Notice of Proposed Guidance on Reverse Mortgage Products

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Federal Register / Vol. 74, No. 240 / Wednesday, December 16, 2009 / Notices

FEDERAL COMMUNICATIONS
COMMISSION
[Report No. 2904]

PETITION FOR RECONSIDERATION
OF ACTION IN RULEMAKING
PROCEEDING

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December 8, 2009.
SUMMARY: Petitions for Reconsideration
have been filed in the Commission’s
Rulemaking proceeding listed in this
Public Notice and published pursuant to
47 CFR Section 1.429(e). The full text of
these documents is available for viewing
and copying in Room CY–B402, 445
12th Street, SW, Washington, DC or may
be purchased from the Commission’s
copy contractor, Best Copy and Printing,
Inc. (BCPI) (1–800–378–3160).
Oppositions to these petitions must be
filed within 15 days of the date of
public notice of the petitions in the
Federal Register. See Section 1.4(b)(1) of
the Commission’s rules (47 CFR
1.4(b)(1)). Replies to an opposition must
be filed within 10 days after the time for
filing oppositions has expired.
Subject: In the Matter of Promoting
Diversification of Ownership in the
Broadcasting Services (MB Docket No.
07–294)
2006 Quadrennial Regulatory
Review– Review of the Commission’s
Broadcast Ownership Rules and other
Rules Adopted Pursuant to Section 202
of The Telecommunications Act of 1996
(MB Docket No. 06–121)
2002 Biennial Regulatory Review –
Review of the Commission’s Broadcast
Ownership Rules and other Rules
Adopted Pursuant to Section 202 of The
Telecommunications Act of 1996 (MB
Docket No. 02–277)
Cross–Ownership of Broadcast
Stations and Newspapers (MB Docket
No. 01–235)
Rules and Policies Concerning
Multiple Ownership of Radio Broadcast
Station in Local Markets (MB Docket
No. 01–317)
Definition of Radio Markets (MB
Docket No. 00–244)
Ways to Further Section 257 Mandate
and to Build on Earlier Studies (MB
Docket No. 04–228)
NUMBER OF PETITIONS FILED: 2

Federal Communications Commission.
Marlene H. Dortch,
Secretary,
Office of the Secretary,
Office of Managing Director.
[FR Doc. E9–29834 Filed 12–15–09; 8:45 am]
BILLING CODE: 6712-01-S

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it as supervisory guidance to the
institutions that they supervise and the
Sunshine Act Notices
State Liaison Committee of the FFIEC
will encourage state regulators to adopt
DATE & TIME: Thursday, December 17,
the guidance. Accordingly, institutions
2009, at 10 a.m.
will be expected to use the guidance in
PLACE: 999 E Street, NW., Washington,
their efforts to ensure that their risk
DC (Ninth Floor).
management and consumer protection
STATUS: This meeting will be open to the practices adequately address the
compliance and reputation risks raised
public.
ITEMS TO BE DISCUSSED:
Correction and by reverse mortgage lending.
DATES: Comments must be received on
Approval of Minutes:
or before February 16, 2010.
Draft Advisory Opinion 2009–27:
America Future Fund Political Action
ADDRESSES: Because paper mail in the
by its counsel, Jason Torchinsky.
Washington, DC area and received by
Draft Advisory Opinion 2009–28:
the FFIEC is subject to delay due to
Democracy Engine, Inc., PAC, by its
heightened security precautions,
Treasurer, Jonathan Zucker, Esq.
commenters are encouraged to submit
Adoption of Policy to Prepare and
comments by the Federal eRulemaking
Publish a Guidebook for Complainants
Portal, if possible. Please use the title
and Respondents in Enforcement
‘‘Reverse Mortgage Comments’’ to
Matters.
facilitate the organization and
Agency Procedures.
distribution of the comments. You may
Election of Officers.
submit comments by any of the
Future Meeting Dates.
following methods:
Federal eRulemaking Portal—
Management and Administrative
‘‘Regulations.gov’’: Go to http://
Matters.
www.regulations.gov, under the ‘‘More
Individuals who plan to attend and
Search Options’’ tab click next to the
require special assistance, such as sign
‘‘Advanced Docket Search’’ option
language interpretation or other
where indicated, select ‘‘FFIEC’’ from
reasonable accommodations, should
the agency drop-down menu, then click
contact Mary Dove, Commission
‘‘Submit.’’ In the ‘‘Docket ID’’ column,
Secretary, at (202) 694–1040, at least 72
select ‘‘Docket Number FFIEC–2009–
hours prior to the hearing date.
0001’’ to submit or view public
PERSON TO CONTACT FOR INFORMATION:
comments and to view supporting and
Judith Ingram, Press Officer Telephone:
related materials for this notice of
(202) 694–1220.
proposed rulemaking. The ‘‘How to Use
Signed:
This Site’’ link on the Regulations.gov
Mary W. Dove,
home page provides information on
Secretary of the Commission.
using Regulations.gov, including
[FR Doc. E9–29836 Filed 12–15–09; 8:45 am]
instructions for submitting or viewing
BILLING CODE 6715–01–M
public comments, viewing other
supporting and related materials, and
viewing the docket after the close of the
comment period.
FEDERAL FINANCIAL INSTITUTIONS
Mail: Paul Sanford, Executive
EXAMINATION COUNCIL
Secretary, Federal Financial Institutions
[Docket No. FFIEC–2009–0001]
Examination Council, L. William
Reverse Mortgage Products: Guidance Seidman Center, Mailstop: D 8073a,
3501 Fairfax Drive, Arlington, Virginia
for Managing Compliance and
22226–3550.
Reputation Risks
Hand Delivery/Courier: Paul Sanford,
Executive Secretary, Federal Financial
AGENCY: Federal Financial Institutions
Institutions Examination Council, L.
Examination Council (FFIEC).
William Seidman Center, Mailstop: D
ACTION: Notice; request for comment.
8073a, 3501 Fairfax Drive, Arlington,
SUMMARY: The Federal Financial
Virginia 22226–3550.
Instructions: You must include
Institutions Examination Council
‘‘FFIEC’’ as the agency name and
(FFIEC), on behalf of its members,
‘‘Docket Number FFIEC–2009–0001’’ in
requests comment on this proposed
your comment. In general, the FFIEC
Reverse Mortgage Products: Guidance
will enter all comments received into
for Managing Compliance and
the docket and publish them on the
Reputation Risks (guidance). Upon
Regulations.gov Web site without
completion of the guidance, and after
change, including any business or
consideration of comments received
personal information that you provide
from the public, the Federal financial
institution regulatory agencies will issue such as name and address information,
FEDERAL ELECTION COMMISSION

