Minnesota Attorney General Introduces Bill Targeting Reverse Mortgages

image Minnesota Attorney General Lori Swanson and other politicians introduced new legislation to prevent reverse mortgage lenders from taking advantage of senior citizens.

Swanson said that the mortgage crisis has led many brokers and lenders into the reverse mortgage business, where they try to persuade seniors to take out the loans to convert home equity into cash.  "Reverse mortgages are good for some seniors but not all seniors," Swanson said. "Seniors should go slow to make sure they fully understand the product and whether it is in their best interest."

According to the press release, the legislation would require seniors seeking a reverse mortgage to get independent counseling on the risks and benefits of the loan. In addition, lenders would have to have reasonable grounds for believing the reverse mortgage is good for the borrower.

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The real kicker is that the legislation would allow seniors to rescind a reverse mortgage agreement within 30 days. Below is the section of S.F. No. 489 that details the 30 day recission period:

(a) The borrower may rescind any reverse mortgage within 30 days of execution by providing written notice to the lender. Any payments received in connection with the reverse mortgage must be returned within 15 days of rescission. Any mortgage filed in connection with a reverse mortgage loan is null and void upon rescission. The lender shall file a satisfaction of mortgage within 15 days of the rescission.

(b) The lender shall provide the borrower with the following notice, which must be on a separate piece of paper and in at least ten-point type, between 24 to 72 hours prior to execution of the reverse mortgage:
"You are entitled to rescind (cancel) this reverse mortgage transaction for any reason within thirty days from the day you execute the reverse mortgage documents. The rescission must be in writing and sent by certified mail to the lender at the address stated in this document. Upon rescission, you must return any and all payments you received from the reverse mortgage to the lender, at the address stated in this document, within fifteen days."

(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.

I’m all for protecting seniors but this is a little crazy.  It’s politicians like Ms. Swanson that make me think of what Meg Burns said last year at an MBA conference in Washington:

“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

Minnesota AG, lawmakers target reverse mortgages

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  • This legislation, if passed, will kill the reverse mortgage industry in the State of Minnesota, overnight. A 30-day rescission period is absloute insanity, and it is obvious they have not considered the practical impossibilities of “unwinding” the transaction.

    HUD will have to refund the MIP, good luck with that, and the wholesale lender will suffer substantial losses, as will as any investor.

    This is completely outrageous, and if passed, will likely lead to similar legislation in other liberal states. I sure hope NRMLA is on top of this!

  • Amazing! shocking! I am almost speechless! What the heck is the Minnesota Attorney General smoking? Just another official that has no clue and should be booted from her position. Maybe someone could educate her instead and then she could make a public apology for being a bonehead – now there is an idea!!!

    The sad thing is that there are people that will hold her thoughts as if she knows …and they have no idea either.

    Lets continue our quest for 100% RM education from the public to the public officials.

    Tim Linger, RMS

  • For you Minnesota brokers and originators forward to your Attorney General the link to Mortgagee Letter 2008-24, which specifically addresses cross selling, which is no longer allowed by reverse mortgage originators. Also, RESPA specifically has in place a specific rescission, plus the industry constantly encourages advocates for senior when or before doing a reverse mortgage and offers specific third party counseling through HUD. The new Housing and Economic Recovery Act of 2008 addresses other concerns of the Attorney General.

  • What Lender in his right mind would fund a RM under the terms of item “D” in the proposed law? I’m all for any legislation that protects Seniors from those
    who would encourage use of the Line of Credit for any purchase of annuities; but what this proposed law says is ridiculous. I still believe a series of real life
    testimonials of satisfied Senior RM customers published in publications like Reader’s Digest, the
    VFW and American Legion magazines, and others would be helpful in educating those who only read the newpaper stories of Seniors being alegedly ripped-off by
    purchasing a RM.

  • Good morning,

    My name is John Smaldone, I am in the Reverse Mortgage industry. What I see is legislators panicking. I also see and hear people trying to pass legislation on bills pertaining to Reverse Mortgages and not even understanding the product. To ad insult to injury, they do not understand the mortgage business.

    It would be imposable to have a 30 day right of recession. Have these so called legislators looked into how the markets are going to price this product with a loan sitting in limbo for 30 days? I am sure they don’t even know what I am talking about.

