ngfs mccaskill amendment compliance program manual v2

8/14/2019 NGFS McCaskill Amendment Compliance Program Manual V2

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McCaskill Amendment Compliance Program

NOTICEAs a result of Senator Claire McCaskills amendments to the Housing andEconomic Recovery Act of 2008 and HUD Mortgagee Letter 2008-24,FEDERAL LAW NOW REQUIRES that mortgagees who originate federally-insured reverse mortgages:

1. MUST NOT condition a reverse mortgage on the purchase of any other

financial or insurance product;AND

2. SHOULD STRIVE to establish, consistent with the new law, firewallsand other safeguards to ensure there is no undue pressure or appearance of pressure for a mortgagor to purchase another product of the mortgageoriginator or mortgage originators company.

NEXT GENERATION FINANCIAL SERVICES IS FULLY COMMITTED TOMAINTAINING COMPLIANCE WITH FEDERAL LAW. ALL EMPLOYEES

MUST READ THIS COMPLIANCE MANUAL IN ITS ENTIRETY ANDABIDE BY ITS PROVISIONS.


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TABLE OF CONTENTS

I. Introduction and Statement of Purpose 1

II. McCaskill Amendment Compliance Program Overview 2

III. Firewall Procedure 2

a. Pre-Closing Interview 3

b. Pre-Closing HUD-1 Review 4

c. Post-Closing Interview 5

d. Annual Loan Officer Performance Evaluation 6

IV. Other Safeguards 7

V. Conclusion 9


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NGFS McCaskill Amendment Compliance Program Manual

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I. INTRODUCTION AND STATEMENT OF PURPOSE

Home Equity Conversion Mortgages (HECMs), also known as reverse mortgages, offera valuable benefit to senior citizens. In short, reverse mortgages offer qualified individuals anopportunity to reside in their home without monthly mortgage payments or to access the equityvalue of their home in order to meet their needs, such as long-term healthcare. The popularity of this product has increased dramatically in recent years since the U.S. Department of Housing andUrban Development (HUD) was authorized to insure reverse mortgages.

H.R. 3221, the Housing and Economic Recovery Act of 2008 (HERA), made significantchanges to the provisions of the National Housing Act that govern federally-insured reversemortgages. These changes include an amendment to HERA sponsored by Senator Claire McCaskill(the McCaskill Amendment) 1 that imposes significant requirements upon originators of reverse

mortgages. Passage of the McCaskill Amendment caused HUD to issue Mortgagee Letter 2008-24,which states in relevant part:

[The McCaskill Amendment to the National Housing Act] provides that a HECM mortgageoriginator or any other party that participates in the origination of a FHA 2 insured HECMmortgage shall (1) not participate in, or be associated with, or employ any party thatparticipates in or is associated with, any other financial or insurance activity; or (2)demonstrate to the Secretary of HUD that the mortgagee or other party maintains, or willmaintain, firewalls and other safeguards designed to ensure that (i) individuals participatingin the origination of a HECM mortgage have no involvement with, or incentive to providethe mortgagor with, any other financial or insurance product; and (ii) the mortgagor shall not

be required, directly or indirectly, as a condition of obtaining a mortgage under this section,to purchase any other financial or insurance product.

Before providing definitive guidance on [The McCaskill Amendment to the NationalHousing Act], FHA intends to seek comments from the public, including consumer groups,industry participants and other interested parties through appropriate administrative means.This will assist FHA in determining what requirements may already be in existence toaddress the consumer protections with which this section is concerned; for example, theremay be state requirements in existence that govern insurance products. Until such commentis 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 originators company .

1 Section 2122(a)(9) of HERA, codified as federal law at 12 U.S.C. 1715z-20(n) (Section 225(n) of the NationalHousing Act.2 The Federal Housing Administration, a division of HUDs Office of Housing that provides mortgage insurance onloans made by FHA-approved lenders throughout the United States and its territories.


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Next Generation Financial Services (NGFS) is fully committed to maintaining itscompliance with all applicable laws and regulations, including the McCaskill Amendment. 3 Inorder to ensure compliance with these new reverse mortgage lending laws, NGFS has prepared thismanual (the Manual) in order to implement its McCaskill Amendment Compliance Program. TheManual will be distributed to all NGFS loan originators (an NGFS loan originator is referred to byNGFS and this Manual as a Loan Officer) and the Manual will be reviewed and discussed witheach Loan Officer by his or her NGFS manager.

The purpose of this Manual is to implement NGFSs McCaskill AmendmentCompliance Program, a program designed to ensure that NGFS meets the requirements of theMcCaskill Amendment as set forth in HUD Mortgagee Letter 2008-24.

II. McCASKILL AMENDMENT COMPLIANCE PROGRAM OVERVIEW

As noted above, HUD Mortgagee Letter 2008-24 states that there are two steps that reversemortgage lenders must take to comply with the McCaskill Amendment until HUD/FHA issues itsfinal regulations:

1. Lenders must not condition a HECM mortgage on the purchase of any other financial orinsurance product; and

2. Lenders should strive to establish, consistent with the new law, firewalls and othersafeguards to ensure there is no undue pressure or appearance of pressure for a mortgagor topurchase another product of the mortgage originator or mortgage originators company.

With respect to step one, NGFS expressly prohibits its employees from conditioning the sale or origination of a reverse mortgage on the purchase of any other financial or insurance

product . This policy is made clear to all NGFS employees through this Manual as well as othertraining materials and internal NGFS communications. This policy is also made clear to all reversemortgage customers as part of every NGFS reverse mortgage transaction, through the AnnuityDisclosure and the Anti-Tying Disclosure and Customer Acknowledgment Forms, each of whichmust be read and signed by every customer before a reverse mortgage transaction will be closed.

Regarding the second step identified in HUD Mortgagee Letter 2008-24, NGFS hasdeveloped and established both (a) firewalls and (b) other safeguards to ensure there is no unduepressure or appearance of pressure for a reverse mortgage customer to purchase another product of the mortgage originator or the mortgage originators company, or to purchase another financial orinsurance product using the proceeds of the reverse mortgage transaction. These firewalls and other

safeguards are detailed elsewhere in this Manual.

