Reverse Mortgage Products: Guidance for Managing Compliance and Reputation Risks, 66652-66660 [E9-29882]

Agencies

• Federal Financial Institutions Examination Council

[Federal Register Volume 74, Number 240 (Wednesday, December 16, 2009)]
[Notices]
[Pages 66652-66660]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-29882]


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FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL

[Docket No. FFIEC-2009-0001]


Reverse Mortgage Products: Guidance for Managing Compliance and 
Reputation Risks

AGENCY: Federal Financial Institutions Examination Council (FFIEC).

ACTION: Notice; request for comment.

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SUMMARY: The Federal Financial Institutions Examination Council 
(FFIEC), on behalf of its members, requests comment on this proposed 
Reverse Mortgage Products: Guidance for Managing Compliance and 
Reputation Risks (guidance). 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 and the State Liaison 
Committee of the FFIEC will encourage state regulators to adopt the 
guidance. Accordingly, 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.

DATES: Comments must be received on or before February 16, 2010.

ADDRESSES: Because paper mail in the Washington, DC area and received 
by the FFIEC is subject to delay due to heightened security 
precautions, commenters are encouraged to submit comments by the 
Federal eRulemaking Portal, if possible. Please use the title ``Reverse 
Mortgage Comments'' to facilitate the organization and distribution of 
the comments. You may submit comments by any of the following methods:
    Federal eRulemaking Portal--``Regulations.gov'': Go to https://www.regulations.gov, under the ``More Search Options'' tab click next 
to the ``Advanced Docket Search'' option where indicated, select 
``FFIEC'' from the agency drop-down menu, then click ``Submit.'' In the 
``Docket ID'' column, select ``Docket Number FFIEC-2009-0001'' to 
submit or view public comments and to view supporting and related 
materials for this notice of proposed rulemaking. The ``How to Use This 
Site'' link on the Regulations.gov home page provides information on 
using Regulations.gov, including instructions for submitting or viewing 
public comments, viewing other supporting and related materials, and 
viewing the docket after the close of the comment period.
    Mail: Paul Sanford, Executive Secretary, Federal Financial 
Institutions Examination Council, L. William Seidman Center, Mailstop: 
D 8073a, 3501 Fairfax Drive, Arlington, Virginia 22226-3550.
    Hand Delivery/Courier: Paul Sanford, Executive Secretary, Federal 
Financial Institutions Examination Council, L. William Seidman Center, 
Mailstop: D 8073a, 3501 Fairfax Drive, Arlington, Virginia 22226-3550.
    Instructions: You must include ``FFIEC'' as the agency name and 
``Docket Number FFIEC-2009-0001'' in your comment. In general, the 
FFIEC will enter all comments received into the docket and publish them 
on the Regulations.gov Web site without change, including any business 
or personal information that you provide such as name and address 
information,

[[Page 66653]]

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 https://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.

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.
    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.
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    \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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    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

[[Page 66654]]

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.

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, 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 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, industry-wide, 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.
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    \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,'' https://www.federalreserve.gov/pubs/feds/2009/200942/200942pap.pdf.
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    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

[[Page 66655]]

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.
    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.
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    \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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    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.
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    \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).
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    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\
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    \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 https://assets.aarp.org/rgcenter/consume/2007_22_revmortgage.pdf).
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    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\
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    \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 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).

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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\
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    \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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    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.

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\
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    \7\ AARP, Reverse Mortgage: Niche Product or Mainstream 
Solution, Dec. 2007, at 1 (available at https://assets.aarp.org/rgcenter/consume/2007_22_revmortgage.pdf).
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    Reverse 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.
    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.
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    \8\ HECMs, by statute, must be first lien mortgages. 12 U.S.C. 
1715z-20(b)(3).
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    The funds from a reverse mortgage may be disbursed in several 
different ways:
    [rtarr8] A single lump sum \9\ that distributes up to the full 
amount of the principal limit \10\ in one payment;
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    \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 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.
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    [rtarr8] A credit line that permits the borrower to decide the 
timing and amount of the loan advances;
    [rtarr8] 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
    [rtarr8] 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\
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    \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 State-Chartered 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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    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

[[Page 66657]]

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\
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    \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.
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     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\
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    \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.
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    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\
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    \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).
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    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).
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    \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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     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:
    [rtarr8] Equal Credit Opportunity Act;
    [rtarr8] Fair Housing Act; and
    [rtarr8] 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.\21\
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    \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.
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    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 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.
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    \22\ HUD also provides model forms for HECMs. See Home Equity 
Conversion Mortgage Handbook 4235.1 (available at https://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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    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.
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    \26\ Housing and Economic Recovery Act of 2008 (HERA), Public 
Law 110-289, Sec.  2122(a)(9) (July 30, 2008).
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Compliance and Reputation Risks

    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.\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.
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    \27\ See note 3, supra.
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    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;
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    \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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    (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

[[Page 66658]]

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\
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    \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 https://aging.senate.gov/hearing_detail.cfm?id=296507. See also AARP report reference in note 7, 
above.
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    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.\30\
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    \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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    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 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.
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    \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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    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 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\
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    \32\ See AARP, Reverse Mortgage: Niche Product or Mainstream 
Solution, Dec. 2007, at 72, 98 (available at https://assets.aarp.org/rgcenter/consume/2007_22_revmortgage.pdf).
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    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

[[Page 66659]]

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.
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    \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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    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 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.
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    \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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    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:
    [rtarr8] Borrower and property eligibility;
    [rtarr8] When marketing proprietary products, the fact that these 
reverse mortgages are not government insured and the resulting risks to 
consumers;
    [rtarr8] Determination of principal limits based on home value, 
borrower age, and expected interest rates;
    [rtarr8] Lump sum and other disbursement options and their possible 
implications;
    [rtarr8] The circumstances under which the loan must be repaid;
    [rtarr8] 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;
    [rtarr8] Fees and charges associated with reverse mortgages;
    [rtarr8] The requirement to make payments for real estate taxes and 
insurance if not escrowed;
    [rtarr8] Alternatives to reverse mortgage products that are offered 
by the institution and may address the homeowner's needs; and
    [rtarr8] 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 
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:
    [rtarr8] The availability of other housing, social service, health, 
and financial options;
    [rtarr8] Financing options other than reverse mortgages, including 
other mortgage products, sale-leaseback financing, and deferred payment 
loans;
    [rtarr8] The differences between HECM loans and proprietary reverse 
mortgages;
    [rtarr8] The financial implications and tax consequences of 
entering into a reverse mortgage;
    [rtarr8] The impact of a reverse mortgage on eligibility for 
federal and state needs-based assistance programs, including 
Supplemental Security Income; and
    [rtarr8] 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:
    [rtarr8] 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

[[Page 66660]]

lender in order to obtain the reverse mortgage; \35\
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    \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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    [rtarr8] 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
    [rtarr8] 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, i