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Federal Register / Vol. 74, No. 240 / Wednesday, December 16, 2009 / Notices
e-mail addresses, or phone numbers.
Comments received, including
attachments and other supporting
materials, are part of the public record
and subject to public disclosure. Do not
enclose any information in your
comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
You may review comments and other
related materials that pertain to this
notice of proposed rulemaking
electronically by following these
instructions: Go to http://
www.regulations.gov, under the ‘‘More
Search Options’’ tab click next to the
‘‘Advanced Document Search’’ option
where indicated, select ‘‘FFIEC’’ from
the agency drop-down menu, then, click
‘‘Submit.’’ In the ‘‘Docket ID’’ column,
select ‘‘Docket FFIEC–2009–0001’’ to
view public comments for this
rulemaking action.
Docket: You may also view or request
available background documents and
project summaries using the methods
described above.
FOR FURTHER INFORMATION CONTACT:
OCC: Karen Tucker, National Bank
Examiner and Senior Compliance
Specialist, or Jesse Butler, Bank
Examiner and Compliance Specialist,
Compliance Policy, (202) 874–4428;
Stephen Van Meter, Assistant Director,
or Nancy Worth, Counsel, Community
and Consumer Law Division, (202) 874–
5750, Office of the Comptroller of the
Currency, 250 E Street, SW.,
Washington, DC 20219.
Board: Kathleen Conley, Senior
Supervisory Consumer Financial
Services Analyst, (202) 452–2389; Brent
Lattin, Senior Attorney, (202) 452–3667,
Board of Governors of the Federal
Reserve System, 20th and C Streets,
NW., Washington, DC 20551. For users
of Telecommunications Device for the
Deaf (TDD) only, contact (202) 263–
4869.
FDIC: Michael R. Evans, Fair Lending
Specialist, Compliance Policy Section,
Division of Supervision and Consumer
Protection, (202) 898–6611; Richard
Schwartz, Counsel, Legal Division, (202)
898–7424, Federal Deposit Insurance
Corporation, 550 17th Street, NW.,
Washington, DC 20429.
OTS: David Adkins, Fair Lending
Specialist, (202) 906–6716, or Richard
Bennett, Senior Compliance Counsel,
(202) 906–7409, Office of Thrift
Supervision, 1700 G Street, NW.,
Washington, DC 20552.
NCUA: Matthew J. Biliouris, Program
Officer, (703) 518–6394, Office of
Examination & Insurance, National
Credit Union Administration, 1775
Duke Street, Alexandria, VA 22314.

