The National Reverse Mortgage Lenders Association (NRMLA) is urging the Consumer Financial Protection Bureau (CFPB) to revise proposed changes to federal fair lending rules, warning that the agency’s approach could undermine reverse mortgages by restricting the permissible use of age in credit programs.
In a comment letter submitted to the CFPB on Dec. 15, the trade group said proposed amendments to Regulation B, which implements the Equal Credit Opportunity Act (ECOA), would impose new evidentiary requirements on special-purpose credit programs (SPCPs) that rely on otherwise prohibited factors, including age.
“We are concerned that the proposed two-pronged evidentiary requirement—specifically, requiring a lender to establish that a group with a common, otherwise prohibited characteristic (i) would “not receive credit” under current standards, and (ii) that providing credit could not be accomplished through a program that does not use the prohibited basis — will impose an undue burden that effectively eliminates the viability of age-based SPCPs essential for specific products, most notably reverse mortgages,” NRMLA’s president, Steve Iriwn, wrote.
The CFPB’s proposal would require lenders offering age-based SPCPs to demonstrate that borrowers would otherwise not receive credit and that the program could not be structured without relying on age.
NRMLA said that the standard is unworkable for reverse mortgages because older borrowers may technically qualify for forward mortgages but still lack sufficient cash flow to sustain monthly payments. Because loan amounts are determined largely by the age of the youngest borrower, NRMLA said age is a necessary “actuarial element” rather than an “arbitrary” eligibility factor.
The group also said it would be impossible to design a reverse mortgage without considering age, since life expectancy directly impacts loan risk and principal limits. No alternative factor could adequately substitute for age in determining eligibility or loan terms, Irwin wrote.
NRMLA’s letter requests that the CFPBclarify in the final rule that credit products favoring elderly borrowers are already permitted under existing Regulation B provisions and should not be subject to SPCP requirements.
“ECOA and Regulation B already permit the favorable treatment of elderly applicants (age 62 or older) in credit scoring systems and product offerings. HECMs, which require the youngest borrower to be at least 62 years of age, fall squarely within this established principle of serving this critical market by favoring the elderly,” Irwin wrote.
Without clarification, NRMLA warned that the proposal could unintentionally restrict products designed to meet the financial needs of older homeowners who are asset-rich but cash-poor.