Maryland’s Governor signed into law a reverse mortgage consumer protection bill on Thursday that goes into effect October 1, 2010.
HB 799 is applicable to all reverse mortgages in Maryland, meaning there would be no HECM exemptions. Essentially, the Reverse Mortgage Homeowners Protection Act applies current HECM guidelines to all reverse mortgage products offered in Maryland. However, the $6,000 fee limitation on HECM loans will not apply to proprietary loans.
The objective of the legislation aims to apply the HECM origination fee formula to proprietary reverse mortgages in Maryland, although the HECM cap of $6,000 in origination fees will not apply. The NRMLA’s legal counsel gives the example that a Maryland property valued at $1 million, secured with a proprietary reverse mortgage, could have an origination fee up to $12,000. All reverse mortgages in Maryland will be subject to the HECM rules. This includes HECMs and proprietary loans with the exception that FHA provisions on mortgagee approval, insuring of loans, or loan amounts, will not apply to proprietary loans.
Additionally, HB 799 requires lenders provide a checklist to the borrower outlining certain items that should be discussed with the counselor, such as how a non-owning spouse could possibly be affected by the transaction of a reverse mortgage, whether the borrower intends to use the reverse mortgage to purchase other financial services products, and options beyond a reverse mortgage.
Regarding non-HECM loans, the lender needs only to offer the specific payment plans it chooses to offer. Therefore, a lender can chose to offer only line of credit plans, or could offer one or more plans such as line of credit plans, tenure based plans, or modified tenure plans.
Lenders are also unable to require borrowers to purchase an annuity, long term care policy, or other financial or insurance product. But the lender or broker may require any other financial or insurance product that is required for HECM loans, such as hazard, flood, or other peril insurance, to be obtained by the senior.
Written by Kelly Mellott