Minnesota Reverse Mortgage Bill Sent To Governor For Signature, Includes 10 Day Rescission & More

May 18th, 2009 | by admin Published in Legislation, News, Reverse Mortgage | 16 Comments

Several bills were sent to Minnesota Governor Tim Palenty last week and one of those was SF 489/FH 528 which was passed by the Senate and House by a vote of 65-2 and 97-31 respectively.

The bill includes several important changes which could negatively impact reverse mortgage lenders in the state of Minnesota. Beth Paterson of Reverse Mortgage SIDAC has been working with legislators non stop for the last few months and points to the following parts of the bill which could cause problems.

10 day rescission period:

The rescission must be in writing and sent by certified mail to the lender at the address stated in this document."
(c) Notice of recission is effective when the borrower deposits a certified letter properly addressed and postage prepaid in the mailbox.
(d) A notice of rescission given by the borrower need not take a particular form and is sufficient if it indicates by any form of written expression the intention of the borrower not to be bound by the reverse mortgage transaction.
(e) No act of the borrower is effective to waive the right to rescind as provided in this section.

Suitability:

Prior to referring a prospective borrower for counseling under subdivision 8, a lender must have reasonable grounds for believing that a reverse mortgage loan is suitable for the borrower and must make reasonable inquiries to determine suitability. Suitability for a reverse mortgage loan will be determined by reference to yhe totality of the particular borrower’s circumstances, including, but not limited to, the borrower’s income, age, assets, the costs and benefits of a reverse mortgage loan, and other
financial options available to the borrower.

Counseling; requirement; penalty:

Prior to accepting a final and complete application for a reverse mortgage loan or assessing any fees, a lender must:

(1) refer the prospective borrower to an independent housing counseling agency approved by the United States Department of Housing and Urban Development for reverse mortgage counseling. The lender shall provide the prospective borrower with a list of at least three independent housing counseling agencies approved by the United States Department of Housing and Urban Development. The lender shall positively promote the benefits of reverse mortgage counseling to the potential borrower; and

(2) Receive a certification from the applicant or the applicant’s authorized representative that the applicant has received counseling as defined in this subdivision from an independent counseling agency as described in clause (1). The certification must be signed by the applicant and the counselor from the independent agency and must include the date of the counseling, and the name, address, and telephone number of both the counselor from the independent agency and the applicant. The lender shall maintain the certification in an accurate, reproducible, and accessible format for the term of the reverse mortgage. A failure by the lender to comply with this subdivision results in a $1,000 civil penalty payable to the borrower. For the purposes of this subdivision, "counseling" means that during a session, which must be no less than 60 minutes, the following services are provided to the borrower:

(i) a review of the advantages and disadvantages of reverse mortgage programs;
(ii) a discussion of the borrower’s finances, assets, liabilities, expenses, and income needs and a review of options other than a reverse mortgage loan that are available to the borrower, including other housing, social services, health, and financial options;
(iii) a review of other home equity conversion or other loan options that are or may become available to the borrower;
(iv) an explanation of the financial implication of entering into a reverse mortgage loan, including the costs of the loan;
(v) an explanation that a reverse mortgage loan may have tax consequences, affect eligibility for assistance under federal and state programs, and have an impact on the estate and heirs of the borrower;
(vi) an explanation of the lending process; and
(vii) an opportunity for the borrower to ask questions of the counselor.

Cross Selling:

No producer shall sell or encourage the purchase of an annuity, life insurance, or long-term care insurance product where the producer knows or should know that the
purchase will be made using proceeds from a reverse mortgage.
(b) This section shall not apply with respect to the purchase of an annuity, life insurance, or long-term care insurance product made more than 18 months after the date the reverse mortgage loan was made."

It’s not clear what lenders response will be but Patterson told RMD that Wells Fargo testified at the conference committee last week and said it has issues with the suitability provision because there is no guidance about how it’s determined. Wells added that if the law was passed in its current form they would seriously consider no longer offering reverse mortgages in Minnesota.

Governor Palenty will have three days to sign or veto the legislation. If signed the changes will become effective August 1st, 2009. If you would like to see the committee meeting you can see the video here.

Also, check out the email that AARP sent its members about SF 489 in Minnesota. I don’t see how this will bill will help protect seniors from foreclosure.

AARP Reverse Mortgage Legislation

Publish at Scribd or explore others: Magazines & Newspape Law & Government magazine report

SF 489

Technorati Tags: Reverse Mortgage,News,HECM,FHA,HUD,Minnesota,Legislation

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seoops

When will they leave well enough alone.
Jerome

The Minnesota law is written to give lawyers more work.It is not written to help seniors.The HECM was passed by Reagan and again in second term of Clinton.Congress has had two bites at this apple. There are 400,000 RMs and counting. It is a federal program state lawmakers should defer to federal law and regs. What other program gives buyers 3 days to rescind. Enough is enough. It is approved by FHA and HUD the amateurs should leave well enough alone.
Jacqui Del Priore

OMG!!! We need this like a hole in the head.
Question_Mark

As to suitability,

Strange but I find myself agreeing with Wells Fargo. Wow, I am pinching myself. I don’t want to make this a habit.