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SUPPLEMENTARY INFORMATION:

I. Background Information
The FFIEC is proposing to
recommend to the Federal financial
institution regulatory agencies guidance
on managing compliance and reputation
risks presented by reverse mortgage
products. The six members of the FFIEC
are the Federal financial institution
regulatory agencies (the Office of the
Comptroller of the Currency (OCC); the
Board of Governors of the Federal
Reserve System (Board); the Federal
Deposit Insurance Corporation (FDIC);
the Office of Thrift Supervision (OTS);
the National Credit Union
Administration (NCUA)), and the State
Liaison Committee (SLC) of the FFIEC.
As part of its mission, the FFIEC
makes recommendations regarding
supervisory matters and the adequacy of
supervisory tools to the Federal
financial institution regulatory agencies.
The FFIEC also establishes standards for
examinations of financial institutions
that shall be applied by the agencies.
These agencies expect that all financial
institutions that they supervise—that is,
banks and their subsidiaries, bank
holding companies and their nonbank
subsidiaries, savings associations and
their subsidiaries, savings and loan
holding companies and their
subsidiaries, and credit unions
(‘‘institutions’’)—will effectively assess
and manage risks associated with their
lending activities, including those
associated with reverse mortgage
products. Upon completion of the
guidance, and after consideration of
comments received from the public, the
Federal financial institution regulatory
agencies will issue it as supervisory
guidance to the institutions that they
supervise. Accordingly, such
institutions will be expected to use the
guidance in their efforts to ensure that
their risk management and consumer
protection practices adequately address
the compliance and reputation risks
raised by reverse mortgage lending.
The SLC, which is composed of
representatives of five State agencies
that supervise financial institutions, was
established to encourage the application
of uniform examination principles and
standards by State and Federal
supervisory agencies. Upon finalization
of the FFIEC guidance, the SLC will
encourage the adoption of the guidance
by state regulators. Entities regulated by
the state agencies that adopt the
guidance would be expected to use it in
their efforts to ensure that their risk
management and consumer protection
practices adequately address the
compliance and reputation risks raised
by reverse mortgage lending.

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Reverse mortgages are home-secured
loans typically offered to elderly
consumers. Institutions under the FFIEC
members’ supervision currently provide
two basic types of reverse mortgage
products: lenders’ own proprietary
reverse mortgage products and reverse
mortgages offered under the Home
Equity Conversion Mortgage (HECM)
program.1 Both HECMs and proprietary
products are subject to various laws
governing mortgage lending including
the Truth in Lending Act, the Real
Estate Settlement Procedures Act, the
Federal Trade Commission Act, and the
fair lending laws. HECMs are also
subject to an extensive regulatory
regime established by HUD, including
provisions for FHA insurance of HECM
loans that protect both lenders and
reverse mortgage borrowers.
Reverse mortgages enable eligible
borrowers to remain in their home while
accessing their home equity in order to
meet emergency needs, supplement
their incomes, or, in some cases,
purchase a new home—without
subjecting borrowers to ongoing
repayment obligations during the life of
the loan. The use of reverse mortgages
could expand significantly in coming
years as the U.S. population ages and
more homeowners become eligible for
reverse mortgage products. If prudently
underwritten and used appropriately,
these products have the potential to
become an increasingly important credit
product for addressing certain credit
needs of an aging population.
However, reverse mortgages can be
highly complex loan products, and it is
particularly important to provide
adequate information and other
consumer protections. Typically, elderly
borrowers are securing a reverse
mortgage with their primary asset—their
home. Thus, borrowers may depend on
the reverse mortgage proceeds for the
cash flow needed to pay for health care
and other living expenses.
For these reasons, it is critical that
institutions manage the compliance and
reputation risks associated with reverse
mortgages. The proposed guidance set
forth in this document is intended to
assist institutions in their efforts to
manage these risks. While the FFIEC
members have not encountered
widespread use of reverse mortgage
lending by the institutions that they
supervise, the FFIEC members are
proposing this reverse mortgage
1 A HECM is a reverse mortgage product insured
by the Federal Housing Administration (FHA),
which is part of the U.S. Department of Housing
and Urban Development (HUD), and subject to a
range of federal consumer protection and other
requirements. See 12 U.S.C. 1715z–20; 24 CFR part
206.

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guidance in light of the anticipated
growth in this lending product.
II. Principal Elements of the Guidance
The proposed guidance discusses the
general features of, certain legal
provisions applicable to, and consumer
protection concerns raised by reverse
mortgage products. In addition, it
focuses on the need to provide adequate
information to consumers about reverse
mortgage products; to provide qualified
independent counseling to consumers
considering these products; and to avoid
potential conflicts of interest. The
proposed guidance also addresses
related policies, procedures, and
internal controls and third party risk
management.
For example, the proposed guidance
stresses the importance of avoiding
potential conflicts of interest and
abusive practices. In addition, the
proposed guidance emphasizes the
importance of independent credit
counseling for consumers considering
reverse mortgages. Pursuant to the
proposed guidance, such counseling
should cover the potential consequences
of entering into these transactions, such
as the potential effect on eligibility for
needs-based public benefits.
The proposed guidance also
recommends that consumers be
provided clear and balanced
information about the relative benefits
and risks of reverse mortgage products,
at a time that will help consumers’
decision-making processes. Consistent
with this advice, the proposed guidance
suggests that institutions inform
borrowers about reverse mortgage
alternatives that they already offer.