III. FIREWALL PROCEDURE

In order to comply with HUD Mortgagee Letter 2008-24, and thereby maintain compliancewith the McCaskill Amendments requirements for reverse mortgage lenders, NGFS has

3 Several relevant HUD Mortgagee Letters, including Mortgagee Letter 2008-24, are attached as Appendices A C.


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implemented a four-step firewall procedure accompanied by other safeguards. Because NGFS doesnot market, offer, sell, or otherwise present any other financial products to its customers besidesreverse mortgages (and in fact expressly prohibits its employees from conducting such activities inconjunction with reverse mortgage sales), NGFS does not face the need to create firewalls or otherbarriers between employees working with such products and those working with reverse mortgages.NGFS recognizes, however, that because the mortgage origination industry is no longer atraditional, nine-to-five profession, there may be a need for external firewalls in some situations.Accordingly, NGFS mandates the following four steps as part of its firewall procedure, which mustbe completed for every reverse mortgage that is originated:

Step 1: Pre-Closing Interview

Step 2: Pre-Closing HUD-1 Review

Step 3: Post-Closing Interview

Step 4: Annual Loan Officer Performance Evaluation with Compliance Attestation

Each of the first three steps in this firewall procedure must be completed for every NGFSreverse mortgage originated, and each step must be completed not by the loan-originating LoanOfficer, but by a specifically-designated NGFS employee (the Disinterested Employee). The

Disinterested Employee must be an NGFS employee whose compensation is not based upon thevolume of reverse mortgages closed, whose income is not contingent on successful origination of

any NGFS reverse mortgage, and who does not report to an individual whose compensation is based upon the volume of HECM mortgages closed . Because the Disinterested Employee willconduct these steps of the process, and will not have any financial incentive that could present aconflict of interest, the firewall procedure will ensure compliance with the underlying goal of theMcCaskill Amendment and HUD Mortgagee Letter 2008-24: preventing any undue pressure or

appearance of pressure for a mortgagor to purchase another product in conjunction with the sale of a reverse mortgage. The fourth step in this firewall procedure is an annual loan officer performanceevaluation (the Loan Officer Performance Evaluation). The annual Loan Officer PerformanceEvaluation will be performed by each Loan Officers NGFS supervisor (an NGFS RegionalCoordinator), and will contain a Compliance Attestation by the Loan Officer affirming his or hercompliance with NGFS reverse mortgage compliance policies such as those contained in thisManual.

A. STEP 1: PRE-CLOSING INTERVIEW

The first step of the McCaskill Amendment Compliance Program firewall procedure is thePre-Closing Interview. In this step, each customer who wishes to enter into a reverse mortgagemust be contacted by an NGFS Disinterested Employee before the loan can proceed to closing. TheDisinterested Employee conducting the Pre-Closing Interview must speak directly and privatelywith the customer via telephone, and must complete the checklist that is attached to this manual asAppendix D. The Pre-Closing Interview includes questions for the customer such as:


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Has your NGFS Loan Officer, or anyone associated with your NGFS Loan Officer, offeredto sell you any type of financial or insurance product to be purchased with the proceeds of your NGFS reverse mortgage transaction?

Have you felt pressured in any way by anyone to use the proceeds of your NGFS reversemortgage for a certain purpose? If so, what purpose?

How do you plan to use the proceeds of your NGFS reverse mortgage?

Do you understand that NGFS does not require and does not recommend using the proceedsof your reverse mortgage to purchase any other financial or insurance product, includingproducts such as deferred annuities?

The goal of the Pre-Closing Interview is to have the Disinterested Employee verify the LoanOfficers compliance with the McCaskill Amendment and HUD Mortgagee Letter 2008-24.Because the Disinterested Employee conducting the Pre-Closing Interview does not receivecompensation contingent on the sale of the reverse mortgage, this employees interview with thecustomer helps ensure that there is a firewall between the sale of the NGFS reverse mortgage andany potential sale of, or incentive to sell, other financial or insurance products to the reversemortgage customer. If there is any information gathered from the customer during the Pre-ClosingInterview which suggests that the loan may not be in compliance with the McCaskill Amendment,the loan will be flagged and referred to NGFS upper management and legal counsel for reviewbefore the loan closing process can continue. If there is nothing found in the Pre-Closing Interviewto indicate a compliance problem, the reverse mortgage loan will continue towards closing.

B. STEP 2: PRE-CLOSING HUD-1 REVIEW

The second step in the McCaskill Amendment Compliance Program firewall procedure isthe Pre-Closing HUD-1 Review. In this step, the HUD-1 settlement statement for each NGFSreverse mortgage is carefully reviewed following the Pre-Closing Interview, prior to closing. Likethe Pre-Closing Interview, this review of the HUD-1 form is also conducted by a DisinterestedEmployee who is not under the supervision or control of the Loan Officer and whose income is notcontingent upon the successful origination of the reverse mortgage in question. During this step, theHUD-1 form is carefully reviewed in order to confirm that there are no disbursements to be madeusing the customers reverse mortgage proceeds that would indicate the purchase of anotherfinancial or insurance product by the customer. If no such disbursements are to be made accordingto the HUD-1 form, and the Pre-Closing Interview did not reveal any issues that might prevent fullcompliance with the McCaskill Amendment, the loan will be allowed to proceed to closing. If, onthe other hand, there is anything to suggest that the customer will be purchasing another financial orinsurance product with the proceeds of his/her reverse mortgage, the loan will be flagged andreferred to upper management as well as legal counsel for compliance review.

No reverse mortgage loan will be closed without either having: (a) passed both the Pre-Closing Interview and Pre-Closing HUD-1 Review; or (b) having been reviewed and passed forMcCaskill Amendment compliance by both NGFS upper management and legal counsel. Thesepre-closing firewall procedures will help ensure that no NGFS-originated reverse mortgage is


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conditioned on the purchase of another financial or insurance product, and that there is no unduepressure or appearance of pressure for a mortgagor to purchase another product in conjunctionwith the sale of an NGFS reverse mortgage.

