Introduction The Office of the Comptroller of the Currency
(OCC), Office of Thrift Supervision (OTS), Board of Governors of the
Federal Reserve System (FRB), Federal Deposit Insurance Corporation
(FDIC), and National Credit Union Administration (NCUA) (the agencies)
are issuing this guidance to assist their regulated financial institutions
1 in managing risks presented by reverse mortgage products. Reverse
mortgages are home-secured loans, typically offered to elderly consumers,
which present consumer protection issues that raise compliance and
reputation risks for the institutions offering them.
Expected increases in the elderly population
of the United States and other factors suggest that the use of reverse
mortgages could expand significantly in coming years as more homeowners
become eligible for reverse mortgage products. These loan products
enable eligible borrowers to access the equity in their homes in order
to meet emergency needs, to supplement their incomes, or to purchase
a new home.
2 Reverse mortgages can meet these objectives
without subjecting borrowers to ongoing repayment obligations during
the life of the loan, while enabling borrowers to remain in their
homes. As a result, the agencies believe that reverse mortgages, offered
appropriately, could become an increasingly important mechanism for
institutions to address credit needs of an aging population.
Nevertheless, reverse mortgages
are complex loan products that present a wide range of complicated
options to borrowers. Moreover, the need to provide adequate information
about reverse mortgages and to ensure appropriate consumer protections
is particularly high. This is because reverse mortgages are typically
secured by the borrower’s primary asset-his or her home. Consequently,
a reverse mortgage may provide the only funds available to a consumer
to pay for health care needs and other living expenses.
3For these and other reasons, reverse mortgages present
substantial risks both to institutions and to consumers, and, as with
any type of loan that is secured by a consumer’s home, it is crucial
that consumers understand the terms of the product and the nature
of their obligations. While this guidance addresses consumer protection
concerns that raise compliance and reputation risks, the agencies
recognize that reverse mortgage products may present other risks to
lenders, too, such as credit, interest rate, and liquidity risks,
4 especially
for proprietary reverse mortgage products lacking the insurance offered
under the federal Home Equity Conversion Mortgage (HECM) program.
5As explained in further detail below, the complex nature
of reverse mortgages presents the risk that consumers will not understand
the costs, terms, and consequences of the products. Consumers also
may be harmed by any conflicts of interest or abusive or fraudulent
practices related to the sale of ancillary products or services. In
contrast to HECM reverse mortgages, proprietary reverse mortgages
also present the risk that lenders will be unable to meet their obligations
to make payments due to consumers.
6As with other lending products,
institutions should manage the compliance and reputation risks associated
with reverse mortgages. This guidance is intended to assist institutions
in their efforts to manage these risks. This guidance focuses on ways
an institution may provide adequate information about reverse mortgage
products and qualified independent counseling to consumers and on
ways to avoid potential conflicts of interest. The guidance also addresses
related policies, procedures, internal controls, and third party risk
management for institutions.
This guidance may be particularly useful for institutions
that offer proprietary reverse mortgage products that are not subject
to the regulatory requirements applicable to reverse mortgages offered
under the HECM program. Depending on how they are structured, proprietary
reverse mortgage products may contain a higher degree of risk than
HECMs. Therefore, to address these risks effectively, proprietary
products may warrant careful scrutiny under the principles, considerations,
and risks discussed in this guidance.
The agencies expect institutions to use this guidance
to ensure that risk management practices adequately address compliance
and reputation risks associated with reverse mortgages. Failure to
address the risks discussed in this guidance could significantly affect
the overall effectiveness of an institution’s compliance and risk
management efforts with respect to reverse mortgages. The agencies
will review risk management processes in this area during examinations
of regulated institutions and will request remedial actions if institutions
do not adequately manage these risks.
Background The reverse mortgage market currently consists of two basic types
of reverse mortgage products: proprietary products offered by an individual
institution and FHA-insured reverse mortgages offered under the HECM
program. HECM reverse mortgages have accounted for approximately 90%
of all reverse mortgages.
7Reverse mortgages generally are non-recourse, home-secured
loans that provide one or more cash advances to borrowers and require
no repayments until a future time. Both HECMs and proprietary reverse
mortgages generally must be repaid only when the last surviving borrower
dies, all borrowers permanently move to a new principal residence,
or the loan is in default. For example, repayment
would
be required when the borrower sells the home or has not resided in
the home for a year. A borrower may be in default on a reverse mortgage
when the borrower fails to pay property taxes, fails to maintain hazard
insurance, or lets the property fall into unreasonable disrepair.
