NAFCU weighed in the Consumer Financial Protection Bureau's request to gather comment regarding reverse mortgages.
The trade association, in a letter to CFPB released late Thursday, encouraged the bureau to focus on problem lenders without promulgating sweeping new regulations, and wait until it has finished promulgating all of the new housing regulations required by the Dodd-Frank Act if it is intent on moving forward with regulatory changes to the loan product.
Dillon Shea, NAFCU's regulatory affairs counsel, began the Aug. 30 letter to CFPB's Monica Jackson by stating that credit unions are not very active in the reverse mortgage market, and given the small size of the market, sweeping changes to the market at this time may only serve to chase responsible lenders out.
“While NAFCU understands that there are some unscrupulous lenders originating reverse mortgages, the market is so small that the Bureau's enforcement authority should be wielded to target those specific bad actors. Focusing on problem lenders without promulgating sweeping new regulations will likely provide the greatest benefits to consumers while ensuring that responsible lenders do not exit the market,” Shea wrote.
The lending industry is already facing a host of new regulations encompassing not only mortgages, but also significant changes to other products and practices. Many of those regulations have not been finalized and lenders will likely have a relatively short amount of time between when rules are finalized and when compliance will be required.
The CFPB should wait until after those rules have been promulgated so that lenders can focus their resources on complying with those changes to the law, NAFCU urged. In response to specific questions posed by the CFPB, NAFCU said originated reverse mortgages to seniors without counseling would be uncommon.
If a member planned to use the funds for speculative purposes, such as investing the funds somewhere else rather than using them to supplement income, credit unions would likely counsel against it, the trade group said.
Secondly, reasons for seeking a reverse mortgage vary due to unique reasons, and consequently, product choice varies as well. “It is our experience that borrowers prefer the certainty that comes with a fixed rate loan; however, the different costs and benefits of a fixed rate, as opposed to an adjustable rate, may ultimately lead a borrower in a different direction,” Shea told the CFPB.
“Credit union members also tend to gravitate towards the monthly disbursement option. The lump sum option, however, is also useful because it can be used to pay off a particular expense, such as medical bills,” he said.
Finally, Shea said as a result of the tendency for credit unions to counsel members with financial education, in virtually all cases, members are made aware of other options.
“The fact that the borrower does not need to pay back the loan until he or she dies, sells, or moves out of the home provides a sense of security. The fact that the borrower, or the estate, will not be required to pay back any balance in excess of the home value also provides some sense of security, though this is an issue where lenders need to ensure borrowers fully understand the costs for which they may be liable,” he concluded.
The CFPB deadline for submitting comment regarding reverse mortgages was Friday.
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