Pawlenty Signs New Reverse Mortgage Consumer Protections into Law

NewImage.jpgMinnesota Governor Tim Pawlenty signed into law a bill to implement new reverse mortgage consumer protections on Wednesday.

SF 2430 includes a reverse mortgage provision which implements new counseling guidelines, a 7-day “cooling off” period and restricts the cross-sale of annuities and long-term care insurance said the National Reverse Mortgage Lenders Association in an alert to members.

“The provisions in the bill as passed are a result of a long series of ongoing conversations between various industry representatives and Minnesota lawmakers,” said Peter Bell, President of the National Reverse Mortgage Lenders Association in a comment on RMD last week. “They represent a compromise that is well-intentioned and practical.

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The bill also requires a lender to refer the prospective borrower to an independent housing counseling agency prior to accepting a final and complete application or assessing any fees.

Additionally, once the borrower provides written acceptance of the lender’s commitment to make the reverse mortgage, the borrower has seven days to think it over, during which time they cannot be required to close or proceed with the loan. 

The bill goes into effect on August 1, 2010.

SF 2430

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  • Unlike Peter or Joe DeMarkey, I agree with Beth Paterson that the 7-day rule is fundamentally unfair to originators and lenders which are not federally chartered. As to the other points Beth makes in two earlier RMD articles, I do not support her views. Overall for some this bill is a net negative; for those who already follow a 7-day rule (like Joe stated MetLife does), it is neutral; but for the federally chartered entities which do not agree with the 7-day rule, it seems to be a net positive.

  • This is a huge blow to local brokers and state chartered banks. I hope we learn from this, and follow the example set by Beth Patterson by making our small voices heard in our own states.

  • On the counseling content front there is not much very radical here, but the law does appear to restrict clients to counseling agencies to:

    “an agency approved by the United States Department of Housing and Urban Development, domiciled in Minnesota”.

    I took a look on the HUD Roster to see the number eligible counselors are in this state: There are 7 agencies:

    – 4 agencies have 1 counselor each.
    – 1 agency has 2 counselors.
    – 2 agencies have 5 counselors.

    I'll leave you to draw your own conclusions.

  • Way to go NRMLA! I'm sure glad we have someone out there using our hard earned (extorted) dollars to protect us from un-aware bureaucrats! Keep up the GREAT work Peter!

  • This is good law because it gives seniors more time to decide if the reverse mortgage is really what they want to do. Seven days to decide is reasonable. Too many people in business take advantage of seniors and this is the group that reverse mortgages are for. I am literally amazed at the brokers and lenders here that believe they are being hurt by this law. Given the creative mortgage schemes of the past decade, leading to the devastating housing market crash of 2009, this law gives older people a little more time to decide. I fail to see how this law hurts the brokers and lenders? After all, this is about consumer protection. I hope that I don't run into any of you brokers or lenders that are complaining about this law on here when I purchase my next house; because it’s clear that your collective self interests are directed toward yourselves and not the customer – yet we wonder how the greedy brokers and lenders got away with stealing from the people so long.

    • With all due respect, seniors should be making the decision PRIOR to completing an application and having their loan processed – not waiting until loan approval and then using their 7-day “cooling off period”. It does not make sense for a senior to burden the originator, processor, title officer, escrow officer, underwriter, lenders staff, etc. with the processing of their loan if they have not even taken the time themselves to decide if they want the loan. Typically, none of these people are paid for their efforts unless the loan closes. Additionally, it does not make sense for a senior to take on the expense of an appraisal, counseling, and/or any other fees associated with the processing of the loan if they are still undecided if they want the loan. A typical, smooth transaction can take 2-4 weeks. So, even if they have not already decided, 2-4 weeks should be plenty of time.
      It is very clear that the 7 day “cooling off” period was intended to eliminate broker competition promoted by nationally chartered banks with retail operations who are not subject to this portion of the law. Typically, it is those retail originators who are least concerned with the best interest of the seniors.
      Finally, a 7 day “cooling off” period does nothing to help those seniors who are facing foreclosure, and may only have a handful of days to secure a reverse mortgage before their home goes up for auction. There is no provision in this law to waive the “cooling off” period when it interferes with the ability to protect a senior from losing their home to foreclosure.
      I strongly agree that seniors need to take the time to carefully consider the decision to get a reverse mortgage, and should never be rushed or pushed into anything. However, a “cooling off” period does nothing to facilitate this.

  • As a Massachusetts loan officer who has been dealing with the 7 day rule for quite some time now, my response to all is RELAX….While it is a pain in the neck, the only real downside is having a shorter timeframe to have a loan close in a particular month in order to recieve your commission for that particular month. For all you brokers out there that are worried about Federally Chartered Banks that don't and will not follow the 7 day rule the answer is quite simple…..Stop Doing Business with them….

    • Bob,

      Why not move the cooling off period in Mass. to 10, 15, or 45 days then? What is so magical about 7 days? Except for HECMs for purchase there is already a 3 day rescission rule. Isn't that sufficient for refinances? If all you see this as is a delay in commissions then adding a few days more should not be a problem.

      Fundmentally this is a much different issue. Obviously, the state legislators in Mass. believed that the 7 day period is sufficient time for the senior to walk away from a decision made in the “heat” of the moment. Yet the senior has weeks to walk away from this transaction anyway. With its counseling requirements, I know of absolutely nothing so protected in the way of financial transactions than HECMs, period.

      Why not have this provision apply to all transactions made by seniors or only those where the ultimate cost to the senior is potentially $5,000 or more within 12 months? As the percentage of seniors grows in our population, the issue of added consumer protections specifically for seniors looms larger and larger. My concern is this is the beach head for more and more “protections” on the transactions entered into by seniors. Ultimately this potential trend could have a deep impact on how businesses, not just originators, must deal with seniors.

  • Bob,rnrnWhy not move the cooling off period in Mass. to 10, 15, or 45 days then? What is so magical about 7 days? Except for HECMs for purchase there is already a 3 day rescission rule. Isn’t that sufficient for refinances? If all you see this as is a delay in commissions then adding a few days more should not be a problem. rnrnFundmentally this is a much different issue. Obviously, the state legislators in Mass. believed that the 7 day period is sufficient time for the senior to walk away from a decision made in the “heat” of the moment. Yet the senior has weeks to walk away from this transaction anyway. With its counseling requirements, I know of absolutely nothing so protected in the way of financial transactions than HECMs, period.rnrnWhy not have this provision apply to all transactions made by seniors or only those where the ultimate cost to the senior is potentially $5,000 or more within 12 months? As the percentage of seniors grows in our population, the issue of added consumer protections specifically for seniors looms larger and larger. My concern is this is the beach head for more and more “protections” on the transactions entered into by seniors. Ultimately this potential trend could have a deep impact on how businesses, not just originators, must deal with seniors.

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