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Financial Services Law Insights and Observations

Pennsylvania Department of Banking Issues Reverse Mortgage Policy

State Issues

The Pennsylvania Department of Banking (the Department) recently issued a policy statement to provide guidance to licensees regarding 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. Because most reverse mortgages are marketed to elderly consumers, the Department’s policy addresses concerns that these consumers may be victimized by poor advice or outright fraud. The Department is also concerned that licensees may not be fully cognizant of the propriety of, and the necessary practices required to protect consumers who use, reverse mortgage loans. And the Department is particularly concerned about the special financial risks associated with proprietary reverse mortgage loans because they are not insured by the Federal government and are not required to follow the standards and requirements mandated by the Federal Housing Administration to obtain Federal insurance. The areas addressed by the policy statement are (i) the financial strength of the licensee lender, (ii) the content of reverse mortgage loan agreements, (iii) the procedures regarding reverse mortgage loan origination, (iv) the consequences of a reverse mortgage loan for a non-borrower spouse, (v) conflicts of interest, (vi) a prohibition on offering unsuitable reverse mortgage loans, (vii) servicing obligations, (viii) an applicant’s mental capacity, and (ix) power of attorney. There are no new regulatory requirements as a result of the policy statement. 

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