Letter to the Comptroller of the Currency

Ed Wood

508 NW Lambrusco Drive phone: 772/785-6174
Port St. Lucie, FL 34986 cell: 772/618-5288 FAX: 772/785-8164
e-mail: edandterri@bellsouth.net

June 15, 2009

Mr. John C. Dugan
Comptroller of the Currency
Administrator of National Banks
Washington, DC 20219

Dear Mr. Dugan:

I have read the transcript of your presentation, Consumer Protections for Reverse Mortgages, delivered before the American Bankers Association Regulatory Compliance Conference, on June 8, 2009 in Orlando, Florida.

Your background and experience is very impressive, but your knowledge of the Reverse Mortgage is sadly lacking.

1. You state that reverse mortgages, “…have some of the same characteristics as the riskiest types of subprime mortgages.” But you fail to enumerate comparable characteristics. The problems involved with subprime mortgages were the result of unscrupuously aggressive marketing by the private sector, and an apparent lack of regulatory oversight.

Don’t you know that the reverse mortgage is not a product of the private sector, but is the result of the Home Equity Conversion Act, created and passed by Congress and encacted into law on February 2, 1988? This legislation produced the Home Equity Conversion Mortgage (HECM) which by your own statement constitutes over 90% of all reverse mortgages. (The other 10% being “jumbo” loans for properties too large to qualify for the mandatory FHA mortgage insurance coverage for HECM loans.) These jumbo loans no longer exist.

Don’t you know that HECM reverse mortgages are totally controlled by the Department of Housing and Urban Development (HUD), and insured by the Federal Housing Administration (FHA)? HUD controls every aspect of the marketing of reverse mortgages; origination fees, interest rates, commissions, insurance costs, everything. No other form of indebtedness is so rigidly controlled by the Federal Government.
2. You state that, “This substantial pot of cash can tempt lenders to simultaneously and aggressively market investment, insurance, or annuity products, or worse, attempt to condition loan approval on the purchase of such products.”

Don’t you know that both the application documents and the the final closing documents require notitized statements, signed by both the applicant and the sales representative, specifically prohibiting such solicitations? You should know this, since you twice make reference to it further into your presentation. So the previously quoted statement contradicts your own further conclusion.


3. You state, “these loans can be more costly than other types for mortgages because… lenders need to be compensated for the risk in proprietary products that the outstanding balance may exceed the value of the collateral over time.”

Don’t you know that the mandatory FHA mortgage insurance policy protects the applicant, his/heirs, and the lender, from responsibility should the amount borrowed exceed the value of the property at the end of the loan period? There is no risk to the lender, as long as the FHA remains viable.


4. You state, “a HECM borrower may draw down his or her line of credit in a single lump at any time, and…HUD has estimated that borrowers choosing a line of credit typically withdraw at least 60% of their funds as soon as the loan is closed.” This statement is confusing, at best. But…

Don’t you know that if the lender is required by HUD to “expand the line of credit” (meaning tax-free interest) on any funds left with the lender at a rate of 0.5% greater than the interest charged on the funds the applicant chooses to withdraw? Why is this not mentioned?

There are many other mis-statements or omissions of fact that I could mention. There is a wealth of unbiased information on reverse mortgages available on-line from the Department of Housing and Urban Development, the Federal Housing Administration, the AARP, and others. Perhaps your staff can provide more thorough research before you further embarrass yourself.

Sincerely,



Ed Wood