FTC Comment Before the Federal Financial Institutions Examination Council Concerning Proposed Guidance on Reverse Mortgage Products

BEFORE THE FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL
In the Matter of
Request for Comment on Proposed Guidance Regarding Reverse Mortgage Products
Docket No. FFIEC-2009-0001
Comments of the Staff of the Bureau of Consumer Protection, the Bureau of Economics,
and the Office of Policy Planning of the Federal Trade Commission
February 16, 2010*
______________________________________________________________________________
*These comments represent the views of the staff of the Bureau of Consumer Protection,
the Bureau of Economics, and the Office of Policy Planning of the Federal Trade
Commission. They are not necessarily the views of the Commission or any individual
Commissioner. The Commission has, however, voted to authorize the staff to submit these
comments.
______________________________________________________________________________

See Federal Reserve Board Divisions of Research & Statistics and Monetary Affairs1
Finance and Economics, “Reversing the Trend: The Recent Expansion of the Reverse Mortgage
Market” (2009) (Discussion Series Paper), available at
http://www.federalreserve.gov/pubs/feds/2009/200942/200942pap.pdf.
See United States Government Accountability Office, “Reverse Mortgages: Product2
Complexity and Consumer Protection Issues Underscore Need for Improved Controls over
Counseling for Borrowers” at 48 (June 2009) (recommending that federal agencies, including the
Commission, take steps “[t]o enhance consumer protection from potentially misleading
marketing” concerning reverse mortgages), available at
http://www.gao.gov/new.items/d09606.pdf.
FFIEC, “Reverse Mortgage Products: Guidance for Managing Compliance and3
Reputation Risks,” 74 Fed. Reg. 66,652 (Dec. 16, 2009).
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I. Introduction
Reverse mortgages have become an increasingly important credit product in the
mortgage marketplace. The number of consumers taking out reverse mortgages—and FHA-
insured Home Equity Conversion Mortgages (“HECMs”) in particular—has increased in recent
years. Reverse mortgages are typically only available to borrowers who are age 62 years or1
older, and they require a lien on what is often the consumer’s most valuable asset—the home.
Although reverse mortgages have assisted many elderly consumers in drawing on the equity in
their homes, their growing prevalence also has raised concerns that elderly consumers may not
understand these complex products or may be deceived by marketing claims made about them.2
On December 16, 2009, the Federal Financial Institutions Examination Council
(“FFIEC”) published a proposed guidance document (“Proposed Guidance”) on how the
financial institutions its member agencies regulate should manage the compliance and reputation
risks reverse mortgages present. Staff of the Federal Trade Commission’s Bureau of Consumer3
Protection, Bureau of Economics, and Office of Policy Planning (“FTC staff”) appreciates the
opportunity to share its views on the Proposed Guidance. In general, FTC staff supports the
FFIEC’s efforts to prevent deception and assist consumers in making better-informed decisions
relating to reverse mortgages. FTC staff specifically supports the FFIEC’s advice regarding the
importance of not making deceptive claims about reverse mortgages and its concrete guidance as
to the circumstances under which claims may be deceptive in violation of Section 5 of the FTC
Act.

Banks, savings and loan institutions, and federal credit unions are exempt from the4
Commission’s jurisdiction under the FTC Act. 15 U.S.C. § 45(a)(2).
15 U.S.C. § 45(a).5
15 U.S.C. §§ 1601-1666j. Other statutes enforced by the FTC that address consumer6
credit practices include the Home Ownership and Equity Protection Act, 15 U.S.C. § 1639; the
Consumer Leasing Act, 15 U.S.C. §§ 1667-1667f; the Fair Debt Collection Practices Act, 15
U.S.C. §§ 1692-1692o; the Fair Credit Reporting Act, 15 U.S.C. §§ 1681-1681x; the Equal
Credit Opportunity Act, 15 U.S.C. §§ 1691-1691f; and the Credit Repair Organizations Act, 15
U.S.C. §§1679-1679j.
Under the Omnibus Appropriations Act of 2009, Pub. L. No. 111-8, § 626, 123 Stat. 5247
(Mar. 11, 2009), as clarified by the Credit Card Accountability Responsibility and Disclosure
Act of 2009, Pub. L. No. 111-24, § 511, 123 Stat. 1734 (May 22, 2009), the Commission has the
authority to promulgate rules that “relate to unfair or deceptive acts or practices regarding
mortgage loans,” including reverse mortgage loans.
Over one hundred participants from 40 states, the District of Columbia, and Puerto Rico8
have joined the Working Group, including representatives of state attorneys general, state bank
regulators, the U.S. Department of Housing and Urban Development, the Federal Bureau of
Investigation, and the U.S. Department of Justice.
2
II. FTC Reverse Mortgage Activities
As the primary federal agency that enforces consumer credit laws with respect to non-
depository institutions, the FTC has wide-ranging responsibilities in the mortgage market.4
The Commission enforces Section 5 of the FTC Act, which broadly prohibits “unfair or
deceptive acts or practices in or affecting commerce.” The agency also enforces numerous laws5
relating to financial practices, including the Truth in Lending Act (“TILA”). Although6
primarily a law enforcement agency, the FTC also fulfills its core consumer protecting mission
by issuing rules, developing consumer and business education materials, and engaging in7
research and policy development.
The FTC has an active law enforcement program to assess and respond to problematic
conduct in the reverse mortgage market. In addition to regularly monitoring complaints relating
to reverse mortgages in its Consumer Sentinel database, in the fall of 2008 FTC staff organized
the Federal-State Reverse Mortgage Law Enforcement Working Group. The purpose of the
Working Group is to bring together federal and state law enforcement agencies to discuss issues
and developments related to reverse mortgages. It is intended to enhance coordination and8
cooperation among enforcement officials to enable them to respond quickly and effectively to
unlawful activity related to reverse mortgages. The Working Group has met and continues to
meet on a regular basis.

