The National Reverse Mortgage Lenders Association (NRMLA) has released a new Advisory Notice sponsored by its Ethics Committee and Board of Directors that encourages reverse mortgage industry participants to adhere to the National Reverse Mortgage Lenders Association’s Code of Ethics. association when cultivating new professional partnerships, particularly in light of new and emerging types of fraud that can benefit from more technology and automation in mortgage processes and services.
The caution of opinion rests on the fact that the reverse mortgage industry primarily serves those aged 62 or older, given that the vast majority of industry activity takes place under the Home Equity program. Conversion Mortgage (HECM) administered by the federal government. Housing Administration (FHA).
According to data from the Government Accountability Office and cited in a report by the US Senate Special Committee on Aging, older adults lose nearly $3 billion a year due to one form or another of exploitation. financial, although this figure is probably a conservative estimate given that such crimes are widely considered to be under-reported.
The NRMLA Advisory Opinion
The NRMLA published its advisory notice on May 23 and issued a notice to its members via an email alert on June 6. Due to emerging technology that may integrate certain mortgage services, there is a need to highlight the unique ways these realities may affect reverse mortgage professionals and borrowers. , specifies the association.
“The Advisory Opinion explains that the evolution of technology and automation in the mortgage industry has led to more complex varieties of mortgage fraud that pose financial risk to NRMLA members and reverse mortgage borrowers. “, reads the alert to members. “[The new advisory] suggests that, as a best practice, NRMLA members should use processes and tools capable of detecting and mitigating fraud and material misrepresentation when implementing a comprehensive risk management plan.
In addition to the detrimental effects fraud schemes can have on seniors and the professionals who serve them, they can also add unnecessary expense to businesses that can be persistent and difficult to take stock of, the advisory reads.
“It is often difficult to understand and fully quantify the extent of the fraud and the damage caused,” the notice states. “Measuring losses associated with fraud and material misrepresentation is often an inaccurate process. Typically, the true cost of fraud and material misrepresentation is greater than the direct financial loss, considering the time and expense required to investigate, lost productivity, potential legal and compliance costs associated with the correction and the impact on the NRMLA member’s reputation.
There are also unique challenges that the reverse mortgage industry itself could face due to the nature of the product, the notice explains. Since a reverse mortgage does not require the borrower to make regular payments, any fraud or misrepresentation can be difficult to detect before the loan balance is due when the borrower dies or moves out of the house.
“Sound risk management principles suggest that processes and tools designed to detect fraud, material misrepresentation and harmful activities by industry professionals, service providers and non-compliant participants are important elements of ‘an effective compliance management system,’ the notice reads.
It’s also important for financial institutions and service providers to develop collaborative relationships in an effort to detect, assess and report the misuse of a senior’s funds according to regulators, including Consumer Financial Protection. Bureau (CFPB) which oversees the reverse mortgage industry nationally.
Solve senior fraud problems
Asked about the impetus for publishing this advisory, NRMLA President Steve Irwin told RMD that the time was simply deemed appropriate to remind members of ways to share and report behavior that violates the code of conduct. ethics of the association.
“Our Ethics Committee and Board of Directors take – as do I – the NRMLA Code of Ethics and Professional Responsibility very seriously,” Irwin told RMD in an interview. “It has been determined that the time has come to remind our members of ways to report fraud and material misrepresentation, so that market participants who perform due diligence on businesses and/or individuals have a place to see if there is. alleged behavior.
There was no specific lending event, pattern or process that prompted this advisory, Irwin says. The end goal is simply to ensure that industry participants do all the necessary due diligence, in addition to the association’s existing relationships with regulators at the state, bank, and federal levels.
“We can confidentially communicate any issues or complaints we’ve seen, but members wanted a place to go where they could find such potential issues with one of their counterparts,” he says. “Whether it’s a seller, third party originator, broker, closed loan seller, document preparation, all kinds of lender and seller relationships. This n is only part of the due diligence process before members enter into any arrangements.
Tools Available for Reverse Mortgage Professionals, Recent Actions to Mitigate Fraud
NRMLA membership has access to a discount for licensing the Mortgage Industry Data Exchange (MIDEX), a service offered by the LexisNexis Mortgage Asset Research Institute. However, members of the association are not required to use this service, and members are encouraged to avail themselves of similar services which may offer the necessary information.
“We aim to remind members that they must have risk management plans, counterparty risk management plans and due diligence procedures in place as part of standard operating procedures, and these plans must be robust and effective,” says Irwin. “As our outside counsel Joel Schiffman mentioned when he was presenting this at our conference in Irvine, if members see something that goes against the code of ethics, then they should say something and report it. optionally.”
Earlier this year, the U.S. Department of Housing and Urban Development’s (HUD) Office of Inspector General (OIG) released a Fraud Bulletin regarding methods fraudsters might use to access seniors’ finances through through some sort of association with the reverse. mortgage product. He describes for people that reverse mortgages are legitimate products offered under the FHA’s HECM program, but bad actors may seek to scam a senior under the guise of offering a reverse mortgage on their home.
Last month, federal lawmakers also sought to tackle instances of senior fraud by passing the Empowering States to Protect Seniors from Bad Actors Act in the U.S. House of Representatives by a vote of 371 to 48, according to information from CNBC. The measure has since been transferred to the US Senate.