SVB Failure Starts Aggressive Regulation Talk in Washington, IMBs Take NoteNew York Law Now Requires Borrower Attorneys at Reverse Mortgage Closings to Protect Consumers from Fraud

February 25, 2020
It did not take long after the Silicon Valley Bank failure for politicians in Washington to rush to the next available microphone and lament the “loosening of bank regulations”. Instinctively the finger pointing began, and in many quarters ended up in the direction of the prior administration’s policy to generally roll back stringent business regulations and allow free market decisions to govern various industries. Chief among the complainants (no pun intended) was Sen Elizabeth Warren, who emerged out of the 2008 crisis as an architect and advocate for the Wall Street Reform Act and the creation of the vaunted Consumer Financial Protection Bureau ( CFPB), which she briefly directed. Just yesterday in DC’s The Hill publication, Sen Warren was reported as blaming the the collapse of Silicon Valley Bank on Republicans in Congress, which in 2018 helped pass a law to ease bank regulations put in place following the 2008 financial crisis. “No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Warren is quoted as saying. According to The Hill piece, Warren, who voted against the 2018 bank deregulation bill, said that the crises would have been avoided if the banks were required to hold more liquid assets because the bill exempted banks with less than $250 billion in assets from rigorous Fed stress tests. Warren and other Democrats say the old rules could have caught the issues at SVB sooner. Given that politicians generally “never let a crisis go to waste,” many now suspect that the banking industry is about to be slammed with heightened regulatory scrutiny, tighter operational rules, more audits and exams, and larger and very public fines, penalties and consent orders. What does this mean for independent mortgage bankers (IMBs)? It means that they have to get back to the compliance mindset they were frightened into adopting between 2008 and 2018, and before the bottoming out of interest rates led everyone to believe that easy money was here to stay and that self-regulation meant hiring more loan officers. Keep those risk management officers and compliance directors close by folks, we are all in for a bumpy ride on the regulatory

Identity theft and misrepresentation in mortgage transactions has traditionally concentrated in the reverse mortgage business.  In these cases one can clearly see how elderly homeowners can be manipulated into taking out loans or selling their homes through unscrupulous means.  Oftentimes these transactions are conducted with powers of attorney and not every lender inquires why such a document is being used, although the form is regularly reviewed for legal sufficiency.  Identity theft is likewise a problem in the reverse mortgage business as fake powers of attorney and forged loan documents and deeds can create a legal nightmare for elderly homeowners as well as the lenders who unwittingly engage with fraudsters instead of the actual borrowers.

A bill in New York state (Assembly Bill 5626) was recently signed into law in January 2020 by Governor Cuomo targeting deceptive consumer practices surrounding reverse mortgages and imposing new requirements on borrower representation during loan closings.

This new law addressed what legislators saw as“deceptive practices,” requiring reverse mortgage lenders to provide supplemental consumer protection materials while imposing additional restrictions on lenders related to their payment of insurance premiums and property taxes. The new law also addressing closing table representation, requirement those involved in the settlement of the mortgage transaction to include licensed New York attorneys.  At least one attorney must be present on the sides of both the lender and the borrower to conduct a reverse mortgage closing.

Consequently lenders in New York engaged in reverse mortgage business must ensure their is proper representation, and with the burden on the lender to manage the issue this elevates vendor management obligations as well.  In the past many New York lenders took advantage of the fact that New York allows a ‘lender attorney” to be at the closing, which meant lenders could avoid scrutinizing closing attorneys and simply maintain a limited approved attorney list to manage the regulatory obligations surrounding third party vendor  risk.

With the requirement that lenders demonstrate borrowers in reverse mortgages had independent legal representation, lenders now must make sure that those attorneys are screened for risk too.

Secure Insight maintains the largest database of pre-screened and risk monitored closing attorneys in the United States.  With thousands of New York attorneys rated for risk, and verified as being licensed, insured, with verified trust accounts and free of background issues that might create the potential for harm, lenders have a ready-made solution to meeting new York’s new mandate.

Check us out at or contact us at in**@se***********.com and let us help you manage your new regulatory obligations in the State of New York. We have supervised more than 8 Million mortgage closings without a loss.

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