September 2010

Reverse Loans are Highly Regulated

With all of the issues that have involved the poor regulation of mortgage that have been partially responsible for the lending crisis, none of those evolved from the Reverse Loan Industry.   As I have been saying for quite some time, it is the most regulated and safest loan that is offered to consumers.   As of Sept.12th., there have been additional changes made to the counseling procedure that provide more information to the senor about their options in regards to a Reverse mortgage.   Here is an article from Reverse Mortgage Wire that explains the regulations that are in place as of today.

“Perhaps nowhere else in the entire housing finance chain can it be said that potential customers are so well informed about the product they may be acquiring than in the reverse mortgage sector. It seems hardly any stone has been left unturned in protecting senior borrowers against misunderstanding, misrepresentations and mistakes.

Among the latest to weigh in on the protection scene is the Office of Thrift Supervision, which issued guidance this summer stating that “institutions should, among other things, require that consumers obtain counseling from a qualified independent counselor, and adopt policies that prohibits steering a consumer to any one particular counseling agency.”
On virtually the same hot day, the Federal Reserve announced its own “final rules regarding loan originator compensation practices, requiring counseling about reverse mortgages before a creditor can impose any nonrefundable fees or close a reverse mortgage loan.”

Only weeks earlier, HUD published “new procedures governing the process for seniors who are counseled for federally insured Home Equity Conversion Mortgages (HECMs).” The new procedures provide more detailed information, which must be provided ahead of the counseling session, including:

–what must be covered,

–who must attend, and

–topics that the counselor can and cannot discuss with the prospective borrower.

Then, there are the states, like Arizona, which has a new law that requires reverse mortgage originators prior to accepting a borrower application, to provide the borrower with a list containing several housing counseling agencies, and collect certification of counseling from the borrower. (Borrowers also must obtain counseling from a HUD-approved housing counselor within six months of applying for a reverse mortgage in Arizona, always a top volume origination state.)

Not to be left out, late last year, the Federal Financial Institutions Examination Counsel (FFIEC) released proposed guidance on reverse mortgage products “encouraging” financial institutions to provide their customers with “clear and balanced information about the risks and benefits of reverse mortgage products.” In addition, the guidance recommends that financial institutions “assist consumers with their product selection decisions by supplying them with promotional materials and other product descriptions that would inform them about the costs, terms, features, and risks of reverse mortgage products.”

Reacting to this one, Shannon Hicks, vice-president of product development at Reverse Fortunes, asks: “Why does the FFIEC have to ‘suggest’ again that customers receive independent counseling? Don’t we already require this? My initial impression is while the FFIEC’s objectives are well intentioned, many of their points duplicate protocols that are already exist and have for some time.”

Just another day in the regulatory jungle for reverse mortgage practitioners”.

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Bankruptcy’s and Seniors

Of course this shouldn’t be any surprise due to the current and unrelenting financial crisis.   But when it impacts a senior it seems to be just that much more devastating. 

Here is a recent report on this very topic and I found it to be most interesting as the percentage of seniors filing for bankruptcy is quite high.

“A study released in the September issue of the ABI Journal found that Americans ages 55 and older are filing for bankruptcy at an increasing rate.
The study, “Aging and Bankruptcy Revisited,” was written by John Golmant and James Woods at the Administrative Office of the U.S. Courts to update a 2002 study that examined the degree to which bankruptcy filings are a function of age.

While the bulk of bankruptcies are filed by middle-aged Americans, the percentage of filers ages 55 and over grew 61 percent from 2002 to 2007, according to Golmant and Woods.

“This significant demographic uptick in older bankruptcy filers has outstripped the aging of the general population as a whole,” Golmant and Woods wrote.

The study found that the median age for bankruptcy filers increased to 44.9 years of age in 2007, from 37.7 years of age in 1994 and 41.4 years of age in 2002. The demographic that experienced the largest percentage drop in bankruptcy filings were Americans under 25 years old; they accounted for only 1.7 percent of filers in 2007, as compared to 4 percent in 2002 and 11 percent in 1994.

Golmant and Woods updated their study to determine whether the age trends examined in their previous study continued after the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The authors analyzed samples of 2007 national bankruptcy filing data and compared it with data from 1994 and 2002.

“Baby Boomers” (born between 1946-1964) accounted for 42 percent of all filers in 2007. “The recent housing crisis has worsened the already precarious financial condition of many older Americans,” the study said. States that experienced decreases in the home price index had a 118 percent increase in bankruptcy filings, showing that the collapse of the housing bubble left many Baby Boomers with little or no home equity.

The study also found that one of the effects of BAPCPA has been an increase in the percentage of chapter 13 filings, but that it was difficult to gauge whether BAPCPA itself is causing the trend. “Another possibility is that, due to the mortgage crisis, more debtors were trying to postpone foreclosure on their homes by filing chapter 13,” according to the study.”

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