See FTC, “Reverse Mortgages: Get the Facts Before Cashing in on Your Home’s9
Equity,” available at http://www.ftc.gov/bcp/edu/pubs/consumer/homes/rea13.shtm.
FTC, “Housing Counselors: How to Help People Avoid Reverse Mortgage Missteps,”10
available at http://www.ftc.gov/bcp/edu/pubs/business/alerts/alt158.shtm.
74 Fed. Reg. at 66,657-58.11
Id.12
Id. at 66,659.13
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In addition, to help educate consumers about the costs and benefits of reverse mortgages,
the Commission recently published an updated consumer education brochure. Titled “Reverse
Mortgages: Get the Facts Before Cashing in on Your Home’s Equity,” the brochure includes
important information on what consumers should be aware of when considering a reverse
mortgage and where to report possible deception. The FTC also developed a new pamphlet9 10
for reverse mortgage housing counselors on how to spot and report potentially deceptive claims
or other unlawful conduct. The FTC distributed the pamphlet throughout the HUD network of
housing counselors. FTC staff has also made presentations to reverse mortgage industry groups,
including the National Reverse Mortgage Lenders Association, on deceptive advertising and
related issues.
III. The Proposed Guidance
The Proposed Guidance identifies four primary concerns of the FFIEC’s member
agencies regarding reverse mortgages, namely that: (1) consumers may enter into reverse
mortgages without a full understanding of the loan’s consequences and may be misled by
marketing materials; (2) counseling may not be provided or may not be adequate to remedy any
misunderstandings; (3) appropriate steps may not be taken to determine and assure that
borrowers will be able to pay property taxes and homeowners insurance; and (4) potential
conflicts of interest and abusive practices may arise in connection with reverse mortgage
transactions, including with the use of loan proceeds and the sale of ancillary products. The11
FFIEC emphasizes that these concerns are “especially pronounced” with respect to proprietary
reverse mortgage products, which are not subject to certain consumer protection provisions that
are statutorily mandated under the HECM program.12
The Proposed Guidance discusses several practices that institutions offering reverse
mortgages should implement to address these concerns. With respect to communications with
consumers, the Proposed Guidance states that lenders should review advertising and marketing
materials for deceptive claims. In analyzing claims, lenders should consider whether they are
deceptive under Section 5 of the FTC Act. The types of claims that warrant close scrutiny
include claims related to product features, loan terms, risks, and borrower obligations for
property taxes, insurance, and maintenance. The Proposed Guidance provides examples of13