C. POST-CLOSING INTERVIEW

The third step in the McCaskill Amendment Compliance Program firewall procedure is apost-closing telephone call to each reverse mortgage borrower (the Post-Closing Interview).Although the Pre-Closing Interview and Pre-Closing HUD-1 Review are intended to ensurecompliance with Mortgagee Letter 2008-28 at the time the NGFS reverse mortgage closes, theFHA/HUD requirements are broad. In short, NGFS, as the mortgagee, must strive to ensure that noindividual participating in the origination of an NGFS reverse mortgage has involvement with, orincentive to provide the borrower with, any other financial or insurance product.

Therefore, we believe that an effective firewall must also safeguard against the sale of financial or insurance products to the reverse mortgage borrower shortly after the closing of themortgage. To this end, a follow-up telephone Post-Closing Interview should be made no less than

two weeks nor more than six weeks after the closing to ensure that the proceeds of the reversemortgage were not used for prohibited purposes shortly after closing. Such calls should be made bya Disinterested Employee, as defined above.

The first sub-part of the Post-Closing Interview procedure is a review of the final HUD-1from the reverse mortgage closing in question. To the extent that there are no excess funds returnedto the borrower, there are no funds that could be used to purchase financial or insurance products.Because many (if not most) reverse mortgages are refinances, the number of loans that will need tobe monitored with a Post-Closing Interview will be relatively small. If funds are returned to theborrower as a result of the reverse mortgage closing, however, the borrower should be contacted via

telephone by a Disinterested Employee for a telephone Post-Closing Interview.

During the telephone Post-Closing Interview, the borrower will be asked the following:

Other than the NGFS reverse mortgage transaction, have you purchased any financial orinsurance products from the Loan Officer who originated your NGFS reverse mortgage?

How have you used the funds that you received from your NGFS reverse mortgage?

Do you have any other questions about your NGFS reverse mortgage?

Note: Unlike the Pre-Closing Interview, without which the mortgage will not close, the borrower may be less willing to participate in the Post-Closing Interview. If a majority of NGFS reverse mortgage borrowers fail to participate in the Post-Closing Interview step of the firewall procedure within the first year of its implementation, NGFS will consider implementing some type of incentive for borrowers in order to increase participation.

A checklist for use during the Post-Closing Interview is attached as Appendix E.


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D. ANNUAL LOAN OFFICER PERFORMANCE EVALUATION

The FHA requires that the relationship between NGFS and each of its loan originators bethat of employer and employee. In particular, the FHA requires that each employee of themortgagee be under the direct supervision and control of the mortgagee. The FHA requires that, ata minimum, regular and ongoing reviews must be conducted of employee performance and of work performed.

Each NGFS loan originator (referred to by NGFS as a Loan Officer) is supervised by aRegional Coordinator. NGFS employs four such Regional Coordinators. The RegionalCoordinator will conduct a performance evaluation of each Loan Officer under their supervision atleast once annually. This evaluation (the Loan Officer Performance Evaluation) will beconducted in the month on which the Loan Officers service anniversary date occurs, and theevaluation shall include the following topics:

The volume of NGFS reverse mortgages originated by the Loan Officer;

An assessment of the Loan Officers compliance with NGFS policy on the originationand documentation of HECM mortgages;

An assessment of the Loan Officers efforts to promote NGFSs policies with respect tothe Community Reinvestment Act.

A discussion of any issues relating to the Loan Officer that arose from NGFS reversemortgage pre-closing or post-closing interviews, or pre-closing HUD-1 reviews.

In addition, the Loan Officer will be given the opportunity to respond in writing to anyaspect of the Loan Officer Performance Evaluation with which he or she disagrees. Finally, theLoan Officer will be required to sign a Compliance Attestation as a part of the annual Loan OfficerPerformance Evaluation, stating that:

1. The Loan Officer is aware of all NGFS policies with respect to the origination of reversemortgages; and

2. The Loan Officer did not, directly or indirectly (a) sell any financial or insurance productto, or (b) benefit financially from the sale by any third party of any financial or insuranceproduct to, any borrower under an NGFS reverse mortgage with which the Loan Officerwas involved. If the loan originator has any doubt as to whether he or she benefiteddirectly or indirectly from the sale of a financial product to a reverse mortgage borrower,the loan originator should immediately refer such a question to management forresolution.

The form of the annual Loan Officer Performance Evaluation is attached as Appendix F.


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IV. OTHER SAFEGUARDS

NGFSs McCaskill Amendment Compliance Program contains a number of other safeguardsin addition to the above-detailed firewall procedure. Like the firewall procedure, these safeguardsare also designed to ensure that there is no undue pressure or appearance of pressure for an NGFSreverse mortgage customer to purchase another financial or insurance product in conjunction withthe origination of an NGFS reverse mortgage. The additional safeguards include:

A. Anti-Tying Disclosure and Customer Acknowledgment Form

This disclosure form is provided to each NGFS reverse mortgage customer before a reversemortgage is originated. By signing this notice, the customer acknowledges his or her understandingof the following facts:

NGFS does not encourage its customers to use mortgage loan proceeds to purchasesecurities or other investment products that have an inherent risk of loss of principal, orother products that may result in adverse tax consequences;

The Internal Revenue Code restricts loan interest deductions when loan proceeds areused to purchase certain life insurance, annuity, and endowment products, as well ascertain investment products;

o Only the customers income tax professional may provide the customer with taxadvice concerning the purchase of the products detailed above;

In the event that an NGFS Loan Officer is licensed to sell insurance or securitiesproducts as agents for another enterprise other than NGFS:

o The Loan Officer must disclose the relationship with the other enterprise tocustomers before offering to sell such products; and

o The Loan Officer must be aware that the Broker Dealer for the other enterprisemay not permit sales of securities using loan proceeds;

o NGFS does not endorse other products other than those offered by NGFS;

In connection with the reverse mortgage transaction, the NGFS Loan Officer will beacting solely as a residential mortgage loan officer and not as a seller of any other typeof product; and

The approval of the customers reverse mortgage loan application is in no waydependent upon the customers agreement to purchase any other product orservice from NGFS or the Loan Officer.

