I have already reported at length (“Fed Recommends Enhanced Reverse Mortgage Disclosure“) on the Federal Reserve’s attempt to enhance the regulatory framework governing reverse mortgages. As it turns out, the proposed regulation has been met with protests by consumer groups, and may require some fine-tuning before it becomes law.

“A coalition of consumer advocacy organizations…consisting of the Center for Responsible Lending, the National Consumer Law Center, the National Association of Consumer Advocates, the California Reinvestment Coalition, the National Fair Housing Alliance, Consumers Union, Consumer Action, the Neighborhood Economic Development Advocacy Project and the National Community Reinvestment Coalition,” has attacked a few specific components of the proposed regulation.

The first source of contention is a loophole in the rule that prevents cross-selling of financial products. Under the original proposal, lenders would have been barred from requiring borrowers to purchase additional financial products (namely annuities and life insurance policies). However, the guideline has since been revised to allow cross-selling, as long as it takes place more than 10 days after the loan is closed. While this would theoretically still make cross-selling difficult, in practice it could easily be circumvented.

The second problem was a change in the Right of Rescission rule, which gives borrowers the right to cancel their reverse mortgage for any reason within 3 days of obtaining it, and to restructure/refinance a reverse mortgage within 3 years if it was determined that the lender misrepresented the costs. Under the revised rules, the 3-year Right of Rescission would be either eliminated altogether, or the language would simply be altered to make it more difficult for borrowers to exercise this right. The result, argues the Coalition, is that lenders will be disinclined towards accuracy when selling reverse mortgages.

Finally, the Consumer Financial Protection Bureau, which was recently created and vested with the power to study and regulate reverse mortgages (among other things) would see its power and influence vastly eroded by the Federal Reserve’s proposed guidelines. As a result, the Federal Reserve Board would be the only quasi-government body keeping watch over the industry.

There are a handful of other criticisms and suggestions which were put forward during the 90-day comment window. (You can view them in their entirety here). The Fed now has an indeterminate period of time to review these comments and make further revisions.

I’m monitoring the situation closely and will try to provide regular updates.