Earlier this year the Delaware General Assembly approved H.B. 475 which requires an independent housing counselor to provide a written certification that a borrower has received counseling for a reverse mortgage loan prior to closing.  The law which went into effect earlier this month also permits lenders to charge for things like an application fee, credit report, appraisal, title or other bona fide third party fees that are incurred by the licensee on behalf of the borrower prior to receiving a signed counseling certificate.  This clearly conflicts with HUDs guidelines which forbid a borrower to incur any cost prior to counseling.

I asked Jim Veale, Senior Vice President at Security One Lending about the Bill and he raised a good point when he said, "In order to be insured by FHA, a reverse mortgages must meet HECM requirements.  If in following Delaware law, a loan cannot meet HECM requirements, FHA will not insure that loan.  Most state laws related to reverse mortgages are written so that their additional rules do not conflict with HECM requirements.  Whenever questions arise about a loan qualifying as a HECM, originators should seek the advice of their underwriters, HUD, and/or legal counsel."  Nowhere in the Bill does it say whether the rules apply to proprietary products, just reverse mortgages in general. 

Delaware isn’t the only state that is passing reverse mortgage laws specific to its state.  Earlier this year Rhode Island passed a new law that allows lenders to charge prepayment penalties on certain proprietary products and requires borrower receive counseling before a reverse mortgage closes.

Protections for seniors are a good thing, but when state legislators are passing laws for things they don’t understand (ie. reverse mortgages) it makes things more difficult and confusing for seniors and the industry.  Meg Burns hit this on the head when she recently spoke at the Mortgage Bankers Association’s Government Loan and Housing Production Conference in Washington, D.C. earlier this year.  

“I have grave concerns about the overzealous attention by legislators to the reverse-mortgage sector.  Federal regulators are going to pay attention, but they don’t know the product.  We have yet another party entering this world who wants to layer on additional consumer protection, but they don’t understand the product well enough-[and yet] we have auditors nipping at our heels.”

Meg Burns – Director, Single Family Program Development, Department of Housing and Urban Development

I’m hoping that NRMLA and the recently formed Mortgage Bankers Association Task Force can work towards nationwide standards to prevent state by state regulation to so we don’t run into conflicts like this.