligibility;
• When marketing proprietary
products, the fact that these reverse
mortgages are not government insured
and the resulting risks to consumers;
• Determination of principal limits,
or maximum loan limits, based on home
value, borrower age, expected interest
rates, and program limitations;
• Lump sum and other disbursement
options and their possible implications
for the borrower’s ability to obtain
public benefits;
• The circumstances under which the
loan must be repaid;
• The actions the borrower must take
to prevent the loan from becoming in
default and therefore due and payable,
including the need to continue to pay
taxes and insurance on the property and
to maintain the property as required;
• Fees and charges associated with
reverse mortgages;
• The requirement to make direct
payments for real estate taxes and
insurance if there is no provision for an
escrow or a set-aside to pay these
obligations;
• Alternatives to reverse mortgage
products that are offered by the
institution and may address the
homeowner’s needs; and
• The importance of reverse mortgage
counseling and information about how
to find a qualified independent
counselor so that the borrower is
36 When developing consumer information,
institutions should: (1) Focus on information that
is important to consumer decision making; (2)
highlight key information so it will be noticed; (3)
employ a user-friendly and readily navigable format
for presenting the information; and (4) use plain
language, with concrete and realistic examples. A
consumer may benefit from comparative tables
describing key features of reverse mortgages
(including the different draw options).

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Federal Register / Vol. 75, No. 158 / Tuesday, August 17, 2010 / Notices
informed about possible alternatives to
a reverse mortgage, the potential
consequences of entering into a reverse
mortgage, and the potential effect on
eligibility for needs-based public
benefits.
The Agencies recognize that
institutions may not be able to
incorporate all of the practices
recommended in this guidance when
advertising reverse mortgages through
certain forms of media, such as radio,
television, or billboards. Nevertheless,
institutions should seek to provide clear
and balanced information about the
risks and costs as well as the benefits of
these products in all forms of
advertising. An advertisement that says
‘‘We offer reverse mortgages to
borrowers who are 62 or older. Call us
for more information’’ is clear and
balanced because it does not make any
representations about the benefits or
risks of the product, and is not
deceptive or misleading.
Qualified Independent Counseling—
To further promote consumer
understanding and manage compliance
risks, reverse mortgage lenders offering
proprietary products should require that
the consumer obtain counseling from
qualified independent counselors before
an institution processes an application
for a reverse mortgage loan or charges an
application fee. Before counseling,
institutions may provide information to
consumers that both consumers and
counselors may find useful in
evaluating proprietary and HECM
reverse mortgages. For example, the
institution may explain the difference
between proprietary and HECM
products; discuss whether the borrower
is eligible; provide information on fees;
and provide a copy of a sample
mortgage, note, and loan agreement. In
addition, if an institution does not
charge a fee to the consumer, it may use
an automated valuation model to
perform a preliminary assessment of the
value of the consumer’s property.
To ensure the independence of
counselors, institutions should adopt
policies that prohibit steering a
consumer to any one particular
counseling agency and that prohibit
contacting a counselor on the
consumer’s behalf. For example,
institutions could provide a list of
counseling agencies that provide reverse
mortgage counseling.37 Similarly, an
institution’s policies should prohibit the
institution from contacting a counselor
to discuss a particular consumer, a
particular transaction, or the timing or
37 HECM lenders must provide a list of 10
counselors for reverse mortgages. HUD Mortgagee
Letter 2009–10.

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content of a counseling session unless
the consumer is involved. Institutions
should also strongly encourage
borrowers to obtain counseling in
person, whenever possible, and to
attend counseling sessions with family
members. Family members or other
trusted individuals may be able to help
explain the transaction and its
consequences to the consumer.
Institutions should be aware that the
purpose of the counseling session is to
provide adequate time to discuss these
matters in detail and to address
questions and concerns raised by
homeowners, and to inform the
consumer about the following and other
relevant matters:
• The availability of other housing,
social service, health, and financial
options;
• Financing options other than
reverse mortgages, including other
mortgage products, sale-leaseback
financing, and deferred payment loans;
• The differences between HECM
loans and proprietary reverse
mortgages; 38
• The financial implications and tax
consequences of entering into a reverse
mortgage;
• The impact of a reverse mortgage on
eligibility for federal and state needsbased assistance programs, including
Supplemental Security Income; and
• The impact of the reverse mortgage
on the estate and heirs.
The Agencies note that the provision
of such information would be consistent
with HUD guidance regarding consumer
counseling in connection with HECM
loans.
Avoidance of Potential Conflicts—To
manage the compliance and reputation
risks associated with reverse mortgages,
institutions should take all reasonably
necessary steps to avoid any appearance
of a conflict of interest and violation of
applicable laws and rules. For example,
an institution should:
• Adopt clear written policies and
internal controls designed to ensure that
the institution does not violate any
applicable anti-tying restrictions.39 For
38 Because

counselors may not be knowledgeable
on all proprietary products, an institution may
provide relevant information about its proprietary
products to a consumer before the counseling
session in order to facilitate the counseling session.
39 The anti-tying provisions of Section 106(b) of
the Bank Holding Company Act of 1970 for banks
and their subsidiaries, as applicable, and
comparable anti-tying provisions for savings
associations, savings and loan holding companies,
and their affiliates prohibit these institutions from,
among other things, requiring a customer to
purchase certain nonbanking products or services,
including insurance and annuity products, from the
institution or an affiliate as a condition to obtaining
or varying the price of credit. Exceptions from these
anti-tying prohibitions are permitted if the required