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III. Request for Comment
Comment is requested on all aspects
of the proposed guidance.
IV. Supplemental Guidance
The FFEIC believes that illustrations
of potential costs and benefits of reverse
mortgages, relative to alternatives to
reverse mortgages, may be useful to
institutions as they seek to implement
the Interagency Guidance
recommendations relating to
communicating fees and charges
information to consumers. Thus, the
FFIEC, on behalf of its members, is
developing sample illustrations to assist
institutions in providing consumers
with information about the relative
benefits and risks of reverse mortgages,
as outlined in the proposed reverse
mortgage guidance.
V. Paperwork Reduction Act
In accordance with section 3512 of
the Paperwork Reduction Act of 1995,

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44 U.S.C. 3501–3521 (PRA), the
Agencies may not conduct or sponsor,
and the respondent is not required to
respond to, an information collection
unless it displays a currently valid
Office of Management and Budget
(OMB) control number. The proposed
guidance includes reporting,
recordkeeping, and disclosure
requirements, some of which implicate
PRA as more fully explained below.
Comments are invited on:
(a) Whether the collection of
information is necessary for the proper
performance of the Federal banking
agencies’ functions, including whether
the information has practical utility;
(b) The accuracy of the estimates of
the burden of the information
collection, including the validity of the
methodology and assumptions used;
(c) Ways to enhance the quality,
utility, and clarity of the information to
be collected;
(d) Ways to minimize the burden of
the information collection on
respondents, including through the use
of automated collection techniques or
other forms of information technology;
and
(e) Estimates of capital or start-up
costs and costs of operation,
maintenance, and purchase of services
to provide information.
All comments will become a matter of
public record. Comments should be
addressed to:
OCC: Please follow the instructions
found in the ADDRESSES caption above
for submitting comments.
FRB: Please follow the instructions
found in the ADDRESSES caption above
for submitting comments.
FDIC: Please follow the instructions
found in the ADDRESSES caption above
for submitting comments.
OTS: Please follow the instructions
found in the ADDRESSES caption above
for submitting comments.
NCUA: Please follow the instructions
found in the ADDRESSES caption above
for submitting comments.
All Agencies: A copy of the comments
may also be submitted to the OMB desk
officer for the Agencies: Office of
Information and Regulatory Affairs,
Office of Management and Budget, New
Executive Office Building, Washington,
DC 20503.
Title of Information Collection:
Reverse Mortgage Products.
OMB Control Numbers: New
collection; to be assigned by OMB.
Abstract: The proposed guidance
includes reporting, recordkeeping, and
disclosure requirements applicable to
both proprietary and HECM reverse
mortgages. However, a number of the
requirements are currently standard

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business practice for proprietary and
HECM reverse mortgages and, therefore,
under the ‘‘usual and customary’’
standard do not require PRA clearance.
There are also requirements currently
covered under approved TILA-related
information collections for proprietary
and HECM reverse mortgages, and an
approved HUD information collection
for HECM reverse mortgages.
Proprietary reverse mortgage
products, however, are not subject to the
consumer protection provisions of the
HECM program, so these requirements
would normally be submitted for
approval under PRA. However, recent
research has shown that, despite the
significant growth in reverse mortgages
since inception of the HECM program in
1989, currently the market for
proprietary reverse mortgages has
dissipated to the point that, industrywide, there are fewer than 10 lenders
offering such products.2 This is likely
due to the recent decline in housing
values, resulting in decreased equity in
homes.
Given the minimal number of lenders
currently offering proprietary reverse
mortgages, the agencies are not now
seeking OMB approval for the consumer
protection provisions in the guidance
applicable to proprietary reverse
mortgages. The agencies will, however,
seek PRA approval once this sector of
the market recovers.
Lastly, there are requirements that
apply to both proprietary and HECM
reverse mortgages that do not meet the
‘‘usual and customary’’ standard, are not
covered by already approved
information collections and, therefore,
require PRA clearance.
Proprietary Reverse Mortgages
Institutions offering proprietary
reverse mortgages will be encouraged
under the guidance to follow or adopt
relevant HECM requirements for
mandatory counseling, disclosures,
affordable origination fees, restrictions
on cross-selling of ancillary products,
and reliable appraisals.
Proprietary and HECM Reverse
Mortgages
Institutions offering either HECMs or
proprietary reverse mortgages are
encouraged to develop clear and
balanced product descriptions and make
them available to consumers shopping
for a mortgage. They should set forth a
description of how disbursements can
2 See the Board’s Divisions of Research &
Statistics and Monetary Affairs Finance and
Economics Discussion Series paper ‘‘Reversing the
Trend: The Recent Expansion of the Reverse
Mortgage Market,’’ http://www.federalreserve.gov/
pubs/feds/2009/200942/200942pap.pdf.