    If this passes and if other states follow Minnesota, this will cost the senior dearly. The pricing of a Reverse Mortgage would have to be out of site in order to be able to hedge against market rises risks.

    What are we turning into in this country. The main problem we have throughout the political arena are people with a major lack of experience. These people are running our country, our states and our lives.

    Most of us that have been in the business for a long time understand the importance of fiduciary responsibility to the borrower, regardless if it is a Reverse Mortgage or traditional. The states and the federal government need not pass a bunch of new laws and regulations governing the mortgage lender, they need to enforce what they have on the books now!

    Our agencies, like HUD for an example, they have not been able to efficiently enforce the regulations they have for years. They do a poor job of policing and consequently we have bad elements of people continually entering our industry.

    No my friends, we do not need all these crazy bill’s imposed like the one in this article. We need experienced people on committees making sound recommendations to our legislators. Then our legislators can legislate. I end by saying, the responses I have just read tells it all. I hope the state of Minnesota can receive our responses. I hope the legislators listen and use something that is being used less and less, “good old common sense”.

    Thank you,

    John A. Smaldone

  • Sam Colliins is right, the law makers and the AG of Minnesota need some immediate education of all the federal laws already in place to protect the senior home owner. It’s obvious these law makers and the AG are truly clueless on how the mortgage industry really works. A 30 day rescission period? How would this work on a purchase? If a law like this was to pass the state of Minnesota it would essentially eliminate the reverse mortgage industry in this state overnight.

    It is truly unfortunate that once again the senior citizens intelligence is being insulted. People forget these people have worked in our society for 40 years or more and are much sharper than they are given credit for.

  • If this is not big brother then nothing is I am not talking about the TV show. Its our government putting It’s self in the position of the great protector when in fact all it is doing is causing great harm to the hard working senior citizens of Minnesota.

    As we all know the rules and laws are already in place to take care of these issues, as stated in other replays they are not enforced correctly, and people with just enough knowledge to be dangerous set policy and cause undue stress to seniors and the reverse mortgage community.

    Let’s keep our fingers crossed that this stupidity does not pass, 30 days of recession my lord. Like the comedian said the trouble with common sense is it’s not common.

  • Another example of law makers not fully understanding the product. I am still looking for any information on just how much fraud there actually is in the reverse mortgage business. While it would be horrible to find out anyone has taken advantage of a senior, please tell me how many times this has actually happened.

    We all know about the annuity business and its effect on seniors, it’s been all over the news, actual reports of actual wrong doing, over and over again. Why aren’t there laws protecting seniors who are forced to withdraw prematurely from these investments for emergency (usually health) reasons. They end up losing 10-15% of their investment, upon redemption and this has been happening for years.

    Why are some law makers so afraid of reverse mortgages? Don’t they realize it is just a home equity loan? Many of my reverse mortgage customers are using the reverse mortgage to pay off a traditional home equity loan they can no longer afford to pay on.Why don’t they “police-up” the home equity business as a whole and require 30 day rescission on all home equity loans to seniors? After all, reverse mortgages require HUD counseling for every senior borrower but traditional home equity loans do not.

  • As a broker in Minnesota I want to say thank you for your support, comments, and suggestions regarding this issue. I too was speechless and angered when I saw and heard this in the news.

    Here is a quote from the other major paper in the Twin Cities (http://www.twincities.com/ci_11640420?IADID=Search-www.twincities.com-www.twincities.com):

    “Steve Johnson, director of government relations with the Minnesota Bankers Association, said he had not seen the details of the proposed legislation. But he said his group supported the general goal of protecting consumers.

    “‘We don’t support fraud in any way shape or form when it comes to reverse mortgages,’ Johnson said. ‘We’re wiling to work with (Swanson) on the language.’

    “Reverse mortgages can be very expensive with high fees and high costs, and aren’t always the best option for seniors, Swanson said. The loans also are marketed as a form of easy credit to finance a lifestyle — the same sort of outreach that led to the current mortgage mess, she said. That can be a problem, Swanson said, because consumers might then lack their home equity down the road when they really need it.

    “Finally, some lenders encourage seniors to take the cash from a reverse mortgage and buy annuities or long-term care insurance.

    “‘It’s almost always a bad idea to borrow money to purchase an investment,’ Swanson said.

    “Marlene Bartlett, 77, of Apple Valley, said that had the legislation been in place in 2006 when she and her husband took out a reverse mortgage, she might have steered clear of the loan.