The form of the Anti-Tying Disclosure and Customer Acknowledgment Form is attached asAppendix G.


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B. Reverse Mortgage Advisor Disclosure

This disclosure form is also provided to each NGFS reverse mortgage customer before areverse mortgage is originated. By signing this form, the customer certifies:

He or she was encouraged to consult an advisor about his or her decision to obtain areverse mortgage;

Any fees for such an advisor are at the customers own expense;

He or she has consulted with an advisor or has chosen not to;

The names, titles and contact information of any advisor with whom the customer hasconsulted.

The form of the Reverse Mortgage Advisor Disclosure is attached as Appendix H.

C. Annuity Disclosure for Reverse Mortgage Transaction

The Annuity Disclosure form is a third notice provided to each NGFS reverse mortgagecustomer before a reverse mortgage is originated. By signing this disclosure form, the customeracknowledges that NGFS does not require, offer, or arrange the purchase of annuities in connectionwith the reverse mortgage transaction, and that NGFS does not endorse or recommend the purchaseof any such financial products. The form of the Annuity Disclosure is attached as Appendix I.

D. Anti-Coercion Statement

The Anti-Coercion Statement is presented to each NGFS reverse mortgage customer beforea reverse mortgage is originated in order to ensure compliance with state law. By signing thisnotice, the customer acknowledges that the insurance laws of Maryland prohibit the lender fromrequiring the customer to acquire property insurance through any particular insurance agent orcompany. The notice informs the customer that the customer has the right to purchase insurance forthe mortgaged property through the insurance agent or company of his or her choice (subject to therules adopted by the Maryland Insurance Commissioner), and that the lender has the right todesignate reasonable financial requirements regarding the insurer and the adequacy of coverage.The notice also asks the customer to designate the insurance agent and company that the customerchooses. The form of the Anti-Coercion Statement is attached as Appendix J.

E. Counseling Information

NGFS also ensures that its reverse mortgage customers meet the counseling requirements of HUD before a reverse mortgage is originated. The Counseling Information notice informs thecustomer that HUD requires the customer to obtain a counseling certificate from an approved


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organization in order to submit an application for a reverse mortgage. The notice also informs thecustomer that HUD requires the customer be provided with a list of such counselors prior tosubmission of the reverse mortgage application. By signing this notice, the customer acknowledgesthat he or she has either received the list of counselors with the instructions necessary for thecustomer to contact a counselor of his or her choice, or that the required counseling has alreadybeen obtained before contacting NGFS. The form of the Counseling Information notice is attachedas Appendix K.

V. CONCLUSION

As Senator McCaskill stated in her floor remarks regarding the McCaskill Amendment,some reverse mortgages are good and they may be appropriate in some circumstances as long ascertain safeguards are in place to protect borrowers. 4 Indeed, reverse mortgages are useful productsthat allows senior citizens to access the equity value of their residence, which is often their mostvaluable asset, without having to sell or leave their home. Reverse mortgages can be a lifeline forelderly Americans, providing them with a greatly-improved ability to meet the increasing financialburdens of modern life (such as the immense costs associated with health care). These beneficialaspects of reverse mortgages were thoroughly detailed in the National Council on the Agings 2005report, Use Your Home to Stay at Home Expanding the Use of Reverse Mortgages for Long-Term Care. 5

NGFS is keenly aware of both the benefits and hazards that reverse mortgages present tosenior citizens, and NGFS understands that the McCaskill Amendment does not seek to ban theelderly from using reverse mortgages to meet their needs. Rather, the McCaskill Amendment seeksto add additional safeguards to prevent abuse of the reverse mortgage system by those who wouldsell inappropriate financial or insurance products to vulnerable seniors, or otherwise profit fromconflicts of interest. As the McCaskill Amendment press release notes:

[The Amendment] would help to protect seniors by ensuring they receive independentcounseling prior to signing up for a reverse mortgage. The U.S. Department of Housing andUrban Development (HUD) will make counselors meet qualification standards and followuniform protocols. In addition, HUD will issue stronger consumer protection regulationsincluding protection against the marketing of financial and insurance products that areinappropriate for seniors.

NGFS is fully committed to meeting the reverse mortgage origination requirements of theMcCaskill Amendment as set forth in HUD Mortgagee Letter 2008-24. To this end, NGFS willcontinue its policy of not conditioning the origination of a reverse mortgage on the sale of any other

financial or insurance product. Furthermore, NGFS has implemented this McCaskill AmendmentCompliance Program in order to ensure that there is no undue pressure or appearance of pressure fora customer to purchase another financial or insurance product in conjunction with the origination of an NGFS reverse mortgage. In addition to a number of other safeguards, NGFS has implemented acomprehensive firewall program utilizing Disinterested Employees who operate independently of NGFS reverse mortgage loan originators (and whose compensation is not contingent upon the

4 See the McCaskill Amendment Press Release, April 3, 2008, attached as Appendix L.5 Available at http://www.ncoa.org/Downloads/ReverseMortgageReportPublications.pdf.


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completion of such mortgages). These pre- and post-closing procedures are truly firewalls in thesense that they separate enforcement of the McCaskill Amendment compliance measures fromthose employees who benefit directly from reverse mortgage origination, eliminating potentialconflicts of interest.

NGFS urges any employee with questions regarding the McCaskill Amendment ComplianceProgram as implemented by this manual to contact their Regional Coordinator immediately.


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Appendix A

Document: U.S. Department of Housing and Urban Development Mortgagee Letter 2008-24

Date: September 16, 2008

Source: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-24ml.doc


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U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENTWASHINGTON, DC 20410-8000

ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER

www.hud.gov espanol.hud.gov

September 16, 2008MORTGAGEE LETTER 2008-24

TO: ALL APPROVED MORTGAGEES

SUBJECT : Home Equity Conversion Mortgage (HECM) Program - Requirements onMortgage Originators

Section 2122 (a) (9) of the Housing and Economic Recovery Act of 2008 (HERA) addedSection 255 (n) to the National Housing Act to establish new requirements on HECM mortgageoriginators. Sections 255 (n)(1) and (n)(2) are described separately below.

