With reverse mortgage legislation being proposed in states like California, Minnesota, it shouldn’t surprise anyone that Washington state is getting into the mix too.  The overall goal of SB 5400 is to establish requirements for proprietary reverse mortgages and the lenders that offer them to consumers.   

According to SB 5400, Lenders who are licensed by DFI under the Consumer Loan Act must meet two requirements in order to offer proprietary reverse mortgage loans:

1. They must maintain irrevocable letters of credit sufficient to meet known and expected mortgage payments for the next 12 months;
2. They must maintain at least $10 million of capital or have a binding written commitment for at least that amount from a parent company. Lenders
   are exempt from these requirements if they have strong enough credit, fully disburse the proceeds of loans at the time of closing, or if the loans are sold into a secondary market to an investor with a strong enough credit rating.

The bill would also require that all proprietary reverse mortgage products be approved by the DFI before they’re made available.  No set rules regarding a preapproval process has been developed, however proprietary products must include:

1. Penalty-free prepayment at any time during the term of the mortgage
2. Penalties for the lender if payments to the borrower are late
3. Loan maturation on the sale of the home, the borrower moving from the home, or a defaulting event;
4. No requirement that the borrower also purchase an annuity or any other insurance product
5. Referral to an independent housing counseling agency
6. Receipt of a certification that counseling has occurred before final acceptance
7. A borrower who is at least 60 years old
8. A requirement that all payments go to the borrower or a designated representative rather than an intermediary or third party.
9. Borrowers have a three day right of rescission.

The bill also makes reverse mortgage loans exempt from the compounding interest prohibition, billing, and interest calculations of Senate Bill 6471.  You can read more about SB 6471 here.

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