Section 49.2. Purpose

(a) This chapter provides guidance to licensees regarding the Department’s interpretation of the proper conduct of making, originating or servicing reverse mortgage loans and to inform licensees of the proper use of, and risks associated with, reverse mortgage loans. Reverse mortgage loans can present eligible homeowners with unique benefits not available through standard mortgage loans. Because of this, the Department believes that reverse mortgage loans will become more available and widely offered to consumers in this Commonwealth. However, with these benefits also come unique risks to the homeowners. The vast majority of reverse mortgage loans that are marketed in this Commonwealth are to consumers who are 62 years of age or older, primarily because the Federally-insured reverse mortgage loan program prohibits the making of reverse mortgage loans to borrowers who are under 62 years of age. Because of the demographic to which most reverse mortgage loans are marketed, the Department is concerned about the potential for older consumers in this Commonwealth to be victimized by either bad advice or outright fraud. Furthermore, the Department is concerned that as reverse mortgage loans become more available, licensees may not be fully cognizant of the propriety of, and the necessary business practices required to limit risks to consumers in this Commonwealth who use, reverse mortgage loans.

(b) Most reverse mortgage lenders offer insured reverse mortgage loans and must adhere to well-established Federal standards set through the FHA’s reverse mortgage loan insurance program, including consumer counseling. However, proprietary reverse mortgage loans are not insured by the Federal government and are not required to follow the standards and requirements mandated by the FHA to obtain Federal insurance. Therefore, proprietary reverse mortgage loans present certain financial risks that are not present with an insured reverse mortgage loan. For example, in the event that a proprietary reverse mortgage lender were to fail or become unable to service its proprietary reverse mortgage loans, borrowers’ anticipated income streams could be disrupted or eliminated causing unexpected and severe financial hardship to the borrowers. Additionally, a risk facing proprietary reverse mortgage lenders is a decline in the market value of a property serving as collateral to a level that is less than the value of the proprietary reverse mortgage loan. While FHA insurance provides lenders of insured reverse mortgage loans with protection against this risk, proprietary reverse mortgage lenders would have no similar protection.