Washington State Proposes Proprietary Reverse Mortgage Legislation

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:

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  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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  • At first glance, the bill appears very “consumer friendly”, which is a good thing. I believe those in Olympia responsible for writing the details of this new bill may have learned from the last “new bill mishap” when the Legislature passed a probition against
    negative amerazation (I could’t find this damn word spelling in my dictionary and Admin won’t provide a spellchecker, sorry.) loans, which of course legally
    stopped Reverse Mortgages. Confusion reigned until the mischief was either ignored or corrected (I’m not sure which.) The law of unintended consequences prevails when those who don’t know all the facts write laws.

  • It is my understanding that Senate Bill 5400 is dead because a Senator added an amendment that changed the title to a collections bill.

    In Washington State we need House Bill 1311 adopted by the senate and passed by both in order to undo the damage caused by SB-6174 last year. The unintended consequence was that all lenders licensed under the Consumer Loan Act could no longer offer Reverse Mortgages. Only those lenders with a federal charter. So companies like JB Nutter, Sun West, Generation Mortgage, etc are unable to do business in the state.

    This limits senior’s choice particularly where some of the federal chartered institutions don’t offer the fixed rate or purchase option.

    If you are a resident or do business in Washington State contact your Senator and Representatives – you can look them up at http://www.leg.wa.gov/legislature
    You can send a note or letter to all three at once.

    It needs to be done now as the legislature is going to become focused on the financial shortfall that the state is ready to experience and issues like this will fall by the side of the road.

  • Bryan,

    Do you think it would be helpful if I set up a section of RMD that shows what people can do to help the legislative issues in each state?

    Your information is great and I’m sure there are people in Washington who want to do their part to help.

  • I would think that a place on the site where legislative inormation was posted would be a great benfit to those in the industry. Wshington State needs legislative contact and action right now, not sometime in the future.

  • Can anyone tell me how I can help my mother “undo” her reverse mortage? or get out of what she did? the bank will not help or give advice.

  • Can anyone tell how to start to get help for My moms reverse mortage.
    1. she wants to undo this
    2. from Cincinnati, Ohio
    3. Do you have numbers or any one else that could help.

    thanks for the response yeasterday.
    sincerely;
    Mary

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