Here, in the view of the Committee, are examples of such Adjustable to Full Draw Fixed Rate Refinancing opportunities that may and that do not provide a bona fide advantage to such senior consumers. In providing these examples, it is not the intention of the Committee inappropriately to circumscribe or limit the discretion and good judgment that NRMLA Members must have to determine whether their products and offerings may provide a bona fide advantage to their senior consumer customers. It is, however, its intention to underscore their obligation as NRMLA Members under the NRMLA Code of Ethics to exercise that discretion in a thoughtful and considered way. In the first example, in 2006, Sally secured a HECM adjustable rate loan that paid off her existing first lien forward mortgage and left her with an $80,000 growing balance line of credit that met her need to establish an available cash reserve. In 2011, a third party originator sponsored by a lender approached Sally with an offer to refinance that loan into a full draw fixed rate loan that would have the following relevant characteristics: (a) it would provide an additional $17,000 in immediate cash proceeds, bringing the full draw amount to $97,000 (instead of the $80,000 immediately available cash proceeds under the current loan line of credit); (b) it would fix the note rate under the refinanced loan at 4.99% (instead of the adjustable rate on the current loan that presently was 2.5%); (c) it would increase the annual mortgage insurance premium to be paid to HUD from 0.5% to 1.25%; and (d) it would require the payment of closing costs. In these circumstances, Sally neither wanted nor needed the immediate full draw proceeds that would accompany the refinanced loan. Moreover, the proposed refinanced loan would impose upon Sally an obligation to invest and secure the $97,000 in full draw funds and involve considerable upfront and ongoing increased costs, including for accruing interest and mortgage insurance premiums. In these circumstances, it is the view of the Committee that this refinancing opportunity would not provide a bona fide advantage to Sally, and that, as a result, and under the provisions of Rule 107 and the Code of Ethics, neither the lender nor its sponsored third party originator should have offered it to Sally. In the second example, and in contrast, in 2006, Harry secured a HECM adjustable rate loan, prior to the adoption of a single national limit, that was secured by a home valued at the time well in excess of the maximum claim amount available under that loan. In 2011, a lender approached Harry with an offer to refinance that loan into a full draw fixed rate loan that would have the following relevant characteristics: (a) it would result in a maximum claim amount considerably higher than the one under his current loan; and (b) it would yield a considerable additional immediate full draw amount for which Harry had a present need. In Harry’s case, that need was to finance the cost of improving his home to accommodate his growing frailty and the relocation of a care giver. In others, it might be to pay off high cost unsecured debt or meet unexpected large onetime expenses such as those resulting from otherwise uninsured flood or tornado damage or to fund a divorce settlement. In Harry’s case, as in these others, although there also would be considerable upfront and ongoing increased costs, it is the Committee’s view that there nevertheless may be bona fide advantages to offering such refinanced loans. Finally, and in all such cases, the Committee believes it would be prudent for NRMLA Members appropriately to document the bases of their bona fide advantage determinations. NRMLA Members, senior consumers, and others are urged to bring to the attention of NRMLA’s President and the Committee concerns that they may have about potential unethical Adjustable to Full Draw Fixed Rate Refinancing practices, or other concerns related to or arising under the NRMLA Code of Conduct, for consideration and action by the President and the Committee in accordance with the procedures described in the Code of Ethics. The Code of Ethics, the Committee’s Ethics Advisory Opinions, and contact information for NRMLA may be found at its website at NRMLAOnline.org. 46
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