    “In the short-term, the reverse mortgage helped them cover living expenses, Bartlett said. But it cost them last year when they had to get out of the loan in order to finance a move from their town home to an apartment that offered needed health care services.

    In retrospect, Bartlett said, she could have benefitted from independent counseling of the sort called for in the proposed legislation. The couple didn’t understand all of the fees involved with the loan, Swanson said, nor the payback provision.

    “‘I think if we had known a little bit more about what was going to come of all this, and what we were going to have to end up paying, we wouldn’t have done it,’ Bartlett said. ‘Sometimes you just make wrong decisions.'”

    I’m wondering what happened during the counseling the Bartlett’s had to have to originate the loan in 2006… “In retrospect, Bartlett said, she could have benefitted from independent counseling of the sort called for in the proposed legislation.” Did they sleep through it? Not pay attention? Was it one of those 10 minutes ones that are no longer allowed?

    As we all know, the counselors have the responsibility to review the fees and terms and responsibilities (including payback provisions) to borrowers. Also, she should have been given a Good Faith Estimate, Important Terms, and the sample closing docs to be in compliance which cover these issues. If this wasn’t done then this might be a case of fraud but they should be addressing the individual counselor and loan officer and their companies rather than assuming this that all of us are unethical, immoral, and don’t abide by the laws already in place and are just out to make money.

    I have always been a strong advocate for seniors and while I support protecting and educating them this proposed law is outrageous. It won’t benefit anyone, certainly not our seniors or those of us who are trying to help them.

    Yes, if this law is passed our Minnesota seniors will not be able to receive the benefits from the reverse mortgage because a 30 day recession is impractical as well as impossible. Especially with the wording they want to implement, “you must return any and all payments you received from the reverse mortgage to the lender.” Who is going to lend money and expect that they will get it paid back?

    And while I have been educating people about reverse mortgages in the state of MN for 10 years now, many just don’t want to learn the facts. It’s a wall we are trying to break down. It doesn’t help when the AG is so against them as people look to her to “protect” them. (There was also a post in May of last year quoting her negativity on RMs.)

    I am now going into reaction and action mode to address this and educate on the value of reverse mortgages to our seniors and what regulations are already in place. Hopefully they will listen!

    Again, thanks for your support and suggestions (and letting me vent a little).

  • This is not the first time this AG, Lori Swanson has tried to pass a reverse mortgage bill. The last time she was way off base about reverses to the point it was obvious she knew nothing about them. It would appear that in the intervening months Ms. Swanson still has not educated herself. One does wonder how she make it into the current position she now holds?

  • Beth -I hope that you and other proffesionals that originate loans in Minnesota reach out to ask Steve Johnson to adivise the AG of repercussion of such a ridiculous idea of having a 30 day return policy.

  • I see here many shrill and hyperbolic comments about the Minnesota AG’s proposal. Calm down. Only the legislature can pass such a law, and the 30-day rescission period is not likely to happen, once they have an opportunity to fully appreciate its potential consequences.

    This proposal, and those of other states, to further regulate reverse mortgages, are a direct result of the failure of the reverse mortgage industry to police itself. Now that many former originators from the subprime loan industry have entered the reverse mortgage business, such self-policing now may be impossible. There now are too many originators chasing too few potential reverse mortgage customers, and some of those originators are willing to compromise their ethics in order to make a sale. It will be difficult to weed them out in the short run.

    In the meanwhile, we can expect to see more efforts on the part of regulators and legislators to address the very real concern of seniors being sold financial products that are inappropriate for them. And yes, a reverse mortgage is inappropriate for many — perhaps most — senior homeowners, despite the belief of some of my colleagues that everybody should have one.

    If we as an industry don’t police ourselves — and I’m not talking about our policing each other, the politicians will do it for us.

  • We must protect our seniors from Minnesota Attorney General Lori Swanson … this bill is not well thought out, and does much more damage than good to the senior.

    It’s sort of like the “Fairness Doctrine” – and who wouldn’t want to support something that sounds as good as it’s name does? Then you read it, and you see all the BS within.

