Tuesday, August 2, 2016

Reverse Mortgages and UDAAP - Can a disclosure fix it?

How do we solve customer notification issues?

In the wake of TRID and its hegemony over the compliance discussion, several high profile compliance issues get overlooked. One of these came up in a recent examination of a Massachusetts client challenged to provide its Reverse Mortgage procedures specifically with respect to ensuring the customer received sufficient information to make an informed decision. We categorize this type of risk in the category of Unfair, Deceptive and Abusive Acts and Practices. (UDAAP)

Traditionally, we ensure we don't run into trouble with predatory-type practices through the use of informational disclosures. We used this approach to design the solution for our client. The regulator wanted to know how we made sure the customer received specific information. Our only choices was to provide an informational document. It surprised me that there was no standardized disclosure, but we simply took the regulator's requirements and extracted them into a single page disclosure.

The regulator's site describes requirements. In the audit, the regulator simply asked "How do you inform customer of who to call with complaints?"

We designed a disclosure which described the requirements for reverse mortgages in the states the client conducted business. 

Is a disclosure enough?

Ironically, GFE reform, and now TRID, took disclosure as a cure for deceptive acts off the table. Now, rules extend to the content of the disclosure and the measurement of the final terms as a cure. Will this regulatory cure extend to programs like the Reverse Mortgage, where so much elder abuse takes place? Ultimately, the regulation of the loan type, the customer's proof of understanding, such as the completion of a course in the product, now fills that need. Perhaps the customer also needs to be quizzed on the terms of the product for our own assurance of understanding.

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