NAFCU weighed in the Consumer Financial Protection Bureau's request to gathercomment regarding reverse mortgages.

The trade association, in a letter to CFPB released lateThursday, encouraged the bureau to focus on problem lenders withoutpromulgating sweeping new regulations, and wait until it hasfinished promulgating all of the new housing regulations requiredby the Dodd-Frank Act if it is intent on moving forward withregulatory changes to the loan product.

Dillon Shea, NAFCU's regulatory affairs counsel, began the Aug.30 letter to CFPB's Monica Jackson by stating that credit unionsare not very active in the reverse mortgage market, and given thesmall size of the market, sweeping changes to the market at thistime may only serve to chase responsible lenders out.

“While NAFCU understands that there are some unscrupulouslenders originating reverse mortgages, the market is so small thatthe Bureau's enforcement authority should be wielded to targetthose specific bad actors. Focusing on problem lenders withoutpromulgating sweeping new regulations will likely provide thegreatest benefits to consumers while ensuring that responsiblelenders do not exit the market,” Shea wrote.

The lending industry is already facing a host of new regulations encompassing not only mortgages, butalso significant changes to other products and practices. Many ofthose regulations have not been finalized and lenders will likelyhave a relatively short amount of time between when rules arefinalized and when compliance will be required.

The CFPB should wait until after those rules have beenpromulgated so that lenders can focus their resources on complyingwith those changes to the law, NAFCU urged. In response to specificquestions posed by the CFPB, NAFCU said originated reversemortgages to seniors without counseling would be uncommon.

If a member planned to use the funds for speculative purposes,such as investing the funds somewhere else rather than using themto supplement income, credit unions would likely counsel againstit, the trade group said.

Secondly, reasons for seeking a reverse mortgage vary due tounique reasons, and consequently, product choice varies as well.“It is our experience that borrowers prefer the certainty thatcomes with a fixed rate loan; however, the different costs andbenefits of a fixed rate, as opposed to an adjustable rate, mayultimately lead a borrower in a different direction,” Shea told theCFPB.

“Credit union members also tend to gravitate towards the monthlydisbursement option. The lump sum option, however, is also usefulbecause it can be used to pay off a particular expense, such asmedical bills,” he said.

Finally, Shea said as a result of the tendency for credit unionsto counsel members with financial education, in virtually allcases, members are made aware of other options.

“The fact that the borrower does not need to pay back the loanuntil he or she dies, sells, or moves out of the home provides asense of security. The fact that the borrower, or the estate,will not be required to pay back any balance in excess of the homevalue also provides some sense of security, though this is an issuewhere lenders need to ensure borrowers fully understand the costsfor which they may be liable,” he concluded.

The CFPB deadline for submitting comment regarding reversemortgages was Friday.