  • Dear Mr. Frank King, when you say “perhaps most”, you
    Dear Colleague are just FLAT OUT WRONG!!!! Unless a Senior is Cash wealthy (and most of my fellow Seniors I work with and meet are not), an FHA HECM is a Godsend–even if the only reason a Reverse Mortgage is put into place is to financially protect against an unforseen event. And at our age, something– totally
    unexpected–a life threatening event can happen at any time and with absolutely no warning. Having a Line of Credit available immediately, believe me, will be and is a blessing for any Senior. I was raised in a logging family; (I’ve set more chockers than I wish to remember); was a college athlete (Football and Wrestling); was a Greem Beret; never smoked; seldom drank hard liquor–If I hadn’t like to dance and woo the women, (some beautiful some less so as I), I
    would have never taken a drink; and I’ve continued to run and exercise daily throughout my 70 years of life. however, on 1 Feb 2008, I had a Cardiac Arrest after taking my Great Pyrenees for a walk. Fortunately, my US Army Chinook Helicopter Pilot Son, who had just returned following a year flying in Afgahnistan, knew Combat CPR and saved my life. When I got out of the hospital, he said “Dad, you gave me life, I just gave it back to you.” As I always say: ” Seniors are not going to take their home equity value with them into the casket. There really are only two options: (1) Use some of their home equity value to financially make their last years on this earth a little easier, if they ever need it or (2) leave their home equity value for their heirs. In my opinion, a smart Senior will use an FHA HECM as a financial protection against those life changing events that happen to us older folks at any time.

  • I thought all the idiot politicians were either in NY or DC! I don’t feel so bad now knowing that some of the dumber ones aren’t here in NY but are in Minnesota trying to pass bills on subjects they obviously how no knowledge off!

    When are we going to demand that our elected officials be required to pass an inteligence test.

  • Mr. Nelson,

    Thanks for your wonderful comments. I wish there was more folks out there like you.

    Swanson and all her other politicans are to stupid to learn how anything really works. Look at TARP and the current stimulas bill they are trying to push thru. A elected person ONLY CARES about themself!!!!

    Any person who signs close to 100 forms, twice and stands they never received them, are just like the folks who sign out commentments and never look at the forms.

    If an elected/ AG wants to do something, look at card card interest rates and how someone can get into hot water. But the credit card companies give them to much donations, so they turn their eyes.

    ELECTED folks, please try to learn the real facts of anything you are trying to do before you ruin peolpes lifes!!!!

  • I thought all the idiot politicians were either in NY or DC! I don’t feel so bad now knowing that some of the dumber ones aren’t here in NY but are in Minnesota trying to pass bills on subjects they obviously how no knowledge off! This bill if passed will surely “kill” the reverse mtge market in Minnesota & I’m sure other states will follow suit.

    When are we going to demand that our elected officials be required to pass an inteligence test.

  • Mr. Nelson,

    I agree with you, your response to Mr. King was very well put. If you look at my response I think you will agree with it. I am sorry to hear about your Cardiac Arrest, I hope you are doing well.

    Best regards,

    John A. Smaldone

  • The other problem with the 30 day rescission period is what happens when a reverse mortgage pays off a traditional first mortgage or equity loan?

    Do you really think a lender who holds the first mortgage/H.E. loan is going to return a payoff if a reverse mortgage is rescinded that far after funding? Does the reverse lender now hold the balance on their books?

    As many of you have mentioned, this is impractical. Investors would be very cautious to do business in a state with such unrealistic expectations.

  • This seems consistant for any State that would actually nominate and vote for Al Frankin. This is very scary for the State and the Country

  • This seems consistant for any State that would actually nominate and vote for Al Frankin. This is very scary for the State and the Country

  • The reverse mortgage sales cycle is far too long for any of the “scam artists” from the sub prime mortgage meltdown. They were in it for the quick buck. they do not have the patience to explain the program and deal with the education of the borrowers as well as the family members. For the ag to say they need independent counseling when they already have that is absurb. The reverse mortgage industry has the most comprehensive safe guards of any mortgage in the world already. She needs to do a 10 minute call with myself and she will be assured that the seniors are well protected and looked after.

  • This is pure proof of why the whole country is in the economic state it is currently in. Another complete idiot politician who knows absolutely nothing putting a new law or policy together.

    You can clearly see how the deteriorating education system in this country has started to take its toll.

    Unreal. What’s even more shocking is that there are actually more than one politician behind this!! These people are running our government??

    Again……Unreal.

