Legislation overwhelmingly passed by the House on July 23 would in most cases bar banks that sell reverse mortgages backed by the government from selling insurance products to the same customers.
The provision is contained in H.R. 3221, a housing bill that provides a government backstop to the ailing Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae).
It also strengthens oversight of Freddie and Fannie and potentially allows up to 300,000 homeowners faced with foreclosure to refinance under favorable terms through the Federal Housing Administration.
The bill passed the House 272-152 and was expected to be passed by the Senate after press time.
Banks, led by lobbyists for the American Bankers Association, and insurance companies, led by lobbyists for the American Council of Life Insurers, sought to soften the language–which was contained in the Senate version of the bill–but failed.
The insurance products involved are life insurance, annuities, including the annuities which provide income for life that 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.
The provision 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-Mo., who introduced a bill last December in response to a hearing where regulators complained of problems faced by seniors who have reverse mortgages they allege were tied to sales of life insurance.
After the bill passed the House, the ACLI released a statement acknowledging that “would effectively prohibit under all but the most limited circumstances” the sale of insurance products by anyone associated with the origination of a reverse mortgage.
“While we support strong laws and regulations that protect seniors from being misled in connection with reverse mortgages, we should not make it difficult for them to get the products that they may want and need,” the ACLI statement said. “We’ll be working with HUD as it develops regulations [to implement the provision],” the ACLI said.
Kevin McKechnie, a lobbyist for the American Bankers Insurance Association, led the ABA team that sought to replace the Senate provision with more acceptable House language.
The ABA lobbyists argued that the Senate provision imposed double regulations on banks selling insurance products because they are already subject to rules governing sale of insurance products contained in the Gramm-Leach-Bliley Act of 1989.
“The Senate provision is overkill, in our opinion,” McKechnie said, because it “imposes two different firewall regimes.”
But, after the House decided to accept the Senate language, McKechnie said, “We look forward to working with the Department of Housing and Urban Development [the parent agency of the FHA] to make sure that the implementation comports with existing financial services regulations.”