Section 255 (n)(1): This section provides that a HECM mortgage originator or any otherparty that participates in the origination of a FHA insured HECM mortgage shall (1) not participatein, or be associated with, or employ any party that participates in or is associated with, any otherfinancial or insurance activity; or (2) demonstrate to the Secretary of HUD that the mortgagee orother party maintains, or will maintain, firewalls and other safeguards designed to ensure that (i)individuals participating in the origination of a HECM mortgage have no involvement with, orincentive to provide the mortgagor with, any other financial or insurance product; and (ii) themortgagor shall not be required, directly or indirectly, as a condition of obtaining a mortgage underthis section, to purchase any other financial or insurance product.

Before providing definitive guidance on Section 255 (n)(1), FHA intends to seek commentsfrom the public, including consumer groups, industry participants and other interested partiesthrough appropriate administrative means. This will assist FHA in determining what requirementsmay already be in existence to address the consumer protections with which this section isconcerned; for example, there may be state requirements in existence that govern insuranceproducts. 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 otherfinancial or insurance product, and should strive to establish, consistent with the new law, firewallsand other safeguards to ensure there is no undue pressure or appearance of pressure for a mortgagorto purchase another product of the mortgage originator or mortgage originators company.

Section 255 (n)(2): This section requires that all parties that participate in the origination of a mortgage to be insured under FHAs HECM program must be approved by the Secretary. Thisrequirement means that loan origination must be performed by FHA approved entities including: (1)a FHA-approved loan correspondent and sponsor; (2) a FHA approved mortgagee through its retailchannel; or (3) a FHA-approved mortgagee working with another FHA-approved mortgagee.

Consequently, Mortgagee Letter 2008-14, which provided guidance regarding the ways inwhich a non-approved entity or third party may participate and be compensated, is rescinded,


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effective on October 1, 2008. Beginning with case number assignments made on or after that date,only FHA-approved mortgagees, as described above, may participate and be compensated for theorigination of HECMs to be insured by FHA.

If you have any questions regarding this Mortgagee Letter, please call 1-800-CALLFHA.

Sincerely,

Brian D. MontgomeryAssistant Secretary for Housing-

Federal Housing Commissioner


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Appendix B


Date: September 29, 2008



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September 29, 2008

MORTGAGEE LETTER 2008-28

TO: ALL HUD-APPROVED MORTGAGEESALL HUD-APPROVED HOUSING COUNSELING AGENCIES

SUBJECT: Prohibition on Mortgagee Funded Home Equity Conversion Mortgage (HECM)Counseling

This Mortgagee Letter informs Federal Housing Administration (FHA) approvedMortgagees and Department of Housing and Urban Development (HUD) approved housingcounseling agencies that mortgagees are no longer permitted to pay for HECM counseling onbehalf of mortgagors. This new statutory requirement is effective immediately. This MLrescinds paragraph (2) of the section entitled Payment of Counseling Fee in ML 2008-12.

Section 2122 of the "Housing and Economic Recovery Act of 2008" (HERA) (Pub. L.No. 110-289), enacted July 30, 2008, requires that the HECM mortgage must be executed by a

mortgagor who received adequate counseling from an independent third party that is not eitherdirectly or indirectly associated or compensated by a party involved in 1) originating or servicingthe mortgage; 2) funding the loan underlying the mortgage; or 3) the sale of annuities,investments, long-term care insurance, or any other type of financial or insurance product.

No Permissible Method for Payments

Lenders can no longer pay HUD-approved counseling agencies, directly or indirectly,for counseling services through either a lump-sum payment or on a case-by-case basis. Anexample of prohibited indirect funding is Lenders funneling payment for HECM counselingthrough a nonprofit, foundation, association or any other entity or organization that is a branch

of, affiliated with or associated with a lending institution.Funding for Other Housing Counseling Services

Lenders may continue to pay for other types of housing counseling not associated with theHECM program, including pre-purchase and foreclosure prevention counseling, under certainconditions, as addressed in 24 CFR Part 214, regulations for HUDs Housing Counseling Program.


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As required by section 214.303(g) of the Housing Counseling regulations, these transactionsand relationships, as well as any other financial relationship between the counseling agency and anyindustry participant, must be disclosed to the counseling recipient.

If you have any questions regarding this Mortgagee Letter, please contact the FHA

Resource Center at 1-800-CALLFHA (1-800-225-5342). Persons with hearing or speechimpairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).

Sincerely,




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Appendix C


Date: October 20, 2008



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October 20, 2008MORTGAGEE LETTER 2008-33

TO: ALL APPROVED MORTGAGEESALL HUD-APPROVED HOUSING COUNSELING AGENCIES

SUBJECT: Home Equity Conversion Mortgage (HECM) for Purchase Program

The Housing and Economic Recovery Act of 2008 (HERA) provides HECM mortgagors with theopportunity to purchase a new principal residence with HECM loan proceeds. Section 2122(a)(9) of HERA amends section 255 of the National Housing Act to authorize the Department of Housing andUrban Development (HUD) to insure HECMs used for the purchase of a 1- to 4-family dwelling unit.Accordingly, eligible mortgagors now have the opportunity to purchase a principal residence with HECMloan proceeds. HECM for purchase transactions, for which the FHA case number is assigned on or afterJanuary 1, 2009, must satisfy existing program requirements and the provisions of this Mortgagee Letter.

The Federal Housing Administration (FHA) defines HECM for Purchase as a real estatepurchase where title to the property is transferred to the HECM mortgagor, which the mortgagor willoccupy as a principal residence, and, at the time of closing, the HECM first and second liens will be theonly liens against the property. HECM mortgagors must occupy the property within 60 days from the

date of closing. Lenders are required to ensure all outstanding or unpaid obligations incurred by theprospective mortgagor, in connection with the HECM transaction, are satisfied at closing.