  • I guess when a senior is going into foreclosure and we tell the bank we have money to pay you but not for 30 days while the senior thinks it over. who will be paying the late fees or intrest payments? Maybe the AG can ask Pres. Obama to pay it out of the stimulus package. How about realy protect the seniors by only allowing orginators who are License Reverse Mortgage orginators. and not have an insurance company or stock brokerage knowing that the seniors has a reverse mortgage. or have a 6 month waiting period before they can take out a insurance product.

  • What is the purpose of 3rd party counseling? That’s not enough. I think it is a bash on Seniors intelligence more than anything. Seniors are older, not stupid and incompetent.

    What’s next, Senior must be accompanied by two competent adults and must use restroom before signing the papers policy?

    What a joke!

  • A bill that would create, in the opinion of those of us in the industry, unreasonable regulation of reverse mortgages has been introduced in the Minnesota Senate. Don’t think for a moment that members of the legislature (or their staff) aren’t reading these posts.

    We in the reverse mortgage industry must become completely educated about our product, and we must keep ourselves fully informed about legislative actions that threaten our business. We should use forums such as this to educate policy makers about the unintended negative consequences of enacting proposed legislation.

    Unfortunately, a few of my colleagues are using this public forum to “educate” all who may stumble upon this site by calling elected public officials with whom they disagree such names as “stupid,” “crazy,” “retatrded” [sic], or “idiot politicians.” The authors of such disparaging screed convey an image of themselves and, by extension, our industry that is anything but professional.

    Thoughtful individuals will read the text of the proposed legislation in its entirety and communicate their opinions in a civil manner that befits membership in an advanced democratic society. I have read the proposed legislation a few times, and I see some provisions that are unacceptable, as well as some we probably can live with.

    Those who drafted the Minnesota proposal did so with the belief that it will protect senior homeowners, not necessarily punish the reverse mortgage industry. It is our job to educate members of the legislature in that spirit. We need to explain to lawmakers how some of the provisions may actually harm seniors by making reverse mortgages unavailable to seniors who have a legitimate need for them.

    One reason for so much interest on the part of states in regulating reverse mortgages is the negative publicity that results when someone sells a financial product (occasionally the reverse mortgage itself) that is not suitable for the senior homeowner, given his or her particular set of circumstances, with predictably disastrous consequences. So long as there are individuals who sell inappropriate financial products to seniors, we may expect further regulation of those products.

  • Dear Mr. King,

    You say you have read the proposed legislation several times. I applaud you for that. I am sure most have not taken the time as you have. However, in reading the proposed legislation I see only one thing we all have to be very concerned about. The 30 day right of rescission. Forget any other part of the proposal, good or bad, it is the 30 day right of rescission that is the only, I say ONLY item that matters here. Frank, If you read my opinion, which is fifth one out of the 10 so far, you will see what my concerns are and why the 30 day rescission period is suicidal. Please take the time to read it sir.

    I have been in the mortgage industry for 40 years of which 7 have been in the Reverse Mortgage arena. I have also been a trader in the secondary market, I know what this will do to the pricing of a Reverse Mortgage and the adverse affect it will have on our seniors.

    Thank you,

    John A. Smaldone

  • Dear The Cynic, I’m sorry that it took so long for me to respond: I was referring to “Item d” in the feature article which prompted all of these thoughtful comments from everyone else.

  • Dear John Smaldone and Frank King,

    While the 30 day rescission IS a MAJOR issue which will prevent reverse mortgages to be done in MN (or anywhere else who might follow-suit) it is not the “ONLY item that matters here.”

    Even if the 30 day rescission is dropped the majority of the other issues included in this proposed bill will also prohibit reverse mortgages being done in MN if this bill is passed.

    Lenders and HUD alike will have issues with the other proposed verbiage that is included if it were to pass. I am hoping they too will be addressing these issues.

    I spent my whole evening and will spend many more hours in reviewing the proposed bill and preparing to address these issues with the appropriate parties. This will allow me to present the issues in a thorough, detailed and professional way. The many comments and suggestions made are appreciated.

  • Beth,

    I don’t disagree with you, on the contrary, you are right. It is just the 30 day rescission has so many implications on a very large scale.

    The entire bill needs to be taken into consideration and we must look at the implications you are referring to. I don’t mean to minimize how important the other issues are in the proposed bill. I appreciate you taking the time to bring this to everyone’s attention and I am sure everyone would agree with me.

    Best regards,

    John Smaldone

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