More regulations coming for reverse mortgage companies
Actor Tom Selleck can be seen on television telling senior citizens that reverse mortgages are a safe way to borrow money.
New York state doesn’t agree with the company paying Selleck.
Gov. Andrew Cuomo signed A.5626/S.4407 into law last week to impose greater regulations on reverse mortgage companies in New York state.
The legislation passed the state Assembly unanimously while the state Senate approved the legislation 59-2.
“Reverse mortgages are complicated and expensive financial products,” wrote Assemblywoman Helene Weinstein, D-Brooklyn. “Many seniors do not understand how they work or what their true longterm costs are. Exacerbating this problem are unscrupulous lenders who market reverse mortgages as public services or government-sponsored products. Inadequate regulation of this industry resulted in a sharp uptick in defaults in 2016, as more seniors fell into foreclosure on these products, losing not only their homes, but also their most significant financial assets.”
The new state regulations prevent reverse mortgage companies from marketing their product as a public service, a government-sponsored program or anything other than a commercial product.
Lenders won’t be allowed to engage in “deceptive” practices in connection with marketing or offering reverse mortgages and lenders must provide a consumer protection information sheet that the state will create with any solicitation materials sent to anyone in New York state.
Lenders will also have to provide notice to senior citizens of the expected month and year the funds will be depleted on account statements if reverse mortgage financial obligations are being paid through a mortgage. Lenders must tell senior citizens in plain language when their life expectancy set aside or home equity line of credit is depleted to 10% or less of its value, the balance and notify when the fund is exhausted.
Seniors must also be notified they will have to pay ongoing obligations like mortgage insurance, homeowners insurance and tax obligations in order to avoid default.
Reverse mortgage lenders will also be barred from charging seniors any fees for visiting a home to verify the residence’s address.
“Foreclosures in the reverse mortgage industry have taken place against seniors for making payments mere cents short of their tax, homeowners insurance, or mortgage insurance bills,” Weinstein wrote. “Lenders eager to tap the equity in these homes are sometimes aggressive to foreclose and see a return on their investment. Seniors must be better protected by clearer information and stricter regulations on the way that lenders market and manage these complicated products. This comprehensive new set of regulations will regulate the marketing, origination, and management of reverse mortgage products that fall under HUD’s home equity conversion mortgage program for seniors, in the hope of preventing defaults and foreclosures.”
Earlier this year, Reverse Mortgage Daily reported the National Reverse Mortgage Lenders Association had been communicating its concerns with the bill to state lawmakers.
“While NRMLA continues to support consumer protections relative to reverse mortgage lending, we are concerned about some of the provisions contained in this bill,” said Steve Irwin, executive vice president of NRMLA in an email to Reverse Mortgage Daily. “NRMLA and its outside counsel communicated our concerns to the bill’s sponsors in the New York Legislature prior to its passage.”