Eligible Property Types

Only properties where construction is completed, as defined in Mortgagee Letter 2007-06, areeligible for FHA insurance under the HECM for Purchase program. Loan proceeds may be used to satisfyoutstanding payment obligations associated with a land contract, contract for deed or other similarpurchasing arrangements that will ensure the property, which will be used as collateral for the HECM,meets FHAs title requirements. Those requirements, as provided in section 255(b)(4) of the NationalHousing Act and implemented in the HECM regulations at 24 CFR 206.45, provide, in part, that the

HECM must be on real estate held in fee simple, or on a leasehold under a lease for not less than 99 yearswhich is renewable, or under a lease having a remaining period of not less than 50 years beyond the dateof the 100 th birthday of the youngest mortgagor.


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Ineligible Property Types

The following property types are ineligible for FHA insurance under the HECM for Purchaseprogram:

Cooperative units; Newly constructed principal residence where a Certificate of Occupancy or its equivalent has notbeen issued by the appropriate local authority;

Boarding houses; Bed and breakfast establishments; Existing manufactured homes built before June 15, 1976; and Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured

Home Construction Safety Standards, as evidenced by affixed certification labels (e.g. data plateand HUD certification label) and/or lack a permanent foundation as required in HUDs PermanentFoundations for Manufactured Housing Guide.

Property Flipping

Prospective mortgagors should be alert to efforts to coerce them into obtaining a reverse mortgageas part of a purchase contractual obligation, or purchasing a distressed home in need of substantial repairsbut being sold at or above market rate.

As such, HECM lenders must take steps to ensure that: a) only current owners of record may sellproperties that will be financed using FHA-insured mortgages; b) any resale of a property may not occur90 or fewer days from the last sale to be eligible for FHA financing; and c) for resales that occur between91 and 180 days where the new sales price exceeds 100% of the previous sales price, FHA will requireadditional documentation validating the propertys value. Lenders providing HECM financing for

purchase transactions must comply with guidance provided in Mortgagee Letter 2006-14 .

Refinancing and Existing Upfront Mortgage Insurance Premium (MIP)

The HECM refinance authority is only applicable when the property that serves as collateral forFHA-insurance remains the same. Therefore, existing HECM mortgagors who participate in a HECM forPurchase transaction are ineligible for a reduction of the upfront MIP and lenders must enter thetransaction into FHA Connection as a new HECM.

Monetary Investment

Consistent with existing policy, the maximum claim amount and principal limit will continue to becalculated in accordance HECM regulations at 24 CFR 206.3, HUD Handbook 4235.1 REV-1, andapplicable MLs. At closing, HECM mortgagors must provide a monetary investment which will beapplied to satisfy the difference between the HECM principal limit and the sales price for the property,plus any HECM loan related fees that are not financed or offset by other allowable FHA funding sources.HECM mortgagors may choose to provide a larger investment amount in order to retain a portion of theavailable HECM proceeds for future draws.


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3

Required Investment Examples

Example #1 Example #2 Example #3Appraised Value/MCA*$300,000Sales price $300,000

Appraised Value/MCA*$300,000Sales price $325,000

Appraised Value/MCA*$300,000Sales price $280,000

Principal Limit** $199,500 Principal Limit** $199,500 Principal Limit** $199,500Minus Loan Fees $ 15,500 Minus Loan Fees $ 15,500 Minus Loan Fees $ 15,500Avail. HECM proceeds $184,000 Avail. HECM proceeds $184,000 Avail. HECM proceeds $184,000Req. Investment $116,000 Req. Investment $141,000 Req. Investment $ 96,000* Appraised Value/MCA is defined as the maximum claim amount and is used to determine the principal limit which is thelesser of the appraised value or the FHA national mortgage limit. The principal limit is the maximum amount available tothe HECM mortgagor.** Assumes the age of the youngest HECM mortgagor is 67 and a principal limit factor of .665 for a 5% expected averagemortgage interest rate.

In each example above, loan fees are deducted from the principal limit of the HECM. However, it is notrequired that loan fees be deducted from HECM proceeds. The mortgagor may pay loan fees as part of the required monetary investment and use all HECM proceeds toward the purchase transaction.

Funding Sources

HECM mortgagors must use cash on hand or cash from the sale or liquidation of the mortgagorsassets for the required monetary investment.

Verification of Funding Sources

Lenders will be required to verify the source of all funds prior to closing. A verification of deposit, along with the most recent bank statement, may be used to verify savings and checking accounts.If there is a large increase in an account, or the account was opened recently, the lender must obtain a

credible explanation of the source of those funds. Such documentation must be provided in the FHA casebinder. Failure to provide the necessary documentation may result in a notice of rejection and delay of endorsement.

Gap Financing

Consistent with existing regulatory requirements at 24 CFR 206.32(a), HECM mortgagors may

not obtain a bridge loan (also known as gap financing) or engage in other interim financing methods tomeet the monetary investment requirement or payment of closing costs needed to complete the purchasetransaction. This restriction includes subordinate liens, personal loans, cash withdrawals from creditcards, seller financing and any other lending commitment that cannot be satisfied at closing.


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4

Gap Financing Example

A prospective HECM mortgagor completes the required reverse mortgage counseling and receivesan estimate stating the required monetary investment could be $25,000. The prospective HECMmortgagor has $20,000 in liquid assets but is short the remaining $5,000. The prospective HECMmortgagor cannot take $5,000 from a credit card or obtain interim financing in order to deposit the moneyinto their banking account in anticipation of being required to bring this amount to closing. However, theprospective HECM mortgagor may obtain the $5,000 from an allowable FHA funding source.

Enhanced Counseling

HUD-approved housing counseling agencies that have been approved to provide reverse mortgagecounseling, must counsel those who anticipate using the HECM for Purchase option on all topics covered

in this Mortgagee Letter and other HUD requirements and issuances.

Right of Rescission

The three-day right of rescission period is not applicable to HECM for Purchase transactions.Therefore, all initial advances may be disbursed on the day of closing by the settlement agent. However,FHA encourages lenders to seek their counsels opinion to assure compliance with Federal or State laws.

