While the reverse mortgage industry is governed by a set of interrelated federal and state laws, the majority of policies that affect reverse mortgage lead generation and lending are crafted at the state and local levels. For practitioners to safeguard themselves from unknowingly becoming perpetrators and for borrowers becoming victims of malpractices, they should be well versed and updated on state-specific reverse mortgage laws.
Currently, much of the existing legislation focuses, to a large extent, on counseling. Counseling is mandatory for all Home Equity Conversion Mortgage (HECM). Because reverse mortgage is designed for retirees (seniors aged 62 and above), the government wanted to ensure they have all the information needed to make decisions appropriate to their situations. In the past, some seniors have gotten into trouble due to insufficient information about reverse mortgage products. Counseling and other legal requirements before and during the processing of reverse mortgage loans are expected to eliminate circumstances that put American seniors at a disadvantage. Below are some of the state-specific legislations that may positively or negatively affect the reverse mortgage industry depending on modifications that may be put in place in the coming years:
California's Reverse Mortgage Counseling Bill. The California state Senate passed on Aug. 31, 2012 a bill requiring lenders to conduct a face-to-face counseling unless the borrower elects for an over-the-phone session. The bill awaits Gov. Jerry Brown's approval and will be effective on Jan. 01, 2013.
Aside from California, other states that may negatively impact the reverse mortgage industry, in case unfavorable legislations are passed, are Texas and New York. The said states are strongholds for reverse mortgages.
Massachusetts' Reverse Mortgage Counseling Rule. A bill that is supposed to make face-to-face counseling mandatory in Massachusetts has been deferred until Aug. 1, 2014. The bill requires borrowers with gross income of less than 50% of their area's median income and with assets of assessed value at less than $120,000 (does not include primary residence) to have a face-to-face counseling session.
Illinois' High Risk Home Loan Act. While Illinois Gov. Pat Quinn signed SB 1692 into law in July 2012 exempting reverse mortgage from the state's High Risk Home Loan Act, industry practitioners should still watch for any legislation aimed at lifting immunity to reverse mortgage that will negatively impact the industry.
Minnesota's Annuities Bill. In June, Gov. Mark Dayton vetoed a bill aimed at amending the ban of cross selling of financial products and reverse mortgage. Industry practitioners believed that Dayton's move was in the best interest of senior-borrowers. Borrowers should be on the lookout for any legislation that allows insurance companies and agents to make money off the insurance products while selling reverse mortgages.
Awareness of laws and policies that affect reverse mortgage would provide useful information as to how practitioners should conduct business practices and as to how borrowers could protect themselves. Following the release of Consumer Financial Protection Bureau's (CFPB) report focusing on reverse mortgage disadvantages, it is but high time that practitioners deal with issues of malpractices seriously. Knowing what laws affect the industry and advancing those, which will benefit its consumers, is but a fitting start.
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