When a reverse mortgage becomes due, the home must be sold or the
borrower (or surviving heirs) must repay the full amount of the loan
(including accrued interest), even if the balance is greater than
the property value. If the home is sold, the borrower or estate generally
would not be liable to the lender for any amounts in excess of the
value of the home.
8To obtain a reverse mortgage, the borrower
must occupy the home as a principal residence and generally be at
least 62 years of age. Reverse mortgages are typically structured
as first lien mortgages, and generally require that any prior mortgage
be paid off either before obtaining the reverse mortgage or with the
funds from the reverse mortgage.
9The funds from a reverse mortgage
may be disbursed in several different ways:
- A single lump sum10 that distributes up to the full amount of the principal limit11 in one payment;
- A credit line that permits the borrower to decide
the timing and amount of the loan advances;
- A monthly cash advance, either for a fixed number
of years selected by the borrower or for as long as the borrower lives
in the home; or
- Any combination of the above selected by the borrower.
Generally, the size of the loan will be larger
when the borrower is older, the home is more valuable, or interest
rates are lower. Interest rates on a reverse mortgage may be fixed
or variable.
Legal Considerations Both HECMs and proprietary reverse mortgage
products are subject to laws and regulations governing mortgage lending.
The following are particularly relevant to the issues addressed in
this guidance:
- Federal Trade Commission Act (FTC Act). Section
5 of the FTC Act prohibits unfair or deceptive acts or practices.12 The OCC, the FRB, the FDIC, and the OTS enforce
this provision of the FTC Act and any applicable regulations under
authority granted in the FTC Act and section 8 of the Federal Deposit
Insurance Act. The NCUA enforces this provision of the FTC Act and
any applicable regulations under authority granted in the FTC Act
and sections 120 and 206 of the Federal Credit Union Act.13 Practices may be found
to be deceptive and thereby unlawful under section 5 of the FTC Act
if: (1) There is a representation, omission, act, or practice that
is likely to mislead the consumer; (2) the act or practice would be
deceptive from the perspective of a reasonable consumer; and (3) the
representation, omission, act, or practice is material.14 A practice may be found to be unfair and thereby
unlawful under section 5 of the FTC Act if (1) the practice causes
or is likely to cause substantial consumer injury; (2) the injury
is not outweighed by benefits to the consumer or to competition; and
(3) the injury caused by the practice is one that consumers could
not reasonably have avoided.15
- Truth in Lending Act (TILA). TILA and the FRB’s
implementing Regulation Z contain rules governing disclosures that
institutions must provide for mortgages in advertisements, with an
application, before loan consummation, and when interest rates change.
Reverse mortgage borrowers must receive all disclosures that are required
under TILA,16 including notice of their right to rescind the loan, where applicable.17 Reverse mortgages may be structured as open-end credit or as
closed-end credit within the meaning of Regulation Z. Disclosures
required by TILA relating to open-end or closed-end mortgages must
be provided, as appropriate.18 For closed-end, variable rate loans, lenders must provide the variable
rate program disclosures,19 as well as required notices
of interest rate adjustments.20 In addition, TILA requires
that a loan cost disclosure form be provided to reverse mortgage borrowers.21 The total annual loan cost shown on the form
includes the upfront costs (e.g., origination fee, third-party closing
fee, and any upfront mortgage insurance premium), interest, and ongoing
charges (e.g., monthly service fee and any annual mortgage insurance
premium).
- Real Estate Settlement Procedures Act (RESPA). RESPA and HUD’s implementing Regulation X contain rules that, among
other things, require disclosure of early estimated and final settlement
costs and prohibit referral fees and other charges that are not for
services actually performed. As a general matter, an institution may
neither pay nor accept any fee or other thing of value in exchange
for the referral of business related to a reverse mortgage transaction.
Institutions that offer reverse mortgage products
must ensure that they do so in a manner that complies with the foregoing
and all other applicable laws and regulations, including the following
federal laws:
- Equal Credit Opportunity Act;
- Fair Housing Act; and
- National Flood Insurance Act.
State laws, including laws regarding unfair
or deceptive acts or practices, also may apply to reverse mortgage
transactions. Currently, more than twenty states have laws or regulations
governing various aspects of reverse mortgages. In addition, all state
financial institution regulators have the authority to supervise the
mortgage-related activities of entities subject to their respective
jurisdictions, including activities related to reverse mortgages.
