When I was in high school, there was a bizarre incident that took place one day in an English class. Two of my friends, Mark and Yolanda, got into an inane fight that resulted in Yolanda chasing Mark around the class. The duo was knocking over chairs and creating ridiculously loud noises – based on the rumpus they stirred up, you would think they were auditioning for a live-action remake of the old Tom and Jerry cartoons.
Our teacher came in, surveyed the situation and promptly decided who was to blame for this scenario: me. Never mind that I was sitting on the sidelines, watching this absurdity unfold. My teacher, for whatever reason, felt I was responsible for creating the bizarre havoc that my friends were generating. I was promptly kicked out of the class for that day and was told to go to the principal's office.
That strange memory came to mind when I was scanning over the decision by the Federal Financial Institutions Examination Council (FFIEC), which has proposed guidance to help financial institutions with their risk management and consumer protection practices relating to reverse mortgages. Today's reverse mortgages, not unlike the high-school version of yours truly, is singled out for problems that simply do not exist.
FFIEC's abrupt announcement that lenders need to provide clear and balanced information to consumers about the benefits and risks relating to reverse mortgages appears to be the latest volley in the federal government's slow-boiling attack on this product sector. Earlier this year, Comptroller of the Currency John C. Dugan compared reverse mortgages and subprime mortgages. That was a bizarre statement on many levels and I was afraid that statement was not an aberration, but the start of what will become a federal volley against the reverse mortgage sector. The FFIEC effort continues where Dugan left off, with unsubtle insinuations that reverse mortgages are laced with risks.
None of this makes sense when you consider two things. First, it says very little for the FFIEC's perspicacity to sound alarms over a product that has been around for several decades and has no history of economy-collapsing risks. Does anyone remember where the FFIEC was at the start of the subprime meltdown?
Second, this month also saw a report that raised a Kremlin-worthy red flag over risks that are being studiously ignored in Washington. The Center for Public Integrity and the Washington Post combined forces to document some very troubling actions coming out of Ginnie Mae. A report called ‘Ginnie Mae's Troubling Endorsements,’ which can be found online here, documents the significant risk management lapses at the government agency's business dealings with nearly 40 mortgage companies that, according to the report, have ‘a history of reckless lending, fines or other sanctions by state and federal regulators, or civil lawsuits.’
Among the company that Ginnie Mae was keeping were two of the most disastrous corporate failures of 2009: Taylor, Bean and Whitaker (TBW) and Lend America. The report's authors were unable to get any input from Ginnie Mae on what TBW failure cost the agency, while the report also found that Ginnie Mae did not respond to Lend America warning signs that it says were ‘building for years.’
So what has been the reaction in Washington to this report? It appears that no one is particularly concerned. In fact, it appears to be business as usual.
In fairness, Ginnie Mae is not the only government agency connected to the financial services industry to show signs of strain. The Federal Deposit Insurance Corp., the Federal Housing Administration and Washington's twin wards of the state – Fannie Mae and Freddie Mac – have been ailing all year.
But it is difficult not to appreciate the irony that a government agency with documented risk management failings is not eliciting any agitation, yet a decades-old product with no history of risk management sinkholes is being targeted as a danger in waiting.
In 2010, the industry cannot allow the federal government to demonize reverse mortgages. Nor should the industry stand in silence while the problems at Ginnie Mae remain unsolved. This situation reminds me of another lesson from my high-school days – as our metal shop teacher aptly reminded our class, we should not try to fix what's not broken.
– Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b]
[i] (Please address all comments regarding this opinion column to hallp@sme-online.com.)[/i]