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Federal Register / Vol. 74, No. 240 / Wednesday, December 16, 2009 / Notices
be received and include timely
information to supplement the TILA
and other disclosures. Promotional
materials and product descriptions
should include information about the
costs, terms, features, and risks of
reverse mortgage products.
Institutions should adopt policies and
procedures that prohibit directing a
consumer to a particular counseling
agency or contacting a counselor on the
consumer’s behalf. They should adopt
clear written policies and establish
internal controls specifying that neither
the lender nor any broker will require
the borrower to purchase any other
product from the lender in order to
obtain the mortgage. Policies should be
clear so that originators do not have an
inappropriate incentive to sell other
products that appear linked to the
granting of a mortgage. Legal and
compliance reviews should include
oversight of compensation programs so
that lending personnel are not
improperly encouraged to direct
consumers to particular products.
Institutions making, purchasing, or
servicing reverse mortgages through a
third party should conduct due
diligence and establish criteria for third
party relationships and compensation.
They should set requirements for
agreements and establish systems to
monitor compliance with the agreement
and applicable laws and regulations.
They should also take corrective action
if a third party fails to comply. Third
party relationships should be structured
in a way that does not conflict with
RESPA.
Affected Public:
OCC: National banks, their
subsidiaries, and federal branches or
agencies of foreign banks.
Board: Bank holding companies and
state member banks.
FDIC: Insured state nonmember
banks.
OTS: Federal savings associations and
their affiliated holding companies.
NCUA: Federally-insured credit
unions.
Type of Review: Regular.
Estimated Burden:
OCC:
Number of respondents: 77.
Burden per respondent: 40 hours to
implement policies and procedures and
to provide training; 8 hours annually to
maintain program.
Total estimated annual burden: 3,696
hours.
Board:
Number of respondents: 18.
Burden per respondent: 40 hours to
implement policies and procedures and
to provide training; 8 hours annually to
maintain program.

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Total estimated annual burden: 864
hours.
FDIC:
Number of respondents: 48.
Burden per respondent: 40 hours to
implement policies and procedures and
to provide training; 8 hours annually to
maintain program.
Total estimated annual burden: 2,304
hours.
OTS:
Number of respondents: 20.
Burden per respondent: 40 hours to
implement policies and procedures and
to provide training; 8 hours annually to
maintain program.
Total estimated annual burden: 960.
NCUA:
Number of respondents: 85.
Burden per respondent: 40 hours to
implement policies and procedures and
to provide training; 8 hours annually to
maintain program.
Total estimated annual burden: 4,080
hours.
The text of the proposed interagency
Reverse Mortgage Products: Guidance
for Managing Compliance and
Reputation Risks follows:
Reverse Mortgage Products: Guidance
for Managing Compliance and
Reputation Risks
Introduction
The members of the Federal Financial
Institutions Examination Council
(FFIEC or Agencies)—consisting of the
Office of the Comptroller of the
Currency (OCC), Office of Thrift
Supervision (OTS), Board of Governors
of the Federal Reserve System (Board),
Federal Deposit Insurance Corporation
(FDIC), National Credit Union
Administration (NCUA), and State
Liaison Committee (SLC)—are issuing
guidance to assist 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
1 This guidance applies to all banks and their
subsidiaries, bank holding companies (other than
foreign banks) and their nonbank subsidiaries,
savings associations and their subsidiaries, savings
and loan holding companies and their subsidiaries,
credit unions, and U.S. branches and agencies of
foreign banks engaged in reverse mortgage
transactions.

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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.3
For 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, 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.5
2 The Federal Housing Administration (FHA) has
announced a program that would enable eligible
borrowers to use the proceeds of a federally-insured
reverse mortgage for the purchase of a new
principal residence. See U.S. Department of
Housing and Urban Development (HUD) Mortgagee
Letter 2008–23 (October 20, 2008) and HUD
Mortgagee Letter 2009–11 (March 27, 2009).
3 In 2007, the typical reverse mortgage borrower
was 73 years old, had a home valued at $261,500,
and had financial assets of less than $33,000.
AARP, Reverse Mortgage: Niche Product or
Mainstream Solution, Dec. 2007 (available at
http://assets.aarp.org/rgcenter/consume/
2007_22_revmortgage.pdf).
4 Institutions also should manage these other risks
appropriately. In this regard, institutions are
advised to conform their reverse mortgage lending
activities to any applicable guidance from their
respective supervisory agencies, and to consult with
those agencies with respect to any such safety and
soundness issues.
5 A HECM is a reverse mortgage product insured
by the FHA, part of the HUD, and is subject to a
range of consumer protection and other

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As 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.6
As 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 efforts with
respect to reverse mortgages. The
Agencies will review risk management
processes in this area and will request
remedial actions if institutions do not
adequately manage these risks.
requirements. See 12 U.S.C. 1715z–20; 24 CFR 206.
A lender making a HECM loan may assign it to HUD
when the outstanding balance reaches 98% of the
maximum claim amount. See 24 CFR 206.107(a)(1).
6 Under the FHA insurance program for HECM
loans, HUD will make payments to a consumer if
a HECM lender fails to make a payment due to the
consumer. See 24 CFR 206.117 and 206.121.