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example, an institution risks violations
if it: (1) Requires the borrower to
purchase any annuity, insurance or any
product other than a traditional banking
product in order to obtain the reverse
mortgage from the institution or an
affiliate, or (2) varies the price of the
reverse mortgage based on a condition
that the borrower purchase such other
product. Further, the Agencies expect
that institutions will not do either of
these things indirectly through brokers
acting as agents;
• Adopt clear written policies and
internal controls designed to ensure that
the institution complies with
restrictions designed to avoid conflicts
of interest.40 For example, an institution
risks violations if it requires the
borrower to purchase any annuity,
insurance (other than appropriate title,
flood or hazard insurance), or similar
financial product from the institution or
third party in order to obtain the reverse
mortgage from the institution or broker;
• Adopt clear policies designed to
ensure that loan originators and brokers
acting on behalf of an institution do not
have an inappropriate incentive to sell
other products that may appear to be
linked to the granting of a reverse
mortgage or to engage in inappropriate
cross-marketing of other products. Such
policies should ensure that any such
cross-selling is clearly consistent with
the FTC Act standards; and
• Adopt clear compensation policies
to guard against other inappropriate
incentives for loan officers and third
parties, such as mortgage brokers and
correspondents, to make a loan.
In addition, conflicts are less likely to
be a concern if the borrower has
received information and access to
independent counseling as described
above.
Policies, Procedures, and Internal
Controls—Institutions should have
policies and procedures to address the
concerns expressed in this guidance,
including those involving conflicts of
interest and the provision of consumer
information. In addition, institutions
products are loans, discounts, deposits, or trust
services (i.e., traditional banking products). See 12
U.S.C. 1464(q), 1467a(n), and 1972. 12 CFR 225.7.
In addition, banks and savings associations that
offer insurance and annuities are specifically
prohibited from engaging in practices that would
cause a consumer to believe that an extension of
credit is conditioned on the purchase of insurance
or an annuity from the creditor. See 12 U.S.C. 1831x
and Consumer Protection in Sales of Insurance
Rules, 12 CFR 14.30, 208.83, 343.30, and 536.30.
The Agencies examine institutions for compliance
with these legal requirements and will take
appropriate action to address any violations. Tying
arrangements also remain subject to the general
antitrust laws.
40 See 12 U.S.C. 1715z–20(n)–(o) for anti-tying
provisions related to HECMs.

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should have effective internal controls
to monitor whether actual practices are
consistent with their policies and
operating procedures relating to reverse
mortgages. To achieve these objectives,
training should be designed so that
relevant lending personnel are able to
convey information to consumers about
product terms and risks in a timely,
accurate, and balanced manner.
Furthermore, institutions’ independent
monitoring should assess how well
lending personnel are following internal
policies and procedures and evaluate
the nature and extent of policy
exceptions. Findings should be reported
to relevant management. In addition,
institutions’ legal and compliance
reviews should include oversight of
compensation programs to ensure that
lending personnel are not improperly
encouraged to direct consumers to
particular products. Finally, institutions
should also review consumer
complaints to identify potential
compliance and reputation risks.
Third Party Risk Management—When
making, purchasing, or servicing reverse
mortgages through a third party, such as
a mortgage broker or correspondent,
institutions should take steps to manage
the compliance and reputation risks
presented by such relationships. These

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steps would include: (1) Conducting
due diligence and establishing criteria
for entering into and maintaining
relationships with such third parties; (2)
establishing criteria for third-party
compensation that are designed to avoid
providing incentives for originations
inconsistent with the institution’s
policies and procedures; (3) setting
requirements for agreements with such
third parties; (4) establishing internal
procedures and systems to monitor
ongoing compliance with applicable
agreements, institution policies, and
laws and regulations; and (5)
implementing appropriate corrective
actions in the event that the third party
fails to comply with such agreements,
policies, or laws and regulations. Due
diligence and monitoring activities
should include a review of promotional
materials used by third parties to ensure
compliance with the TILA, the FTC Act,
and other laws, as applicable.
In addition, institutions should
structure third party relationships so as
not to contravene RESPA’s general
prohibition against paying or receiving
any fee or other thing of value in
exchange for the referral of business
related to a reverse mortgage
transaction. Fees must be paid only for
the permissible services provided by the

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third party, consistent with the
provisions of Section 8 of RESPA.
Moreover, institutions should not accept
fees from any third party without
providing appropriate services to
warrant any such fee.
Dated: July 26, 2010.
John C. Dugan,
Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System, August 3, 2010.
Jennifer J. Johnson,
Secretary of the Board.
By order of the Federal Deposit Insurance
Corporation.
Dated: July 21, 2010.
Valerie J. Best,
Assistant Executive Secretary.
Dated: August 11, 2010.
By the Office of Thrift Supervision.
John E. Bowman,
Acting Director.
Dated: July 27, 2010.
By the National Credit Union
Administration.
Debbie Matz,
Chairman.
[FR Doc. 2010–20286 Filed 8–16–10; 8:45 am]
BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P;
6720–01–P; 753501–P

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