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Housing Bill Could Impact Insurance Sales

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Efforts to shore up Fannie Mae and Freddie Mac announced by the Bush administration along with a separate Federal Reserve announcement to assist the entities, could be taken up in a housing bill before Congress.

Both entities were created to provide greater access to affordable housing and have been hit hard by the sub-prime mortgage crisis.

The bill being considered will also impact life insurers.

Sale of insurance products by originators of reverse mortgages backed by the government would effectively be barred under a provision of housing legislation passed by the Senate that life insurance industry officials are trying to soften.

The provision is contained in Sec. 2122 of the Senate version of H.R. 3221. The bill passed the Senate July 11.

The House language, which is more acceptable to life insurers, is in Sec. 219 of the bill, which has the same number.

That is because, under federal legislative procedure, one chamber takes a bill sent to it by the other chamber, strips it and inserts its own language. In general, through a House-Senate conference or private talks, the two bills are reconciled.

A similar provision in the House version of the legislation is far less restrictive and acceptable to the industry, according to Maurice Perkins, a vice president of federal relations at the American Council of Life Insurers.

“We don’t oppose anti-tying provisions, meaning that sale of one product is tied to another,” Perkins said. “But what we have here is something entirely different. This is basically a blanket prohibition.”

The provision in the Senate bill that concerns the industry deals with sale of reverse mortgages that will be insured by the Federal Housing Administration.

It was added at the request of Sen. Claire McCaskill, D-Miss., who introduced a bill last December in response to a hearing where regulators complained problems faced by seniors who have reverse mortgages they allege were tied to sales of life insurance.

According to Perkins, the original language in the bill introduced by Ms. McCaskill was acceptable to the insurance industry. The problem, Perkins said, is that it was toughened so as to make it unsatisfactory to the industry during the back-and-forth between the senators during the drafting process.

“Our primary concern with Sec. 2122 is that it will have the effect of prohibiting under all but the most limited circumstances sale of insurance products by anyone associated with the origination” of a reverse mortgage insured by the FHA, according to Perkins. “This obviously would affect agents,” he said. “It will also have an impact on banks, the groups which are distributing our products,” he said.

The insurance products involved are life insurance, annuities, including the annuities which provide income for life which are increasing in popularity, and long-term care insurance.

It would require the banks and mortgage companies that originate reverse mortgages to hire third party agents to sell insurance products to the seniors who refinance with reverse mortgages they originate.

“We worked with a lot of Senate offices on this, and we are currently working with House Financial Services Committee staffers on this,” Perkins said. “We want to ensure that the final language in the legislation does not impose excessive restrictions on sale of insurance products to purchasers of reverse mortgages insured by FHA.”

Perkins explained that; “That would impose a burden on the senior to have to find a new financial adviser in order to purchase a product they might consider crucial to their financial security.”


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