Reverse mortgages have evolved and are now well-regarded financial instruments. Still, many consumers may not be aware of the stringent regulatory structures that govern these loans and protect both the interests of borrowers and lenders. Different agencies oversee different aspects of home equity conversion mortgages (HECMs). Here is an overview to help clear up who regulates reverse mortgages.
The U.S. Department of Housing and Urban Development.
Since the passage of Section 255 of the National Housing Act in 1988, all HECMs have been under the jurisdiction of the U.S. Department of Housing and Urban Development (HUD). In 2013, the Reverse Mortgage Stabilization ACT gave HUD the power to set requirements and restrictions necessary to keep HECMs stable and minimize borrower risk.
How HUD Protects Borrowers
HUD determines home equity conversion mortgage (HECM) borrower eligibility requirements, lender guidelines, and other policies that make these loans safe and reliable. Specifically, HUD determines and approves which lenders are eligible to participate in the HECM program and monitors their compliance with the rules.
In addition to consumer protections, HUD establishes requirements for loan servicers and the process for handling borrower complaints and loan defaults. HUD oversees lenders’ compliance with consumer protections, like the right of rescission within the appropriate time frame and ensuring adequate loan cost disclosures are given to borrowers.
HUD does not regulate proprietary reverse mortgages, but these products are also subject to regulation by state banking departments and lending laws. The Consumer Financial Protection Bureau (CFPB) manages borrower complaints regarding proprietary mortgages, and all these loans are still subject to federal and state regulations that cover anti-discrimination and consumer protection.
The Federal Housing Administration
A part of HUD, the Federal Housing Administration (FHA) provides mortgage insurance on all FHA-issued loans, including HECMs. To provide this insurance, the FHA sets standards for borrowers and lenders.
Organizations That Protect Reverse Mortgage Borrowers
Though not regulatory bodies, the CFPB and the Federal Trade Commission (FTC) also play important roles in reverse mortgage consumer protection.
The Consumer Financial Protection Bureau (CFPB)
Created in 2011, under the provisions of the Frank-Dodd Act, the Consumer Financial Protection Bureau (CFPB) was established “to stand up for consumers and make sure they are treated fairly in the financial marketplace.” This regulatory agency provides oversight to ensure lenders follow the Truth in Lending Act. They will act against lenders who deceptively misrepresent home values, engage in false advertising, or make inaccurate representations.
The CFPB accepts consumer complaints about financial products and services and works to help resolve them. They also provide consumer education tools and resources to help consumers educate themselves. CFPB representatives will also assist borrowers in speaking with the lender should an issue arise.
In the past, the CFPB has taken action against lenders who charged excessive interest or misrepresented the costs and benefits of reverse mortgages.
The Federal Trade Commission (FTC)
The Federal Trade Commission (FTC) is a federal law enforcement agency devoted to consumer protection laws and regulations. The FTC acts against lenders who engage in deceptive advertising and practices related to reverse mortgages. The FTC also creates materials to educate borrowers about the risks and benefits of reverse mortgages.
Collaboration With the CFPB
The FTC will collaborate with CFPB to bring enforcement actions against lenders who engage in deceptive practices. In cases of illegally foreclosed properties, the FTC can make certain the lender is held accountable. This agency can also enforce a borrower’s claims against a lender engaging in deceptive practices. The FTC will also work with state agencies to help protect borrowers.
National Reverse Mortgage Lenders Association (NRMLA)
The National Reverse Mortgage Lenders Association (NRMLA) is a trade association established in 1997 to establish a code of ethics for reverse mortgage lenders. NRMLA aims to educate its members about the fair treatment of consumers. In addition, the association trains its members about current regulations and best reverse mortgage practices.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.