More Regulation Sought For Reverse Mortgages

You can’t help noticing that reverse mortgages are growing like financial weeds while much of the mortgage marketplace is withering.

Speaking in Chicago last month, Kieran P. Quinn, chairman of the Mortgage Bankers Association, said the following:

“We want laws and regulation that give no quarter to fraud and irresponsible practices, and that will also set the table for safe growth of what will soon be one of our industry’s biggest products-the reverse mortgage.

“You don’t need psychic powers to see this one coming. In the fable of the Grasshopper and the Ant, baby boomers are the grasshoppers. Many will find their ‘live for today’ philosophy has left them with few fiscal resources for a tomorrow that will be longer than they planned for. Reverse mortgages represent a sane and reasonable way for seniors to take advantage of the equity in their homes. But they also represent an enormous opportunity for those who would take advantage of a fairly arcane product marketed to a more vulnerable population.

“We have to get this one right. We need the proper regulations and legislation in place to prevent abuse and at the same time allow homeowners to make sound decisions in their best interest. Decisions that can keep them in their homes. After all, at this stage in their lives, there’s no chance to rebuild a nest egg-we’re not talking about 30 year olds who may have made a costly mistake in judgment.

“The Mortgage Bankers Association’s residential board of governors is working on guidelines for industry best practices moving forward. You can be sure that these reverse mortgages will be dealt with specifically. We also want to make sure that our recommended best practices align with regulations, so that the industry is working hand in hand with regulators in a way that makes good business sense for everyone.

“I dare say that everyone in this room is in favor of free markets. But I think we also realize that the invisible hand guiding them can sometimes slap us in the face. Because even an invisible hand needs the right information, and that takes the kind of transparency, which translates into trust.

“For the foreseeable future, we will speak of trust, and mean trust but verify — and that is how it should be. For as good as we became at spreading risk, we should be equally adept at spreading responsibility.”

Here, here. Let’s start by requiring lenders to have a fiduciary obligation to treat borrowers as “clients” and not “customers.” This would mean that lenders would be obligated to merely get the best-possible rates and terms for borrowers and that borrowers would be able to rely on lenders in the same way that the client of a lawyer or real estate broker can rely on those professionals.

This entry was posted on Monday, June 2nd, 2008 at 12:28 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.