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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. To date, HECM reverse
mortgages have accounted for
approximately 90% of all reverse
mortgages.7
Reverse mortgages generally are nonrecourse, 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.
To 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,8 and require that any prior
mortgage be paid off either before
obtaining the reverse mortgage or with
the funds from the reverse mortgage.
The funds from a reverse mortgage
may be disbursed in several different
ways:
➢ A single lump sum 9 that
distributes up to the full amount of the
principal limit 10 in one payment;
7 AARP, Reverse Mortgage: Niche Product or
Mainstream Solution, Dec. 2007, at 1 (available at
http://assets.aarp.org/rgcenter/consume/
2007_22_revmortgage.pdf).
8 HECMs, by statute, must be first lien mortgages.
12 U.S.C. 1715z–20(b)(3).
9 While HECM payment plans do not include a
separate ‘‘lump sum’’ option, HECMs provide an
effective substitute for such an option through a
line of credit that can be fully drawn at
consummation.
10 The principal limit is the maximum payment
that can be made to the borrower. The principal
limit depends on the age of the youngest borrower,
the expected interest rate, and the ‘‘maximum claim
amount.’’ The maximum claim amount is either (1)
the lower of the actual value or FHA loan limit (for

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➢ 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.11 The OCC, the Board, 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.12
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
HECMs) or (2) the loan-to-value ratio established by
the lender (for proprietary mortgages). The
maximum claim amount includes the principal
limit (cash available to the borrower), accrued
interest, and any set-asides for repairs or servicing
fees required by the loan terms.
11 Supervisory guidance to financial institutions
has been issued concerning unfair or deceptive acts
or practices. See OCC Advisory Letter 2002–3—
Guidance on Unfair or Deceptive Acts or Practices,
March 22, 2002; Joint Board and FDIC Guidance on
Unfair or Deceptive Acts or Practices by StateChartered Banks, March 11, 2004. See also Unfair
or Deceptive Acts or Practices, 74 FR 5498 (Jan. 29,
2009) (final rule issued by the Board, OTS, and
NCUA discussing unfairness and deception
standards). Federally-insured credit unions are
prohibited from using any advertising or
promotional material that is inaccurate, misleading,
or deceptive in any way concerning its products,
services, or financial condition. 12 CFR 740.2. The
OTS also has a regulation that prohibits savings
associations from using advertisements or other
representations that are inaccurate or misrepresent
the services or contracts offered. 12 CFR 563.27.
This regulation supplements its authority under the
FTC Act.
12 12 U.S.C. 1766 and 1786.

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is material.13 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.14
• Truth in Lending Act (TILA). TILA
and the Board’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,15
including notice of their right to rescind
the loan.16
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.17 For
closed-end, variable rate loans, lenders
must provide the variable rate program
disclosures,18 as well as required
notices of interest rate adjustments.19
In addition, TILA requires that a Total
Annual Loan Cost (TALC) form be
provided to reverse mortgage
borrowers.20 The total annual loan cost
rates shown on the TALC form include
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
13 These principles are derived from the Policy
Statement on Deception, issued by the Federal
Trade Commission on October 14, 1983.
14 15 U.S.C. 45(n). See also the Policy Statement
on Unfairness, issued by the Federal Trade
Commission on December 17, 1980.
15 See 12 CFR 226.33(b), 226.5b(d), and 226.18.
16 12 CFR 226.15 and 226.23. Rescission rights
and notices are not available, however, for home
purchase transactions.
17 See 12 CFR 226.33(b), 226.5b(d), and 226.18.
18 12 CFR 226.19(b)(1). Closed-end, variable rate
reverse mortgages, particularly under the HECM
program, have been less common than the open-end
line of credit structure.
19 12 CFR 226.20(c).
20 See 15 U.S.C. 1648; 12 CFR 226.33(b)(2) and
226.33(c)(1) and related commentary in Supplement
I to 12 CFR 226; and 12 CFR 226, Appendix K
(including model TALC form).

