Reverse Mortgage Loan Blog

U.S. regulators, prompted by the potential for rapid growth in reverse mortgages as the population ages, have issued proposed guidance for institutions to follow when doing business with elderly customers.

Reverse mortgages, which are targeted at homeowners who are at least 62 years old, allow homeowners to tap the equity in their home and receive cash from the lender. The loan does not have to be repaid as long as the borrower lives in the home.

Because the elderly use the proceeds for the cash flow they need to pay for health care and other living expenses, regulators say there is the potential for abuse in this vulnerable group.

“Reverse mortgages can be highly complex loan products, and it is particularly important to provide adequate information and other consumer protections,” the Federal Financial Institutions Examinations Council wrote in its proposal.

With traditional mortgage loans, payments are made to a mortgage banking firm each month to pay down principle and interest on loans.

With a reverse mortgage, available to homeowners who are least 62 years old, the cash comes into the homeowner’s hands and payments are determined by the amount of the home equity.

“For these reasons, it is critical that institutions manage the compliance and reputation risks associated with reverse mortgages,” the council said.

The proposed guidance focuses on the need to provide adequate information to consumers about reverse mortgage products, to provide qualified independent counseling to consumers, and to avoid potential conflicts of interest.

The six members of the Financial Institutions Examinations Council are the Office of the Comptroller of the Currency, Federal Reserve Board of Governors, Federal Deposit Insurance Corp., Office of Thrift Supervision, National Credit Union Administration, and State Liaison Committee of the FFIEC.

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