Earlier this week, a speech at the American Bankers Association’s Regulatory Compliance Conference in Orlando, Florida by John Dugan, Comptroller of the Currency, presented the good and bad points of reverse mortgages.

In the said speech, “Consumer Protections for Reverse Mortgages”, the need to be aware of the facts about reverse mortgages, risk for consumers and protection provided were discussed. Some good points raised were how the record levels of foreclosures and losses on subprime loans resulted from a combination of risk factors which is similar to reverse mortgages: These include the following:

• a vulnerable group of customer;
• complex nature and cost associated which sometimes may look deceptive specifically the nontraditional and asset based underwriting rather than the borrower’s ability to repay;
• skewed incentives for key distributors of the product; and
• finally, a distribution chain that was heavily populated with nonbanking companies that were not subject to comprehensive supervision. From these, he stressed that everyone needs to learn the right lessons from the very negative experience because it clearly demonstrates the link between compliance and safety and soundness.

According to Dugan, reverse mortgage is another product that has not yet been accepted in the market, has the possibility for rapid growth and poses significant compliance risks which he believe will experience a surge in demand in the coming year as the US population ages.

While reverse mortgages can provide real benefits, they also have the risks as subprime mortgages and this should set the alarm bells.

Basic Types of Reverse Mortgages

There are two basic types of reverse mortgage products particularly proprietary products offered under lender-specific criteria and the more dominant type which covers about 90 percent of all reverse mortgages, products insured by the Federal Housing Administration called “home equity conversion mortgages.

In his conclusion, Dugan said “we need to be on constant alert to emerging risks and vigilant in our regulatory compliance responsibilities.”

The link to the speech

http://www.scribd.com/doc/16252693/Consumer-Protections-for-Reverse-Mortgages

The Full Text of the Speech “Consumer Protections for Reverse Mortgages”