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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 mortgagerelated activities of entities subject to
their respective jurisdictions, including
activities related to reverse mortgages.21
HECM reverse mortgages also are
subject to the consumer protections and
other special provisions set forth in
HUD regulations.22 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.23 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.24 HUD encourages, but
does not require, that HECM counseling
be conducted in person.25 HECMs also
carry particular disclosure requirements
21 Federal financial institution regulators also
have the authority to supervise the activities of the
entities subject to their respective jurisdictions to
ensure their compliance with all applicable laws
and regulations, and that the institutions are
operating in a safe and sound manner consistent
with supervisory standards.
22 HUD also provides model forms for HECMs.
See Home Equity Conversion Mortgage Handbook
4235.1 (available at http://www.hud.gov/offices/
adm/hudclips/handbooks/hsgh/4235.1/index.cfm)
23 HUD has proposed regulatory changes and is
developing counseling protocols that would require
counselors to take a HECM examination before
providing counseling on reverse mortgages. Home
Equity Conversion Mortgage (HECM) Counseling
Standardization and Roster, 72 FR 869 (Jan. 8,
2007).
24 See 12 U.S.C. 1715z–20.
25 Applicable state laws, however, may have other
requirements pertaining to counseling for reverse
mortgages, including requirements that counseling
be conducted in person.

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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.26 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.
Compliance and Reputation Risks
While reverse mortgages may provide
a valuable source of funds for some
borrowers, they are complex homesecured loans offered to borrowers who
typically have limited income and few
assets other than the home securing the
loan.27 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,28 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
26 Housing and Economic Recovery Act of 2008
(HERA), Public Law 110–289, § 2122(a)(9) (July 30,
2008).
27 See note 3, supra.
28 If a HECM borrower finances his or her closing
costs, the closing costs are included in the
outstanding balance of the loan. Costs of a HECM
loan include an origination fee, third-party closing
costs, a monthly servicing fee, and mortgage
insurance premiums determined by an FHA
formula.

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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.29
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 federallyinsured HECM program.30
In 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, 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
29 See Testimony presented at Hearings of the
U.S. Senate Special Committee on Aging conducted
on December 12, 2007, available on the Internet at
http://aging.senate.gov/
hearing_detail.cfm?id=296507. See also AARP
report reference in note 7, above.
30 Regulation Z prohibits misrepresentations
about government endorsements in advertisements
for closed-end credit secured by a dwelling. 12 CFR
226.24.

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of credit, that can be used to access a
consumer’s home equity.31 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 account 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 an escrow, both the
borrower and the lender can face
substantial risks. Institutions offering
reverse mortgages should clearly advise
consumers about their obligation to
make payments for taxes and insurance
if they do not escrow.
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
31 For example, HECMs carry upfront origination
and mortgage insurance fees that may total four
percent of the loan amount (in addition to other
closing costs and ongoing insurance and servicing
fees). In HERA, Congress required the U.S.
Government Accountability Office (GAO) to study
ways of reducing borrower costs and insurance
premiums. See GAO report entitled: ‘‘Reverse
Mortgages: Policy Changes Have Had Mostly
Positive Effects on Lenders and Borrowers, but
These Changes and Market Developments have
Increased HUD’s Risk’’ (GAO–09–836).

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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.32
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
32 See AARP, Reverse Mortgage: Niche Product or
Mainstream Solution, Dec. 2007, at 72, 98 (available
at http://assets.aarp.org/rgcenter/consume/
2007_22_revmortgage.pdf).

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since proprietary reverse mortgages are
not subject to the consumer protection
requirements applicable to HECM
reverse mortgages.33 The Agencies
expect institutions offering proprietary
reverse mortgage products to follow or
to adopt as appropriate relevant HECM
requirements in the general areas of
mandatory counseling, disclosures,
affordable origination fees, restrictions
on cross-selling of ancillary products,
and reliable appraisals. Taking this step
should 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 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
conspicuously. 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.
Institutions also should be attentive to
the timing, content, and clarity of all
information presented to consumers.
For example, institutions should
develop clear and balanced product
descriptions and make them available
33 HECM lenders must comply with requirements
of the HECM program. This guidance is intended
to supplement, and not conflict with, existing
guidance and rules for HECM lenders. It is also
intended to provide HECM lenders guidance on
managing compliance and reputation risks.

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when a consumer is shopping for a
mortgage and not just upon the
submission of an application or at
consummation.34 Such information
should describe how disbursements
from the reverse mortgage can be
received. The provision of timely and
descriptive information would serve as
an important supplement to the
disclosures currently required under
TILA and other laws.
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
based on home value, borrower age, and
expected interest rates;
➢ Lump sum and other disbursement
options and their possible implications;
➢ 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;
➢ Fees and charges associated with
reverse mortgages;
➢ The requirement to make
payments for real estate taxes and
insurance if not escrowed;
➢ 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.
Qualified Independent Counseling—
To further promote consumer
34 When developing consumer information,
institutions should: (1) Focus on information that
is important to consumer decision making; (2)
highlight key information so it will be noticed; (3)
employ a user-friendly and readily navigable format
for presenting the information; and (4) use plain
language, with concrete and realistic examples. A
consumer may benefit from comparative tables
describing key features of reverse mortgages
(including the different draw options).