22HECM reverse mortgages also are subject to the consumer
protections and other special provisions set forth in HUD regulations.
23 HECM consumer protections include information provided to consumers
through qualified independent counselors. Before obtaining a HECM
reverse mortgage, the borrower must receive counseling from a HUD-approved
housing counseling agency.
24 The counseling
agency
is required to discuss with the borrower: (1) Alternatives to HECMs,
(2) the financial implications of entering into a HECM (including
tax consequences), (3) the effect on eligibility for assistance under
federal and state programs, and (4) the impact on the estate and heirs
of the homeowner.
25 HUD encourages, but does
not require, that HECM counseling be conducted in person.
26 HECMs also carry
particular disclosure requirements under HUD rules, including a requirement
that the lender provide copies of the mortgage, note, and loan agreement
to the borrower at the time that the borrower’s application is completed.
Recent statutory changes to the HECM program established
additional consumer protections.
27 For example,
Congress adopted consumer protections to guard against potential conflicts
of interest, including: (1) Special requirements for HECM lenders
that are associated with any other “financial or insurance activity,”
(2) a prohibition on lenders’ conditioning the availability of the
HECM on the purchase of other financial or insurance products (with
limited exceptions), and (3) a requirement that the HECM borrower
receive adequate counseling from an independent third party who is
not compensated by or associated with a party connected to the transaction.
While reverse mortgages may provide a
valuable source of funds for some borrowers, they are complex home-secured
loans offered to borrowers who typically have limited income and few
assets other than the home securing the loan.
28 Thus, lenders
must institute controls to protect consumers and to minimize the compliance
and reputation risks for the institutions themselves. These concerns
and risks are especially pronounced with respect to proprietary products
that are not subject to the core consumer protection provisions of
the HECM program.
The agencies are concerned
that:
(1) Consumers may enter
into reverse mortgage loans without understanding the costs,
29 terms, risks, and other consequences of
these products, or may be misled by marketing and advertisements promoting
reverse mortgage products;
(2) Counseling may not be provided to borrowers
or may not be adequate to remedy any misunderstandings;
(3) Appropriate steps may not
be taken to determine and to assure that consumers will be able to
pay required taxes and insurance; and
(4) Potential conflicts of interest and
abusive practices may arise in connection with reverse mortgage transactions,
including with the use of loan proceeds and the sale of ancillary
investment and insurance products.
Consumer Information and Understanding—Litigation, consumer complaints,
and testimony before Congress about reverse mortgage products have
provided both anecdotal evidence of misrepresentations to consumers
and clear indications that borrowers do not consistently understand
the terms, features, and risks of their loans.
30
For example, consumers are not always adequately informed
that reverse mortgages are loans that must be repaid (and not merely
ways to access home equity). In fact, some marketing material has
prominently stated that the consumer is not incurring a mortgage,
even though the fine print states otherwise. Consumer misunderstanding
about these matters also may be the result of advertisements declaring
that reverse mortgage borrowers have no risk of losing their homes
or are
guaranteed to retain ownership of their homes for life. These
advertisements do not clearly indicate the circumstances in which
the reverse mortgage becomes immediately due and payable or in which
borrowers may lose their homes. For example, advertisements that are
potentially misleading include “income for life,” “you’ll never owe
more than the value of your home,” “no payments ever,” and “no risk.”
Consumer misunderstanding also may be the result of misrepresentations
that reverse mortgages constitute “government benefits” or a “government
program,” with no explanation that the products are loans made by
private entities and that the only government program for reverse
mortgages is the federally-insured HECM program.
31In addition, consumers may not be provided sufficient
information about alternatives to reverse mortgages that may be more
appropriate for their circumstances. Such alternative products include
home equity lines of credit, sale-leaseback financing (under which
the consumer sells the home and then leases it from the purchaser),
and deferred payment loans. Consumers may not be aware that the fees
for both HECMs and proprietary reverse mortgages-particularly up-front
costs-may be higher than those for other types of mortgages, such
as home equity lines of credit, that can be used to access a consumer’s
home equity.
32 Borrowers also may not receive sufficient information about
other potential alternatives to reverse mortgages that may meet their
financial needs, including state property tax relief programs, other
public benefits, and community service programs.
The complex structure of reverse mortgages
may prevent a borrower from fully understanding the products. For
example, the ability to access the loan proceeds in a variety of ways
may provide flexibility for a borrower. However, some payment options
may adversely affect a borrower’s ability to qualify for needs-based
public benefits, such as Supplemental Security Income.
