Arizona Govenor Jan Brewer signed legislation to establish oversight for reverse mortgages in the state.
Despite reverse mortgage borrowers already being protected by federal laws established by the US Department of Housing and Urban Development, Assistant Attorney General Jennifer Boucek told AZ Central there is “a significant segment of the reverse-mortgage market is not subject to federal regulations.”
While clearly that’s not the case since there hasn’t been any proprietary reverse mortgage products widely available since 2007, the bill provides the same type of protections included in the HECM program.
Rep. Bill Konopnicki, R-Safford, who sponsored the legislation, said it fills a gap in the law. “As people find themselves in more and more difficult economic conditions, one of the ways they can use to retire is the reverse mortgage on their house,” he said.
The problem, Konopnicki said, is that the lack of regulation often leaves borrowers in the dark about their obligations. With the new law, that changes, he said.
HB 2242 requires that adequate financial counseling be provided by a counselor who is an independent third party and by counselors who adhere to uniform counseling protocols approved by HUD. In addition, the new law requires that before accepting a a final and complete application for a reverse mortgage or assessing any fees, the originator must provide the borrower a list of at least five housing counseling agencies, at least two of which are able to provide counseling by telephone.
Originators are now required to provide the borrower with access to a statement that informs them that his or her liability under the reverse mortgage is limited and explains the borrower’s rights and obligations of the loan at least ten days before closing. The new law also permits whole or partial prepayment without penalty at any time during the term of the reverse mortgage.
According to AZ Central, the Arizona Bankers Association was able to loosen requirements in the bill which allows lenders to sell peril and flood insurance when necessary. The fact that the bill allows variable interest rates caught the attention of Sen. Barbara Leff, R-Paradise Valley, who said many of those recently losing their homes had variable-rate mortgages.
Konopnicki agreed, adding “I wouldn’t sign one with a variable rate.” But, he said, variable-rate loans should be allowed as long as homeowners know what they’re getting into. The changes will be effective July 29.