US Regulator Worries Proprietary Reverse Mortgages Could Be Next Subprime Product; Encourages More Regulation
John Dugan
In a story that made headlines yesterday, top US bank regulator John Dugan announced that he is concerned that reverse mortgages could be the next subprime mortgage product to experience rapid growth. Like subprime mortgages, reverse mortgages are complicated loans that appeal to a vulnerable segment of the population. However, Dugan’s concerns are not centered on the 90% of loans secured by Fannie Mae. Rather, he is concerned about proprietary products, sensing an opening for those who wish to prey on seniors.
The Regulator’s remarks were partly to encourage other regulators to set standards for proprietary reverse mortgages. He also encouraged the regulators to be vigilant in cracking down on misleading marketing materials and lenders engaging in cross-selling. Dugan added that the Office of the Comptroller and Currency, where he is the top regulator, is prepared to step in should additional measures be needed.
As a result, Dugan’s comments should not be viewed in such a negative light. His point was that by acting early, regulators can hopefully prevent the next subprime crisis. His comments are in line with much of the state legislation that we have seen in recent months. Therefore, rather than scare people away from reverse mortgages, the Regulator’s fears should help skew prospective borrowers towards the FHA products, and otherwise help ensure that the proprietary market is regulated so that all reverse mortgage borrowers are protected.
June 9th, 2009 at 4:29 pm
The OCC and Comptroller Dugan are proposing good ideas. Cross-selling restrictions are already law in part as a result of the Sen. Claire McCaskill hearings from last year, and as a resource for senior citizens we support good counseling and considerations around escrow.
But it’s also important that regulators don’t scare people off of a product that can be everything from a lifeline for some to just a savvy financial move for others. Reverse mortgages can save a senior’s home when no other recourse is available to them. The comparison to sub prime loans was unfortunate, yet we support any responsible guidelines that provide seniors and consumers with even more protections.