FHA’s U.S. Department of Housing and Urban Development (HUD) has requirements and regulations already in place to address the issues of the proposed bill S.F. 489/ H.F. No. 528. State legislators should not be changing parameters or implementing laws of a Federal program without consulting HUD, Fannie Mae, lenders, investors, and servicers of reverse mortgages. With the restrictions in this proposed bill HUD, Fannie Mae, lenders, investors, and servicers of reverse mortgages will walk away from Minnesota, leaving seniors without the option to access the one program that can provide cash during their retirement.
“The proposed bill is irresponsible and poorly researched!” says Beth Paterson, Executive Vice President of Prestige Mortgage, LLC, Reverse Mortgages SIDAC. “Lenders will not lend based on the restrictions in this bill! In their goal to protect seniors and keep the scam artists out of the reverse mortgage industry they will destroy the industry so even those of us who are honest and ethical and senior advocates will no longer be able to offer reverse mortgages and help our seniors,” adds Paterson, who has specialized in reverse mortgages for 10 years.
A reverse mortgage is a mortgage with special terms to help seniors. There are no income or credit qualifications and the loan doesn’t have to be paid back until the home is no longer their primary residence. Real Estate Settlement Procedures Act (RESPA) regulations are applied to all reverse mortgages and the Home Equity Conversion Mortgage (HECM), backed and insured by the U.S. Department of Housing and Urban Development (HUD), has additional regulations. Even the proprietary reverse mortgages, when available, followed many of HUD’s guidelines and regulations.
The reverse mortgage helps seniors stay in their homes, therefore saving government dollars. Just talk to other state officials who are trying to utilize reverse mortgages to save state dollars or help seniors purchase long term care insurance.
Paterson states, “A reverse mortgages is often the only option seniors have to stay in their home; retire or don’t feel like they have to work; avoid foreclosure; pay for medical expenses and home care; or even have money for themselves after their social security runs out at the end of the month. If they’ve had a forward or conventional mortgage but are scrimping on their needs, paying off a traditional loan with a reverse mortgage will improve their cash flow.” She adds, “Options that may have once been available for seniors, such as qualifying for a forward loan or relying on investment income, are no longer possible. Reverse mortgages are usually a lifeline for seniors and gives them security, independence, dignity and control as well as choices for their retirement.”
Federal law already protects borrowers for all refinances including reverse mortgages offering a 3-day rescission period. The 30 day rescission included in the proposed bill is impractical as well as impossible.
At the time of application or within 3 days of the application, reverse mortgage lenders are required to provide borrowers with calculations including a comparison of at least 2 options, Amortization Schedule, Total Annual Loan Cost, Good Faith Estimate, Important Terms as well as sample closing documents. Additionally, Fannie Mae’s “Considering a Reverse Mortgage?” is required to be left with borrowers.
Since it typically takes 20 to 30 days or more to process and complete a reverse mortgage, borrowers have time to review the terms of the loan as well as the costs and payoff provisions.
Educating borrowers about the details of a reverse mortgage is a concern. However, independent counseling is absolutely mandated with no exceptions for anyone doing a reverse mortgage. HUD’s counseling guidelines and regulations have evolved over time and the counselors are required to follow a protocol approved by HUD during the counseling sessions.
Another concern is cross-selling insurance and other financial products with a reverse mortgage. While a valid concern, last year federal regulations regarding cross-selling were implemented and outlined in HUD’s Mortgage Letter 2008-24. This too already protects seniors.
A reverse mortgage isn’t the problem! Don’t throw the baby out with the bathwater. If a senior is selling they have costs associated with sale and receive funds in a lump sum. No one is controlling how they use the remaining equity from the sale of the home. If the senior (or anyone) does a forward/conventional loan the funds are received in a lump sum. They can do whatever they want with this equity. And they have to make payments which can become difficult for them if “life happens.” If a senior wins the lottery they have money in a lump sum which can be spent however they wish. With credit cards seniors (or anyone) are not restricted on how they are used. They can charge for whatever they want. And they then have created debt that has to be paid back. Counseling is not required with any of these options. So why destroy the one program that already has protections in place?
Overzealous legislation can be just as destructive as overzealous mortgage lenders.
Paterson suggests considering other solutions. For example: Have a separate testing and license requirement for all reverse mortgage originators which includes employees of banks as well as mortgage brokers. Make it easy for people to access the list of the originators and confirm who holds this license. Educate borrowers on how to make better decisions. And instead of going after the industry as a whole, go after those who violate the laws and regulations already in place. Fine those who violate the laws and regulations. Forbid those who violate the laws/regulations from practicing in reverse mortgages.