In addition, reverse mortgages are
not typically structured with a requirement to escrow for taxes and
hazard insurance (or for the lender to pay these amounts and add them
to the loan balance). If the borrower does not pay taxes and insurance,
the reverse mortgage itself may become due, which could result in
the borrower losing the home. Without adequate analysis of the borrower’s
ability to make these required payments through available assets or
loan proceeds, or the establishment of a set-aside or an escrow, in
compliance with applicable laws,
33 both the borrower and
the lender can face substantial risks. To ensure consumer understanding,
institutions offering reverse mortgages should clearly advise consumers
about their obligation to make direct payments for taxes and insurance
if there is no provision for an escrow or set aside to pay these obligations.
Existence and Effectiveness of Consumer Counseling—Another risk to the consumer is that consumer counseling may not
be effective. Further, while counseling is considered an integral
part of the reverse mortgage process and is mandatory for HECM transactions,
it may not be required for proprietary products, depending on applicable
state law. Even when provided, consumer counseling may not be fully
effective in helping borrowers make informed decisions about reverse
mortgage products. Counseling conducted over the telephone, in particular,
may not be adequate in all cases, in part because it may be more difficult
for counselors to assess a borrower’s understanding of the product
over the telephone. More generally, counseling may not always provide
all the relevant information or answer all questions and concerns
raised by homeowners. For example, at least one study has suggested
that a significant proportion of HECM borrowers who received counseling
did
not understand the costs and other features of their loans.
34
Conflicts of Interest and Abusive Practices—The
potential for inappropriate sales tactics and other abusive practices
in connection with reverse mortgages is greater where the lender or
another party involved in the transaction has conflicts of interest,
or has an incentive to market other products and services. For example,
when a consumer obtains funds through a reverse mortgage, the consumer
could also be offered financial products, such as annuities, or non-financial
products, such as home repair services. Such products and services
may be inconsistent with consumers’ needs, and, on occasion, have
been known to be associated with fraud. The risk is especially strong
where, for example: (1) The lender or its affiliate engages in cross-marketing
of another financial product; (2) the other product is sold at the
same time as the reverse mortgage product; (3) a significant portion
of the proceeds of the reverse mortgage is used to purchase another
product; or (4) in contrast to the reverse mortgage itself, the other
product would not provide the consumer with funds to meet emergency
needs or to pay ordinary living expenses.
Guidance The
consumer protection concerns discussed above raise compliance and
reputation risks for institutions offering reverse mortgages. The
agencies have developed the guidance set forth below to assist institutions
in managing these risks effectively. Institutions should manage the
compliance and reputation risks raised by reverse mortgage lending
through implementation of communication, disclosure, and counseling
practices such as those discussed below and by taking actions to avoid
potential conflicts of interest. The agencies will assess whether
institutions have taken adequate steps to address the risks discussed
in this guidance.
Lenders offering proprietary products should be especially
diligent regarding effective compliance risk management since proprietary
reverse mortgages are not subject to the consumer protection requirements
applicable to HECM reverse mortgages.
35 Institutions offering proprietary reverse mortgage products
should follow or adopt as appropriate, relevant HECM requirements,
as amended from time to time, in the general areas of mandatory counseling,
disclosures, restrictions on cross-selling of other products, and
reliable appraisals. In addition, the agencies expect institutions
offering proprietary reverse mortgages to reasonably price such products,
including with respect to origination fees, consistent with safe and
sound banking practices, and appropriate consideration of costs, risks,
and returns. Taking these steps would help to ensure that institutions
are addressing the full range of consumer protection concerns raised
by reverse mortgages. Moreover, the agencies expect institutions to
take appropriate steps to determine or ensure that consumers will
be able to pay required taxes and insurance.
Communications with Consumers—Many of the consumer
protection concerns regarding reverse mortgages relate to the adequacy
of information provided to consumers. Institutions offering reverse
mortgage products should take steps to manage compliance and reputation
risks by providing consumers with information designed to help them
make informed decisions when selecting financial products, including
reverse mortgages and the options for receiving loan advances from
them.
To promote effective risk management, institutions should
review advertisements and other marketing materials to ensure that
important information is disclosed clearly and prominently. For example,
institutions should review the prominence of marketing claims and
any related clarifying statements to ensure that potential borrowers
are not misled or deceived. Institutions also are responsible for
ensuring that marketing materials do not provide misleading information
about product features, loan terms, or product risks, or about the
borrower’s obligations with respect to taxes, insurance, and home
maintenance. The agencies will evaluate potentially misleading marketing
materials and take appropriate action to address any marketing that
violates the FTC Act prohibition on deception or any other applicable
law.