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understanding and manage compliance
risks, reverse mortgage lenders offering
proprietary products should require
counseling from qualified independent
counselors before a consumer submits
an application for reverse mortgage loan
or pays an application fee. 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. Similarly, an
institution’s policies could 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 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.
As a general matter, qualified
independent counselors should provide
adequate time to discuss these matters
in detail and to address questions and
concerns raised by homeowners, and
should be able 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;
➢ The financial implications and tax
consequences of entering into a reverse
mortgage;
➢ The impact of a reverse mortgage
on eligibility for federal and state needsbased 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 for HECM lenders
regarding consumer counseling.
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. For example,
reverse mortgage lenders should:
➢ Adopt clear written policy and
internal controls stating that neither the
lender nor any broker will require the
borrower to purchase any other
financial or other product from the

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Federal Register / Vol. 74, No. 240 / Wednesday, December 16, 2009 / Notices

srobinson on DSKHWCL6B1PROD with NOTICES

lender in order to obtain the reverse
mortgage; 35
➢ Adopt clear policies so that
originators do not have an inappropriate
incentive to sell other products that may
appear to be linked to the granting of a
mortgage. For example, the institution’s
policy could state that neither the
lender nor any broker will offer to the
borrower or refer the borrower to a
provider of an annuity or other product
or service prior to the closing of the
reverse mortgage or, if applicable, the
expiration of the borrower’s right to
rescind the loan; 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
35 The anti-tying provisions of Section 106(b) of
the Bank Holding Company Act of 1970 applicable
to banks, and comparable anti-tying provisions for
savings associations, savings and loan holding
companies, and their affiliates, prohibit these
institutions from, among other things, requiring a
customer to purchase certain nonbanking products
or services, including insurance and annuity
products, as a condition to obtaining or varying the
price of credit. See 12 U.S.C. 1972, 1464(q), and
1467a(n), respectively. In addition, banks and
savings associations that offer insurance and
annuities are specifically prohibited from engaging
in practices that would cause a consumer to believe
that an extension of credit is conditioned on the
purchase of insurance or an annuity from the
creditor. See 12 U.S.C. 1831x and Consumer
Protection in Sales of Insurance Rules, 12 CFR
14.30, 208.83, 343.30, and 536.30. The Agencies
examine institutions for compliance with these
legal requirements and will take appropriate action
to address any violations.

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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. 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.
Dated: December 11, 2009.
Federal Financial Institutions Examination
Council.
Paul Sanford,
Executive Secretary.
[FR Doc. E9–29882 Filed 12–15–09; 8:45 am]

225), and all other applicable statutes
and regulations to become a bank
holding company and/or to acquire the
assets or the ownership of, control of, or
the power to vote shares of a bank or
bank holding company and all of the
banks and nonbanking companies
owned by the bank holding company,
including the companies listed below.
The applications listed below, as well
as other related filings required by the
Board, are available for immediate
inspection at the Federal Reserve Bank
indicated. The application also will be
available for inspection at the offices of
the Board of Governors. Interested
persons may express their views in
writing on the standards enumerated in
the BHC Act (12 U.S.C. 1842(c)). If the
proposal also involves the acquisition of
a nonbanking company, the review also
includes whether the acquisition of the
nonbanking company complies with the
standards in section 4 of the BHC Act
(12 U.S.C. 1843). Unless otherwise
noted, nonbanking activities will be
conducted throughout the United States.
Additional information on all bank
holding companies may be obtained
from the National Information Center
website at www.ffiec.gov/nic/.
Unless otherwise noted, comments
regarding each of these applications
must be received at the Reserve Bank
indicated or the offices of the Board of
Governors not later than January 11,
2010.
A. Federal Reserve Bank of Dallas
(W. Arthur Tribble, Vice President) 2200
North Pearl Street, Dallas, Texas 752012272:
1. Bank4Texas Holdings Inc., Tomball
Texas, to become a bank holding
company by, acquiring 100 percent of
Northern Bancshares, Inc., Chillicothe,
Texas, and indirectly acquire The First
National Bank of Chillicothe,
Chillicothe, Texas.
Board of Governors of the Federal Reserve
System, December 11, 2009.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. E9–29873 Filed 12–15–09; 8:45 am]
BILLING CODE 6210–01–S

BILLING CODE 6210–01–P

FEDERAL MARITIME COMMISSION
FEDERAL RESERVE SYSTEM

Notice of Agreements Filed

Formations of, Acquisitions by, and
Mergers of Bank Holding Companies

The Commission hereby gives notice
of the filing of the following agreements
under the Shipping Act of 1984.
Interested parties may submit comments
on the agreements to the Secretary,
Federal Maritime Commission,
Washington, DC 20573, within ten days
of the date this notice appears in the

The companies listed in this notice
have applied to the Board for approval,
pursuant to the Bank Holding Company
Act of 1956 (12 U.S.C. 1841 et seq.)
(BHC Act), Regulation Y (12 CFR Part

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