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Regulators Offer “Reputation Risk” Advice To Reverse Mortgage Lenders

A gaggle of federal regulators are advising reverse mortgage lenders to avoid “reputation risk” by focusing “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.”

Big deal. After all, reverse mortgage borrowers are already required to get independent counseling. The sale of products that raise conflicts of interest — insurance annuity policies — were banned under the FHA Reform Act of 2008. That would be two years ago.

Moreover, reputational risk is a relative matter. Just how great are the reputations of the federal financial regulators who allowed national banks and their mortgage subsidiaries to offer toxic loans to millions of borrowers, a major cause of today’s financial meltdown?

No Suitability

Now you might think that a document entitled “Reverse Mortgage Products: Guidance for Managing Compliance and Reputation Risks” would have a few goodies in there for borrowers.

How silly. Allow me to quote page 7:

“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.”

it’s just a guess, but don’t you think that a lender’s reputation — to say nothing of a regulator’s obligations — would be enhanced by some sense of duty to the basic needs of a borrower?

Why would anyone knowingly do business with a lender who was NOT going to “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.”

“We urgently need stronger protections for reverse mortgage borrowers, especially a suitability standard that obligates those who arrange and profit from reverse mortgage deals to seek to avoid harming the financial interests of elderly clients,– says attorney Sara Twomey, author of Subprime Revisited: How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk.

Standards & Benchmarks

The standards proposed by consumer groups should be welcomed by reverse mortgage lenders and their alleged regulators. Such benchmarks would rid the industry of the sharks who prey on the unwary — and that would be better for borrowers, better for the lenders who act honorably and better for reverse mortgage programs.

There shouldn’t be a need for reputational “guidance” which merely re-asserts the failed and discredited idea that lenders have no obligation to borrowers — other than to sell, sell, sell.

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Posted in: Mortgages

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