Institutions also should be attentive to the timing, content,
and clarity of all information presented to consumers, from the moment
a consumer begins shopping for a loan to the time a loan is closed.
For example, institutions should develop clear and balanced product
descriptions and make them available when a consumer is shopping for
a mortgage-such as when the consumer makes an inquiry to the institution
about a reverse mortgage and receives information about reverse mortgages,
or when marketing materials relating to reverse mortgage are provided
by the institution to the consumer-not just upon the submission of
an application or at consummation.
36 Information
is balanced when it fairly presents the risks and costs as well as
the potential benefits of the product. The provision of timely and
descriptive information would serve as an important supplement to
the disclosures required by specific laws and regulations. The agencies
will review any information provided to consumers and take appropriate
action to address any marketing that violates the FTC Act prohibition
on deception or any other applicable law.
Accordingly, in order to assist consumers in their product
selection decisions, an institution should use promotional materials
and other product descriptions that provide information about the
costs, terms, features, and risks of reverse mortgage products. This
information would normally include but need not be limited to:
- Borrower and property eligibility;
- When marketing proprietary products, the fact that
these reverse mortgages are not government insured and the resulting
risks to consumers;
- Determination of principal limits, or maximum loan
limits, based on home value, borrower age, expected interest rates,
and program limitations;
- Lump sum and other disbursement options and their
possible implications for the borrower’s ability to obtain public
benefits;
- The circumstances under which the loan must be repaid;
- The actions the borrower must take to prevent the
loan from becoming in default and therefore due and payable, including
the need to continue to pay taxes and insurance on the property and
to maintain the property as required;
- Fees and charges associated with reverse mortgages;
- The requirement to make direct payments for real estate
taxes and insurance if there is no provision for an escrow or a set-aside
to pay these obligations;
- Alternatives to reverse mortgage products that are
offered by the institution and may address the homeowner’s needs;
and
- The importance of reverse mortgage counseling and
information about how to find a qualified independent counselor so
that the borrower is informed about possible alternatives to a reverse
mortgage, the potential consequences of entering into a reverse mortgage,
and the potential effect on eligibility for needs-based public benefits.
The agencies recognize that institutions may
not be able to incorporate all of the practices recommended in this
guidance when advertising reverse mortgages through certain forms
of media, such as radio, television, or billboards. Nevertheless,
institutions should seek to provide clear and balanced information
about the risks and costs as well as the benefits of these products
in all forms of advertising. An advertisement that says “We offer
reverse mortgages to borrowers who are 62 or older. Call us for more
information” is clear and balanced because it does not make any representations about
the benefits or risks of the product, and is not deceptive or misleading.
Qualified Independent Counseling—To further promote
consumer understanding and manage compliance risks, reverse mortgage
lenders offering proprietary products should require that the consumer
obtain counseling from qualified independent counselors before an
institution processes an application for a reverse mortgage loan or
charges an application fee. Before counseling, institutions may provide
information to consumers that both consumers and counselors may find
useful in evaluating proprietary and HECM reverse mortgages. For example,
the institution may explain the difference between proprietary and
HECM products; discuss whether the borrower is eligible; provide information
on fees; and provide a copy of a sample mortgage, note, and loan agreement.
In addition, if an institution does not charge a fee to the consumer,
it may use an automated valuation model to perform a preliminary assessment
of the value of the consumer’s property.
To ensure the independence of counselors, institutions
should adopt policies that prohibit steering a consumer to any one
particular counseling agency and that prohibit contacting a counselor
on the consumer’s behalf. For example, institutions could provide
a list of counseling agencies that provide reverse mortgage counseling.
37 Similarly, an institution’s
policies should prohibit the institution from contacting a counselor
to discuss a particular consumer, a particular transaction, or the
timing or content of a counseling session unless the consumer is involved.
Institutions should also strongly encourage borrowers to obtain counseling
in person, whenever possible, and to attend counseling sessions with
family members. Family members or other trusted individuals may be
able to help explain the transaction and its consequences to the consumer.