Closing Guidance

Lenders are required to ensure the property, when used as collateral for the HECM, meets the

following property requirements:

Will serve as the principal residence of the HECM mortgagor. Construction is complete and a certificate of occupancy or its equivalent has been issued. Any construction loan financing for the property, which will serve as the collateral for the HECM

loan, is satisfied and the HECM liens will be in a first and second lien position and, at the time of closing, no other liens against the property exist.

Consistent with existing lending practices, lenders are responsible for determining whether aparticular HECM loan is open or closed-end credit. In accordance with 24 CFR 206.43, lenders mustcomply with the regulatory disclosure requirements.

Data Entry

Instructions on how to enter HECM for Purchase transactions into FHA Connection and InsuranceAccounting Collection System will be provided in a separate instruction.


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5

Information Collection Requirements

The information collection requirements contained in this Mortgagee Letter were approved bythe Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act of

1995 (44 U.S.C. 3501-3520). Approval of HECM Program is covered by OMB control number2502-0524, with disclosures requirements being covered by OMB control numbers 2502-0265 and2502-0059. An agency may not conduct or sponsor, and a person is not required to respond to, acollection of information unless the collection displays a valid control number.

If you have questions regarding this Mortgagee Letter, please call FHAs Resource Center at1-800-CALL-FHA (1-800-225-5342). Persons with hearing or speech impairments may access thisnumber via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).

Sincerely,




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Appendix D


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NEXT GENERATION FINANCIAL SERVICESA Division of 1 st Mariner Bank

Reverse Mortgage Origination Pre-Closing Interview Checklist

Date and Time: __________________________

Name of Loan Officer: __________________________

Name of Supervisor: __________________________Regional Coordinator

Name of Borrower: __________________________

Borrowers Telephone Number: __________________________

Questions:

Has your NGFS Loan Officer (the person originating your NGFS reverse mortgage), or anyone associated withyour Loan Officer, offered to sell you any type of financial or insurance product to be purchased with theproceeds of your NGFS reverse mortgage transaction?

YES / NO IF YES, WHO AND WHAT: ____________________________

Have you felt pressured in any way by anyone to use the proceeds of your NGFS reverse mortgage for a certainpurpose?

YES / NO IF YES, WHAT PURPOSE: ____________________________

How do you plan to use the proceeds of your NGFS reverse mortgage?

______________________________________________________________________________________

Do you understand that NGFS does not require and does not recommend using the proceeds of your reversemortgage to purchase any other financial or insurance product, including products such as deferred annuities?

YES / NO IF NO, WHY: ____________________________

Have you discussed your NGFS reverse mortgage and how it works with a financial advisor, family member, ortrusted friend, other than your NGFS Loan Officer?

YES / NO IF YES, WHO: ____________________________

Do you have any questions about your NGFS reverse mortgage, and are there any questions or concerns about

this mortgage that you feel your Loan Officer has not answered to your satisfaction?

YES / NO IF YES, WHAT: ____________________________

INTERVIEW CONDUCTED BY DISINTERESTED EMPLOYEE:

______________________________ ______________________________Name Signature


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Appendix E


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NEXT GENERATION FINANCIAL SERVICESA Division of 1 st Mariner Bank

Reverse Mortgage Origination Post-Closing Interview Checklist

Date and Time: __________________________

Name of Loan Officer: __________________________


Name of Borrower: __________________________

Borrowers Telephone Number: __________________________

Questions:

Has your NGFS Loan Officer (the person originating your NGFS reverse mortgage), or anyone associated withyour Loan Officer, offered to sell you any type of financial or insurance product to be purchased with theproceeds of your NGFS reverse mortgage transaction?

YES / NO IF YES, WHO AND WHAT: ____________________________

Have you felt pressured in any way by anyone to use the proceeds of your NGFS reverse mortgage for a certainpurpose?


Other than the NGFS reverse mortgage transaction, have you purchased any financial or insurance productsfrom the NGFS Loan Officer who originated your NGFS reverse mortgage or anyone associated with your LoanOfficer?


How have you used the funds that you received from your NGFS reverse mortgage?

______________________________________________________________________________________

Do you have any other questions about your NGFS reverse mortgage?

______________________________________________________________________________________

INTERVIEW CONDUCTED BY DISINTERESTED EMPLOYEE:

______________________________ ______________________________Name Signature


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Appendix F


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Page 1 of 2

NEXT GENERATION FINANCIAL SERVICESLoan Officer Performance Evaluation

Evaluation for the period ending: __________________________

Name of Loan Officer (LO): __________________________


Loan Production

Number of loans originated during the evaluation period: __________Number of loans closed during the evaluation period: __________Dollar amount of loans closed: __________

Compliance with NGFS Administrative Requirements (Check one)

LO always submits accurate and timely applications. _______LO usually submits accurate and timely applications. _______LO occasionally submits inaccurate or late applications. _______LO frequently submits inaccurate or late applications. _______

Compliance with NGFS Community Reinvestment Act (CRA) Policy (Check one)

LO enthusiastically supports NGFSs CRA policies. _______LO supports NGFSs CRA policies. _______

LO does not support NGFSs CRA policies. _______

Comments from Pre-and Post-Closing Interviews (Check one)

No issues as to the LOs interactions with borrowers _______Some issues identified. _______Many issues identified. _______

Comments: ______________________________________________________

______________________________________________________

Overall Evaluation:

Excellent _____ Satisfactory _____Needs improvement _____ Unsatisfactory _____


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Page 2 of 2

Other Feedback:

________________________________________________________________

________________________________________________________________

___________________________________ ________________________Regional Coordinator Date

I have read and discussed this performance evaluation with my Regional Coordinatorsupervisor and I have the following comments:

________________________________________________________________________

________________________________________________________________________

___________________________________ ________________________Loan Officer Date

LOAN OFFICER COMPLIANCE ATTESTATION

I, _____________________________________, NGFS Loan Officer, do herebycertify and affirm that:

1. I AM AWARE of all NGFS policies with respect to the origination of reversemortgages; and

2. I HAVE NOT, during the period covered by this Performance Evaluation, directlyor indirectly:

a. Sold any financial or insurance product to any borrower under an NGFSreverse mortgage with which I was involved; or

b. Benefited financially from the sale of any financial or insurance product byany third party to any borrower under an NGFS reverse mortgage withwhich I was involved.

