Under new legislation, reverse mortgage originators are prohibited from selling other financial or insurance products, according to a letter from the chief of the Federal Housing Administration.
The Department of Housing and Urban Development Tuesday issued Mortgagee Letter 2008-24 outlining the requirements to be a mortgage originator of home-equity conversion mortgages.
| The letter was addressed from Federal Housing Commissioner Brian D. Montgomery.
FHA reverse mortgage originators must be approved by HUD. On Oct. 1, the agency is rescinding Mortgagee Letter 2008-14, which provided guidance regarding the ways in which a non-approved entity or third party may participate and be compensated. HUD explained that HECM originators — or anyone else involved in the HECM origination process — cannot participate in, or be associated with, any other financial or insurance activity. In addition, HECM originators are prohibited from employing any party that is tied to other financial or insurance activities. Mortgagees are also required to demonstrate that they maintain firewalls and other safeguards that will prevent incentives for anyone in the HECM origination process to offer other financial services or insurance products.
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HUD photo of Brian D. Montgomery |
Most importantly, mortgagees are prohibited from requiring an HECM borrower to purchase any other financial or insurance product.
The revised requirements are part of H.R. 3221, the Housing and Economic Recovery Act of 2008, which became law on July 30. Prior to providing any guidance, the Federal Housing Administration will seek public comments from consumer groups, industry participants and other interested parties through appropriate administrative means.
“Until such comment is solicited and received, and FHA issues more definitive guidance, FHA advises that mortgagees must not condition a HECM mortgage on the purchase of any other financial or insurance product, and should strive to establish, consistent with the new law, firewalls and other safeguards to ensure there is no undue pressure or appearance of pressure for a mortgagor to purchase another product of the mortgage originator or mortgage originator’s company,” the letter stated.
