Warning that reverse mortgages pose significant compliance risks, Comptroller of the Currency John C. Dugan said regulators should set standards for national banks “before real problems develop.”
During a speech yesterday at the American Bankers Association’s Regulatory Compliance Conference in Orlando, Fla., Dugan said regulatory agencies should be working on interagency guidance for reverse mortgages that is sufficiently robust to ensure consumers are adequately protected, according to a news statement. The Office of the Comptroller of the Currency would examine national banks for compliance with the guidance as well as relevant existing regulations. But the guidance may not be enough, he said.
“In these circumstances, more definitive regulatory standards may need to be adopted, and the OCC is prepared to do that – even if the standards we advocate initially apply only to reverse mortgage lending by national banks,” Dugan said.
Dugan said reverse mortgages have some of the same characteristics as the riskiest types of subprime mortgages, “and that should set off alarm bells.” The experience with subprime mortgages, “clearly demonstrates the link between compliance and safety and soundness,” he said.
Dugan said he would like to see the Department of Housing and Urban Development create guidelines for the establishment of escrow accounts for home equity conversion mortgages so borrowers don’t risk foreclosure for not meeting property insurance and tax obligations.
“Once they set the standards for escrows, we would ensure that they are followed by national banks for HECM products, and would ensure – by regulation, if necessary – that comparable standards apply in connection with proprietary reverse mortgages offered by national banks,” Dugan said.
Dugan added that the OCC would use existing authority to deal with deceptive marketing of reverse mortgages and ensure that national banks do not condition a loan on the borrower’s purchase of non-banking products.