___________________________________ ________________________Loan Officer Date


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Appendix G


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Appendix L

Document: McCaskill Amendment Press Release

Date: April 3, 2008

Source: http://mccaskill.senate.gov/newsroom/record.cfm?id=295550

WASHINGTON, D.C. U.S. Senator Claire McCaskill late Thursday spoke on the floor aboutan amendment that aims to protect seniors from aggressive marketing and predatory lendingamid the rapid growth of the reverse mortgage industry. The provision, which is similar tolegislation introduced by McCaskill in December, was filed as an amendment to the ForeclosurePrevention Act, a housing stimulus package being considered on the Senate floor this week.

McCaskills amendment would help to protect seniors by ensuring they receive independentcounseling prior to signing up for a reverse mortgage. The U.S. Department of Housing andUrban Development (HUD) will make counselors meet qualification standards and followuniform protocols. In addition HUD will issue stronger consumer protection regulationsincluding protection against the marketing of financial and insurance products that areinappropriate for seniors.

McCaskill chaired a hearing before the U.S. Senate Special Committee on Aging in December inwhich members heard compelling testimony from a family affected by aggressive, predatorymarketing of reverse mortgages, senior advocates, an official from HUD, and an industry insider.

Excerpts of McCaskills Floor Speech, Thursday, April 3, 2008:

I rise to talk about reverse mortgages. I have an amendment that will be called up at a later time.I'm proud we have been working on this amendment. We had a hearing on the subject in theAging Committee. We have been working with Senator Shelby and his staff. We have beenworking with HUD and we have AARP helping with this.

If you look at the subprime mess and you sit back and you go, well, what really caused theproblem. Well, the root of the problem is the people who were selling the mortgages had no risk.If you have risk, you're careful. If you have no risk, then there's -- it's simple, just get to close thesale.

We are doing the exact same thing with reverse mortgages. Now, if you are watching any cableTV and probably way too many people in this chamber are watching way too much cable TVright now because everyone is watching the cable news because we are all addicted to thepresidential race and every twist and turn it has encompassed. So if you are watching the cablenews shows, you are seeing advertisements over and over again by Robert Wagner and by PatBoone and the trusted faces saying "don't miss out."


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Advertisements marketed to elderly people across the country say "don't pass up this governmentbenefit you're entitled to." Now, I got to tell you the truth. I don't think anybody envisioned thatreverse mortgages were going to be called a "government benefit" that you are entitled to. Theysay that because ultimately the taxpayers are on the hook for the loans.

But guess what? The people who are selling them are making commissions and they have norisk. Now, we kind of like these reverse mortgages because guess what? We make some moneyon it too -- that is, the federal government. So there's a push to lift the lid on how many reversemotors can be marketed to elderly people because the federal government is getting some of themoney when they are sold. But we are going down a dangerous path because we are marketing aproduct that is complicated and expensive to the most vulnerable population in America.

And for many of these elderly people, all they have is their home. And for many of these elderlypeople, they do not have a loved one that they can talk to about whether or not this financialinstrument is a good idea. Now, don't get me wrong, some reverse mortgages are good and theymay be appropriate in some circumstances but here's what's not appropriate: we require

counseling. Although, we've only appropriated a whopping $3 million for counseling. But still,they have to have counseling in every case. Guess who is paying for the entire counseling tab?Bad news -- the lenders are paying for the counseling. So the same people who want to close theloans are paying the counselors that are supposed to be giving these elderly people advice that isunbiased as to whether or not this is a good idea for them.

So, the amendment will step up to the plate and say we're not going to repeat the subprime fiascowith the nation's greatest generation. We're going to, in fact, fund the counselors so they get goodindependent information. We're going to make sure those counselors are certified. Right nowthey can have a criminal record, they can have no training. This is the wild, wild west out thereselling a financial product that's expensive and complicated to our elderly. Well, it doesn't take arocket scientist to figure out that's a dangerous, dangerous combination.

The other thing this does is it will prohibit someone who is marketing one of these products, oneof these reverse mortgages, from being able to sell another product. Believe it or not, there areactually people sitting down with elderly people right now in America who are saying, we'regoing to get you a reverse mortgage and, by the way, at the same time, we are going to sell you adeferred annuity. Now, I don't know how these people look themselves in the mirror. We had awitness in front of our committee whose mother was in her 80s and was sold a deferred annuityand a reverse mortgage at the same time. Unconscionable! To make this sale and to make thismoney. It is a get-rich-quick scheme for some of the sales people.

If we can provide certified counselors that are truly independent to make sure that every elderlyperson understands exactly what they're getting into and if we can make sure that they're notbeing marketed products that are inappropriate by the same people who are selling them thereverse mortgages, and if we can make sure that we are not closing a blind eye to this because weare benefiting in the short run from the marketing of these products, then, I think, reversemortgages have an appropriate place as one potential help to people in their elderly years whoneed to get the equity out of their homes for emergencies or medical bills or even to send a lovedone to college.


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But right now it's a dangerous, dangerous situation. So, I look forward to, hopefully, havingunanimous bipartisan support for this amendment. As I say, HUD has been very helpful indrafting this language, along with AARP, along with our colleagues on other side of the aisle. Itis well thought out. I think it is very appropriate and noncontroversial. It is not opposed by the

industry. There are many good guys in this that are doing this work. We just want to make surethat we're protecting the elderly from the bad guys and making sure that we're not standing herefive years from now saying, why didn't we do something about reverse mortgages? It's the samekind of dangerous mix that we had in the subprime mortgages. Thank you, Mr. President. I yieldthe floor.

ngfs mccaskill amendment compliance program manual v2

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