Suitability was, remains, and will be the scariest part of this law. If the 30 day rescission period had become law, loans would have stopped and that provision would have been changed. The dangers in the suitability responsibilities are much subtler and wide ranging; its financially negative aspects may not be known for years and by then it will be far, too late.

“Reasonable” standards will be “created” and applied retroactively by judges who in all likelihood will probably have stopped for the first time to fully understand the provisions of a reverse mortgage in the case before them; here will be a novice deciding the financial future of a journeyman. Or it will be a jury of the plantiff’s peers reaching that decision; few jurors have any idea (or worse yet the training to understand) what the intricacies of RMs are and when advisers should be prudently advising their use. All these decision makers (judges and jurors) will see is the “rich, bad” lender who “should have known” that “Mother Teresa” would have lost all her money by putting it all in “AIG’s Financial Products Corp” (or the really bad investment of that day) 16 months after providing her with a RM. Somehow the lender/originator should have foreseen “the AIG” purchase and not originated the RM. The lender/originator should have insisted that “Mother Teresa” find a even more frugal way of life even though she stated that she needed the RM to stop her foreclosure.

So now that the court has determined the lender is guilty, what is the cost to the lender? Will the court award punitive damages? Can the borrower sue the originator, especially if the originator has any degrees, certificates, licenses, or designations pertaining to financial matters or reverse mortgages? Oh my, this could get really fun for – the litigating attorneys. I guess Minnesota malpractice (E & O) attorneys are underemployed because this provision sure does line their pockets with gold, silver, and rhodium; they must need the money and the additional "work".
dduck

RMs are not the only product being protected by the "senior police". See this article:
Laws Take On Financial Scams Against Seniors.
http://online.wsj.com/article/SB124269210323932...
Nancy

It is too bad that the states that are currently pushing through laws for extended recessions for seniors, did not do so for forward mortgages when the neg am, option arm, interest only, no income/no doc loans were being closed by the millions.

I find it interesting that the legislators think only the seniors need more time and in depth counseling.
So, what does this say about how they feel about seniors abilities to make sound financial decissions?
Nancy

Here are some reasons the extended recession time won't work:

Borrower must pay their in home care provider for services provided and will not be able to pay that person the money on time, because their state increased the number of days before they can receive their money.

Borrowers have put off refilling their RX until they receive their money from the RM.

Borrowers that have a recission up on the 13th of the month, will now be charged a late charge because of the additional 7 day recession. It doesn't seem like a big deal, but the cost of financing that late charge of $75 (as an example) at compounding interest over the years does become a big deal.

Borrowers will have to pay additional interest on their credit card balances they are paying off from the reverse mortgage, because they are being forced to wait 10 extra days for their recession to pass.

Clearly, those that drafted this regulation have no idea what it is like to be without money to pay for everyday living expenses.

Counseling issues:
First of all, discussing a borrowers budget is not helpful to RM seniors for a several reasons:
Borrowers resent the fact that some RM counselor is requiring information on their monthly income and expenses.

RM counselors are not qualified to discuss borrowers financial status. Their job is to confirm that the borrower has a clear understanding of every aspect of a RM and to review the RMC in detail (I wish they would also review the amortization, but are not required to do so)
When a counslor inquires about a budget with our borrowers that work with a FP,have their tax returns prepared by a CPA or even better are retired professionals from the financial services industry;
these borrowers have a field day with the counselor.

Second
A high percentage of today's RM bororwers are experienced retired (some still working in their 70s) professionals and well informed about reverse mortgages. Unfortunately, the counselors have a script that is generic. We have heard from many of our borrowers that the counselors do not appear to be very familiar with anything but what is on their script and some can not even answer basic questions like: what is the difference between the monthly LIBOR index and the 1 year Treasury.

Instead of making across the board assumptions that the seniors are uneducated and uninformed and did not receive the required disclosures and explainations from their loan officer, the lawmakers should require counselors to be more educated.
Jerome

Minnesota lawmakers are dictating policy on HECM's when it is obvious they do not understand the reverse mortgage. Since they allow 10 days to rescind counting the Federal recission of 3 days this would be 13 days.If the money is put in their bank account by wire the lender would be exposed to an additional 10 days without interest and if there is a mortgage on the property this will create problems for the borrower with the prior lender who will want its mortgage paid because they have been notified by the reverse lender of a payoff. This is insane lawyering and the seniors of Minnesota will be worse off than before. God help us from do gooders who know not what they do!
Patrick

Here is a prime example of why if you hear "we are from the government, and we are here to help" should deeply concern you!

