Sen. Leroy Comrie (D) launched the invoice, S2559, on Jan. 21. It seeks to ascertain a state-level “info abstract” for the Federal Housing Administration (FHA)-backed House Fairness Conversion Mortgage (HECM) program.
It could “present discover of mortgagor’s proper and tasks below reverse mortgage loans issued below the [HECM] program of the federal Division of Housing and City Improvement (HUD),” and it might require each “approved lender” within the state to offer copies of those summaries at least 5 days earlier than the closing of a HECM mortgage.
The invoice would additionally set up “a non-public proper of motion for violations of such provisions,” in accordance with the invoice’s abstract.
Earlier variations of the invoice have been launched in 4 prior legislative classes between 2017 and 2024. The present model has been referred to the state Senate’s standing committee on growing old.
Within the invoice’s textual content, the HECM program is castigated as complicated and stuffed with opaque terminology, which may allegedly trigger instability for customers who hunt down such merchandise.
“Reverse mortgages are difficult and costly monetary merchandise,” the invoice states in its “justification” part. “Many seniors don’t perceive how they work or what their true long-term prices are. Exacerbating this downside are unscrupulous lenders who market reverse mortgages as public companies or government-sponsored merchandise.”
Citing a rise in reverse mortgage defaults from 2016, the invoice says that such an uptick was attributable to “insufficient regulation of this business.” The led extra seniors to fall into foreclosures and lose “not solely their houses, but additionally their most vital monetary property.”
It goes on to say that reverse mortgage foreclosures have taken place towards debtors “for making funds mere cents wanting their tax or mortgage insurance coverage payments.” It added that lenders “desperate to faucet the fairness in these houses are typically aggressive to foreclose and see a return on their funding.”
This necessitates “complete details about these merchandise” for older shoppers, which may illuminate a HECM mortgage’s “true long-term prices, circumstances that can end in a default, strategies to cut back their tax legal responsibility, out there companies to assist them within the occasion of a default and/or foreclosures, and many others.”
The invoice doesn’t point out or handle reverse mortgage laws handed down by HUD or FHA since 2016. The invoice does point out sure HECM necessities that exist — just like the requirement {that a} borrower bear counseling from a HUD-approved supplier — however it contends that lender-provided informational assets for debtors are at the moment inadequate.
“[T]he info abstract sheet [would become] an integral part of future reverse mortgages, and requires that the senior signal the sheet confirming receipt and that the originator preserve a replica,” the invoice acknowledged. “The part will probably be enforceable through treble damages and lawyer’s charges for prevailing plaintiffs.”
The HECM program has seen a myriad of further laws and safeguards launched over the previous a number of years. These embrace a number of reductions to principal restrict components (PLFs), that are designed to cut back threat and losses to this system. PLFs have been lowered in 2009, 2010, 2013 and 2017.
FHA handed down a monetary evaluation requirement in 2014. Provisions designed to enable for extra non-borrowing spouses to stay within the property after the dying or displacement of the borrowing partner have been applied in 2015. And a property evaluation requirement that typically ends in the necessity for a second property appraisal was issued in 2018.
HUD issued a report in late 2023 that assessed the impacts of those insurance policies on the HECM program, discovering that almost all of them had their supposed results.
RMD reached out to Comrie’s workplace for extra details about what led to his determination to introduce the invoice however didn’t obtain a right away reply. An alert despatched final week to members of the Nationwide Reverse Mortgage Lenders Affiliation (NRMLA) stated the commerce group and its exterior basic counsel will overview the invoice and weigh in as soon as that overview is full, alongside a separate invoice not too long ago launched in Hawaii.
New York state has handed a minimum of two consequential reverse mortgage legal guidelines in recent times. In 2019, then-Gov. Andrew Cuomo signed a legislation that took purpose at what supporters known as “misleading practices.” It requires reverse mortgage lenders to offer supplemental client safety supplies whereas imposing further restrictions on lenders associated to funds of insurance coverage premiums and property taxes.
Two years later, Gov. Kathy Hochul signed a invoice which had a earlier model vetoed by Cuomo. This allowed New York residents who’re a minimum of 70 years outdated to take out a reverse mortgage on a co-operative residing house, however it’s restricted to proprietary loans solely since FHA doesn’t enable for HECM loans on co-ops.
