Aug. 31, 2012 – The Consumer Financial Protection Bureau’s efforts to regulate reverse mortgages would be best served by targeting unscrupulous lenders rather than adding more compliance burdens to responsible lenders, NAFCU Regulatory Affairs Counsel Dillon Shea told the bureau Thursday.
Shea was writing in response to the CFPB’s request for information about reverse mortgages as it considers the need for future rulemaking in this area. He pointed out that credit unions “are not very active” in the reverse mortgage market, while only 70,000 reverse mortgages are originated every year by a relatively small number of lenders.
“Given the small size of the market, the limited number of reverse mortgage loan originators, and the other regulatory compliance burdens facing lenders, massive changes to the reverse mortgage market at this point in time may only serve to chase responsible lenders from the market,” Shea wrote. With that in mind, specifically targeting bad actors “will likely provide the greatest benefits to consumers while ensuring that responsible lenders do not exit the market.”
Noting that lenders are already facing an array of new regulations to comply with that affect mortgages and more, Shea said the implementation of any new reforms relating to reverse mortgages should come only after the other regulations have been finalized. By taking this approach, “lenders can focus their resources on complying with those changes to the law,” he said.
Shea also offered responses to specific questions the CFPB asked as part of its request for information. Among his answers:
- most credit union members who use a reverse mortgage use the funds to supplement their monthly income;
- it would be “uncommon” for a credit union to originate a reverse mortgage to a senior without first counseling that member about the decision;
- credit union members who use reverse mortgages tend to prefer the certainty that comes with having a fixed rate loan, but other types of products offer different costs and benefits that a borrower may prefer; and
- credit union members tend to gravitate towards the monthly disbursement option for reverse mortgage payments, but the lump sum option is also useful;
The CFPB says the Dodd-Frank Act authorizes it to implement rules on reverse mortgage transactions. In June, the CFPB issued a 231-page report to Congress on reverse mortgages that identified four major areas where additional research is needed. These include:
- factors that influence reverse mortgage consumers’ decision-making;
- consumers’ use of reverse mortgage loan proceeds;
- longer-term consumer outcomes of a decision to obtain a reverse mortgage; and
- differences in market dynamics and business practices among broker, correspondent and retail channels.
The CFPB also published a four-page consumer guide to reverse mortgages and added a new set of answers to common questions about the products on Ask CFPB. Consumers can also submit complaints about the products via the bureau’s website.