Institutions should be aware that the purpose of the counseling
session is to provide adequate time to discuss these matters in detail
and to address questions and concerns raised by homeowners, and to
inform the consumer about the following and other relevant matters:
- The availability of other housing, social service,
health, and financial options;
- Financing options other than reverse mortgages, including
other mortgage products, sale-leaseback financing, and deferred payment
loans;
- The differences between HECM loans and proprietary
reverse mortgages;38
- The financial implications and tax consequences of
entering into a reverse mortgage;
- The impact of a reverse mortgage on eligibility for
federal and state needs-based assistance programs, including Supplemental
Security Income; and
- The impact of the reverse mortgage on the estate
and heirs.
The agencies note that the provision of such
information would be consistent with HUD guidance regarding consumer
counseling in connection with HECM loans.
Avoidance of Potential Conflicts—To manage the
compliance and reputation risks associated with reverse mortgages,
institutions should take all reasonably necessary steps to avoid any
appearance of a conflict of interest and violation of applicable laws
and rules. For example, an institution should:
- Adopt clear written policies and internal controls
designed to ensure that the institution does not violate any applicable
anti-tying restrictions.39 For example, an institution
risks violations if it: (1) Requires the borrower to purchase any
annuity, insurance or any product other than a traditional banking
product in order to obtain the reverse mortgage from the institution
or an affiliate, or (2) varies the price of the reverse mortgage based
on a condition that the borrower purchase such other product. Further,
the agencies expect that institutions will not do either of these
things indirectly through brokers acting as agents;
- Adopt clear written policies and internal controls
designed to ensure that the institution complies with restrictions
designed to avoid conflicts of interest.40 For example, an institution risks violations
if it requires the borrower to purchase any annuity, insurance (other
than appropriate title, flood or hazard insurance), or similar financial
product from the institution or third party in order to obtain the
reverse mortgage from the institution or broker;
- Adopt clear policies designed to ensure that loan
originators and brokers acting on behalf of an institution do not
have an inappropriate incentive to sell other products that may appear
to be linked to the granting of a reverse mortgage or to engage in
inappropriate cross-marketing of other products. Such policies should
ensure that any such cross-selling is clearly consistent with the
FTC Act standards; and
- Adopt clear compensation policies to guard against
other inappropriate incentives for loan officers and third parties,
such as mortgage brokers and correspondents, to make a loan.
In addition, conflicts are less likely to be
a concern if the borrower has received information and access to independent
counseling as described above.
Policies, Procedures, and Internal Controls—Institutions
should have policies and procedures to address the concerns expressed
in this guidance, including those involving conflicts of interest
and the provision of consumer information. In addition, institutions
should have effective internal controls to monitor whether actual
practices are consistent with their policies and operating procedures
relating to reverse mortgages. To achieve these objectives, training
should be designed so that relevant lending personnel are able to
convey information to consumers about product terms and risks in a
timely, accurate, and balanced manner. Furthermore, institutions’
independent monitoring should assess how well lending personnel are
following internal policies and procedures and evaluate the nature
and extent of policy exceptions. Findings should be reported to relevant
management. In addition, institutions’ legal and compliance reviews
should include oversight of compensation programs to ensure that lending
personnel are not improperly encouraged to direct consumers to particular
products. Finally, institutions should also review consumer complaints
to identify potential compliance and reputation risks.
Third Party Risk Management—When making, purchasing, or servicing reverse mortgages through
a third party, such as a mortgage broker or correspondent, institutions
should take steps to manage the compliance and reputation risks presented
by such relationships. These steps would include: (1) Conducting due
diligence and establishing criteria for entering into and maintaining
relationships with such third parties; (2) establishing criteria for
third-party compensation that are designed to avoid providing incentives
for originations inconsistent with the institution’s policies and
procedures; (3) setting requirements for agreements with such third
parties; (4) establishing internal procedures and systems to monitor
ongoing compliance with applicable agreements, institution policies,
and laws and regulations; and (5) implementing appropriate corrective
actions in the event that the third party fails to comply with such
agreements, policies, or laws and regulations. Due diligence
and monitoring activities should include a review of promotional materials
used by third parties to ensure compliance with the TILA, the FTC
Act, and other laws, as applicable.
In addition, institutions should structure third party
relationships so as not to contravene RESPA’s general prohibition
against paying or receiving any fee or other thing of value in exchange
for the referral of business related to a reverse mortgage transaction.
Fees must be paid only for the permissible services provided by the
third party, consistent with the provisions of section 8 of RESPA.
Moreover, institutions should not accept fees from any third party
without providing appropriate services to warrant any such fee.
Interagency guidance of Oct. 18, 2010; published in
the Federal Register Aug. 17, 2010.
