Reverse Mortgage Guide

The federal government has just come out with a new “guidance” for national lenders and their mortgage subsidiaries.

This may sound like a snooze-fest, but when federal regulators speak the lenders they regulate — most of the big banks, thrifts and credit unions — are supposed to listen. And these rules are important to you because they may reduce your borrowing costs or limit unfair practices.

While the new guidelines raise a number of important issues, they have nothing to say about reverse mortgages – guidelines which are supposed to reign in the worst practices of a mortgage marketplace.

The so-called Statement on Subprime Mortgage Lending covers a lot more than subprime loans. It’s really aimed at the toxic mortgages which have been popularized in the past few years — and which are a leading cause of foreclosures.

Why say anything about reverse mortgages?

Very simple: One of the alleged consumer protections under federal law is supposed to be the Home Ownership and Equity Protection Act, a law designed to impact “high rate, high fee” loans. Despite HOEPA’s title, it provides almost no benefits to borrowers and provisions that could be employed by regulators are ignored. Even more remarkable, HOEPA does not apply to reverse mortgages.

As the Federal Trade Commission explains, the HOEPA “rules do not cover loans to buy or build your home, reverse mortgages or home equity lines of credit (similar to revolving credit accounts).”

Reverse mortgages are well within the common-sense definition of “high rate, high fee” financing and for that reason alone they should be subject to careful scrutiny and review by regulators. A few paragraphs in the most recent “guidance” might well have been useful for both borrowers and lenders.