The Mortgage Bankers Association (MBA) released a copy of its model legislation for reverse mortgages earlier this month at its conference in San Diego, CA. According to the MBA, it’s meant to define a national standard of consumer protections for reverse mortgage products.
The MBA believes that if reverse mortgages uniformly incorporate the principles in the model legislation, both the borrower and the lender will be safeguarded from undue hardships.
As far as which states the MBA has introduced the model legislation, John Mechem, MBA’s Spokesman told RMD that, “MBA has been using its model reverse mortgage lending bill behind the scenes to educate and inform lawmakers in states where we expect to see legislation and regulation in that area.”
He added that, “So far it has been more of a conceptual discussion, as most legislatures have not been in session since the model bill has been finalized. Nonetheless, we have been pleased with the reaction we have gotten – and are gratified to see the recent bill in California very closely tracked MBA’s model.”
One of the most interesting aspects of the bill is how it its handles the growing issues of taxes and insurance. It reads that:
SECTION 9 TAXES AND INSURANCE.
A) Upon issuing a reverse mortgage loan, lenders must form a set-aside account of the estimated costs of three years of both taxes and insurance payments from the borrower’s payout. Should the borrower fail to pay taxes and insurance on the mortgaged property, lenders must pay the taxes and insurance from the available reverse mortgage line of credit funds available to the borrower. If the borrower does not have a line of credit or the line of credit becomes insolvent, the lender is authorized to pay taxes and insurance from the set- aside account until the set-aside account becomes depleted.
B) Should the borrower pay taxes and insurance on the mortgaged property without incident, the value of the set-aside account will be used to offset the amount of cash, interest and fees the borrower or the borrower’s estate must repay to the lender at loan termination.
Remember this is just an outline for legislation, but it’s the first that I’ve seen deal directly with the issue of T&I defaults.