Id. at 66,658.14
Id. at 66,659. FTC staff does not take a position on whether the Commission would15
conclude that any particular act or practice discussed in the Proposed Guidance is an unfair or
deceptive act or practice under Section 5 of the FTC Act. Such a determination would require an
assessment of the facts and circumstances of each particular act or practice, including the
applicable legal standard. See 15 U.S.C. §§ 45(a) and (n); FTC Policy Statement on Deception,
appended to Cliffdale Assocs., Inc., 103 F.T.C. 110, 174-84 (1984); Letter from the FTC to Hon.
Wendell Ford and Hon. John Danforth, Committee on Commerce, Science and Transportation,
United States Senate, Commission Statement of Policy on the Scope of Consumer Unfairness
Jurisdiction (Dec. 17, 1980), appended to In re Int’l Harvester Co., 104 F.T.C. 949, 1070 (1984).
Id.16
Id.17
Id. at 66,658-59.18
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potentially deceptive advertising claims, including claims of “income for life,” “no payments
ever,” and “no risk.” It also notes that FFIEC member agencies “will evaluate potentially14
misleading marketing materials and take appropriate action to address any marketing that
violates the FTC Act prohibition on deception.”15
In addition to recommending that lenders carefully evaluate advertising and marketing
materials to identify and eliminate deceptive claims, the Proposed Guidance presents other
measures to help consumers make better-informed decisions about reverse mortgages. The
Proposed Guidance advises lenders to consider the timing, content, and clarity of the information
they present to consumers, and to provide clear and balanced product descriptions when a
consumer is shopping for a loan. The Proposed Guidance also states that lenders should16
require consumers to obtain qualified, independent counseling before applying for a reverse
mortgage loan. In particular, it states that the information provided to consumers during these
counseling sessions should include, among other things, the financial implications of entering
into a reverse mortgage and the availability of other financing options. The Proposed Guidance
notes that counseling for proprietary products would be consistent with the HUD requirement for
consumer counseling under the HECM program.17
The Proposed Guidance further encourages lenders to take a number of other steps
related to reverse mortgages. It generally advises lenders offering proprietary products to follow
the requirements of the HECM program. The Proposed Guidance also provides that lenders
should take steps to ensure consumers can pay required taxes and insurance and to avoid any18

Id. at 66,659-70.19
Id. at 66,660.20
See James M. Lacko and Janis K. Pappalardo, Improving Consumer Mortgage21
Disclosures: An Empirical Assessment of Current and Prototype Disclosure Forms (June 2007)
(FTC Bureau of Economics Staff Report), available at
http://www.ftc.gov/os/2007/06/P025505mortgagedisclosurereport.pdf. FTC staff is not aware of
any research regarding the effectiveness of the specific measures proposed by the FFIEC in the
context of HECM or proprietary products.
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appearance of a conflict of interest. Finally, the Proposed Guidance includes advice for19
institutions on implementing effective policies, procedures, and internal controls and managing
third-party risks.20
IV. FTC Staff Views
FTC staff believes that the Proposed Guidance addresses important issues related to
reverse mortgages and does so at a critical juncture. Reverse mortgage products have become
more prevalent in recent years, and during an economic downturn even more elderly consumers
may seek to use such products to obtain funds they sorely need. Although reverse mortgages
may be useful for some consumers, it is important that consumers understand the costs and
benefits of such products, which will result in a reduction in the equity in the most important
asset many consumers have—their homes. FTC staff thus generally supports measures like
those included in the Proposed Guidance that are intended to assist consumers in making better-
informed decisions about reverse mortgages.
FTC staff specifically supports the FFIEC’s efforts to advise lenders under the
jurisdiction of its member agencies of the importance of not making deceptive claims for reverse
mortgages and to provide them with concrete guidance as to the circumstances under which
claims may be deceptive in violation of Section 5 of the FTC Act. FTC staff encourages reverse
mortgage lenders and brokers under the FTC’s jurisdiction to review and consider the Proposed
Guidance’s advice and examples relating to deceptive claims.
As noted above, the Proposed Guidance also states that lenders offering proprietary
products should provide consumers with the disclosures and counseling required for HECM
products. FTC staff supports the FFIEC’s goal of providing consumers with information to
assist them in making better-informed decisions about reverse mortgages. FTC staff’s
experience and research demonstrates the value of testing disclosures and other measures in21
certain circumstances to confirm that they are clear and useful and do not create unintended
consequences.

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V. Conclusion
FTC staff supports the FFIEC’s efforts to address consumer protection concerns raised by
reverse mortgages. Specifically, FTC staff endorses the Proposed Guidance’s direction to
reverse mortgages lenders to avoid deceptive practices, and supports the FFIEC’s efforts to
advise lenders on how to accomplish this. FTC staff also notes the value of consumer testing to
ensure that disclosures and other measures to provide consumers with information about reverse
mortgages are effective.
Respectfully submitted,
_____________________________
David C. Vladeck, Director
Joel Winston, Associate Director
Thomas B. Pahl, Assistant Director
Heather Allen, Attorney
Carole L. Reynolds, Attorney
Bureau of Consumer Protection
_____________________________
Susan S. DeSanti, Director
Michael Wroblewski, Deputy Director
Christopher M. Grengs, Attorney Advisor
Office of Policy Planning
_____________________________
Joseph Farrell, Director
Paul A. Pautler, Deputy Director
Jan Pappalardo, Assistant Director
Bureau of Economics