I operate my business based on the simple premise that I will do what is best for the Senior. This law obviously did not even consider this premise when it was written.

I don't understand how, we as an industry, are so vilanized. I close Reverse Mortgages every day with Seniors that are enourmously greatful and now can sleep at night because their financial worries have gone away. What we do is morally, ethically and financialy so powerful. I will NOT shy away from uneducated and ill-informed who ignorantly believe they are "helping Seniors."

I can tell you this, AARP and these legistlatures did not talk to any of my past customers before writing and supporting such an ignorant position. If they had, they would have seen the TRUTH of what we actually DO and how we change lives.

Forgive me for my rant, I am just so sick and tired of mas-ignorance leading the way. When did we become so spineless as Americans that we believe the people in government know what we need better than we know ourselves? Its sad, and getting worst.

NRMLA - STAND UP AND BE COUNTED!
rainmand

>>where the producer knows or should know that the
purchase will be made using proceeds from a reverse mortgage

"or should know"? If they don't tell me I'm not going to know - so why should I know this? What am I missing? Sounds like I can get into trouble for something I'm not in control of for every HECM I originate.
Question_Mark

Mr. Fenton,

I am certainly no expert on counseling but I have been forced to look at the issue on the state level. Thank you for clarifying that counseling for Minnesota purposes does not require conformity with HECM standards. I do know, however, no federal provision covers counseling on proprietary RMs even though many in the industry believe it does.
dduck

Since seniors are under suspected of being unable to make intelligent decisions on their own, perhaps "counseling" should be video taped like they do at the police station so the confused senior can be on a time stamped record declaring what he will and won't do with the RM money. This would be good for everyone (lender, counselor, family, insurance sales person and the borrower(s)).
Daniel Fenton

Critic:

That's a good point about Proprietary RM counseling, the trouble is that the HUD HECM standards of counseling is a moving target and the MN law sets a static definition, so it won't actually keep up with HECM standards.

When HUD publishes its new protocol for HUD HECM counselors, everything we have heard suggests that it will FAR exceed the standards set out in this law, so the MN provisions will not ensure that other RM counseling is as thorough as HECM Counseling.

The 60 minute rule should at least give regulators the opportunity to drive any 20 min "quickie counseling" outfits out of the state as it's easier to time sessions and inspect certificates than it is to actually monitor content of sessions. This is a good thing, however, the odd part remains; per the current HUD HECM rules counseling agencies are not required to spend 60 mins per session, and yet lenders will be sanctioned should they use a certificate showing anything less than 60 min session.
Question_Mark

Mr. Fenton,

Yes, it may be odd but without it, where is the requirement that proprietary RM borrowers be counseled in accordance with at least HECM standards?

As to the oddity, it seems as if there should be a separate doc go out from Minnesota lenders to the counseling agency verifying the time and the fact that the required topics were covered in sufficient detail that the counselor believes the the borrower reasonably understood each topic. The form should be signed and dated by both the counselor and the borrower. (Here goes another forest in duplicate paperwork).
John Doe

admin,

Don't give those crazy politicians any ideas!
: )
Admin

It will be interesting to see if this will encourage other states to take the same approach.

Lets hope not.
Question_Mark

As to rescission,

What happens if a bank employee finds nothing in a compliant envelope?

Now let's reverse the roles, the letter gets separated from the envelope at the lender's office and cannot be found? How does the senior prove what was in it?

O, Minnesota, the mess you have just vaulted into.
Daniel Fenton

The counseling provision seems trivial when compared to the other provisions. However, it is odd.

There's nothing new in terms of content needed in a counseling session (HUD's existing rules require discussion of all these elements), however the time taken in session will be key.

Should the session take 57 minutes, with a certificate with the time marked accurately, the lender can still make the loans per HUD guidelines, but they could be liable for a civil penalty of $1000.

There is no HUD requirement that counseling take 60 minutes (although it usually does) but holding the lender liable for length of time spent in a counseling session that they are not permitted to schedule, or even discuss with the counselor? that is very odd.
dduck

Bad law. It could very well deprive seniors of the very tool that might make their lives more financially secure, independent and better.
I hope MN has a gigantic computer to catch those shifty seniors buying an insurance product in 17 months. Also, if I am a MN insurance seller, I will want a written statement that the money being used isn't any of that "hot RM dough".
John Doe

Scary!

Glad I don't live or do business in MN. Although it maybe something we will all have to deal with soon. We may have to begin to look for another profession.

Hopefully Gov Palenty will have more knowledge than who ever put this into motion.