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Rules and Regulations

Friday, January 1, 2010

Guidance Issued for Managing Reverse Mortgage Compliance and Reputation Risks

Seeking to address the compliance and reputation risks associated with reverse mortgages, the Fed and other financial regulators adopted guidance effective Oct. 18 to better deal with these instruments in anticipation of a larger senior population.

While reverse mortgages allow senior citizens to access the equity in their homes, the loans are highly complex.  Therefore, lenders should take care to manage reverse mortgage compliance and reputation risks, as well as disclose adequate information and provide other appropriate protections to consumers as discussed in the guidance. 

Senior management of state member banks should ensure that risk management practices related to reverse mortgages incorporate this guidance.  Compliance examinations of state member banks who offer reverse mortgage products will include a review of these products for compliance with the guidance.  The guidance, called Reverse Mortgage Products:  Guidance for Managing Compliance and Reputation Risk, has been incorporated by the Fed as Consumer Affairs letter 10-11. 

Enhanced Consumer Protections and Disclosures Proposed for Home Mortgage Transactions

Bankers can comment by Dec. 23 on the Fed’s proposed amendments to Regulation Z, as part of a comprehensive review of the Regulation’s rules for home-secured credit.  This proposal would revise the rules for the consumer’s right to rescind certain open-end and closed-end loans secured by the consumer's principal dwelling.  In addition, the proposal contains revisions to the rules for determining when a modification of an existing closed-end mortgage loan secured by real property or a dwelling is a new transaction requiring new disclosures.  

The proposal would amend the rules for determining whether a closed-end loan secured by the consumer’s principal dwelling is a “higher-priced” mortgage loan subject to special protections.  The proposal would provide consumers with a right to a refund of fees imposed during the three business days following the consumer’s receipt of early disclosures for closed-end loans secured by real property or a dwelling.  Finally, the proposal also would amend the disclosure rules for open- and closed-end reverse mortgages.  

Fed Issues Interim Rule Revising Disclosure Requirements for Closed-End Mortgages

The Federal Reserve Board released an interim rule under Regulation Z that revises the disclosure requirements for closed-end mortgage loans.  Under the interim rule that was required by the Mortgage Disclosure Improvement Act, cost disclosures must include a payment summary in a tabular format that indicates how a borrower's payment can change over time.  Disclosures also must state any features of the loan that will cause the loan amount to increase.  Compliance with the interim rule is required on Jan. 30, 2011.

New Escrow Requirement Proposed for Jumbo Mortgage Loans

The Federal Reserve Board is proposing to revise the escrow account requirements for higher-priced, first-lien jumbo mortgage loans.  The proposed rule, which implements a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, would increase the annual percentage rate (APR) threshold used to determine whether a mortgage lender is required to establish an escrow account for property taxes and insurance for first-lien jumbo mortgage loans.  Jumbo loans are loans exceeding the conforming loan-size limit for purchase by Freddie Mac, as specified by the legislation.  The escrow requirement will apply for jumbo loans only if the loan’s APR is 2.5 percentage points or more above the applicable prime offer rate.