New York Bill Limits Amount of Shared Appreciation on Reverse Mortgages

A new bill introduced in the New York Senate would allow lenders to receive no more than twenty percent of the future appreciation of the property securing the reverse mortgage as full or partial consideration for making the loan.

“Such future appreciation shall be limited by such rules and regulations as the banking board may adopt or the authorized lender may charge a fixed rate of interest on the outstanding balance of monies advanced under the reverse mortgage agreement or any combination thereof,” said the bill. “Any such appreciation shall not be considered interest for the purposes of any law regulating the maximum rate of interest which may be charged, taken or received.”

Shared appreciation reverse mortgage products haven’t been offered in quite some time, and the HECM program doesn’t offer the feature, so it’s odd the lawmakers are proposing such a bill.

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The bill has been referred to the Finance Committee.

S1078

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  • While not certain about its current status with HUD, the HUD HECM Handbook 4235.1 still references equity appreciation sharing in Sections 1, 5, etc. What is clear is that no significant lender is offering them.

    Are there any mortgagee letters or other official positions of HUD on point?

  • While not certain about its current status with HUD, the HUD HECM Handbook 4235.1 still references equity appreciation sharing in Sections 1, 5, etc. What is clear is that no significant lender is offering them.

    Are there any mortgagee letters or other official positions of HUD on point?

  • It is not clear who is advising the New York State bill’s sponsor(s). However, grafting a shared appreciation feature into their reverse mortgages may render those mortgages unsaleable in the secondary market.

    Reverse mortgage history suggests there is significant legal and financial exposure (as well as headline risk) in such products. Here is a classic example of George Santayana’s words: “Those who cannot remember the past are condemned to repeat it.”

    If the NYS reverse mortgage comes into the New York market, the danger is that the negative media that is bound to follow the shared appreciation feature may rob off on HECM and the national reverse mortgage industry in the eyes of consumers and the media.

    Much as competition is healthy, NRMLA should preemptively and immediately caution the NYS bill’s sponsor(s) on the risks of re-introducing a shared appreciation reverse mortgage into the market, no matter how limited its scope.

    • Atare,

      I believe the amendment is regarding current NY reverse mortgage law not the one recently proposed. It may be a limitation on the HECM Handbook 4235.1 structure for shared appreciation. Since I am in California, I am not that familiar with NY state law on reverse mortgages.

    • Atare,

      I believe the amendment is regarding current NY reverse mortgage law not the one recently proposed. It may be a limitation on the HECM Handbook 4235.1 structure for shared appreciation. Since I am in California, I am not that familiar with NY state law on reverse mortgages.

  • It is not clear who is advising the New York State bill’s sponsor(s). However, grafting a shared appreciation feature into their reverse mortgages may render those mortgages unsaleable in the secondary market.

    Reverse mortgage history suggests there is significant legal and financial exposure (as well as headline risk) in such products. Here is a classic example of George Santayana’s words: “Those who cannot remember the past are condemned to repeat it.”

    If the NYS reverse mortgage comes into the New York market, the danger is that the negative media that is bound to follow the shared appreciation feature may rob off on HECM and the national reverse mortgage industry in the eyes of consumers and the media.

    Much as competition is healthy, NRMLA should preemptively and immediately caution the NYS bill’s sponsor(s) on the risks of re-introducing a shared appreciation reverse mortgage into the market, no matter how limited its scope.

  • “Shared appreciation reverse mortgage products haven’t been offered in quite some time, and the HECM program doesn’t offer the feature, so it’s odd the lawmakers are proposing such a bill.”

    It seems while the great state of New York is going broke the lawmakers have nothing better to do than propose useless legislation.

    Maybe they should keep their eye on the ball instead!

  • “Shared appreciation reverse mortgage products haven’t been offered in quite some time, and the HECM program doesn’t offer the feature, so it’s odd the lawmakers are proposing such a bill.”

    It seems while the great state of New York is going broke the lawmakers have nothing better to do than propose useless legislation.

    Maybe they should keep their eye on the ball instead!

  • Someone better monitor the legislation. If it’s poorly written maybe HECM recourse will be limited to X + 0.2*( Y-X ) where X is current home value and Y is future ‘appreciated’ home value. Now recourse is Y.

    • whart,

      What HECM recourse?

      A reverse mortgage must meet the requirements of FHA or it is not a HECM. The HECM Handbook 4235.1 still presents a equity appreciation sharing feature. If the NY law does not meet that standard, then those reverse mortgages which meet NY law but not FHA requirements are not HECMs, period.

      Please point out what in the amendment is recourse. Your “Y” certainly is not unless you have determined that the lender/investor can go after other assets the borrower owns besides the collateral. Again if that is possible, please point it out.

    • whart,

      What HECM recourse?

      A reverse mortgage must meet the requirements of FHA or it is not a HECM. The HECM Handbook 4235.1 still presents a equity appreciation sharing feature. If the NY law does not meet that standard, then those reverse mortgages which meet NY law but not FHA requirements are not HECMs, period.

      Please point out what in the amendment is recourse. Your “Y” certainly is not unless you have determined that the lender/investor can go after other assets the borrower owns besides the collateral. Again if that is possible, please point it out.

    • Think you hit the nail on the head. Haven’t read it, but bet this legislation is intended to prevent a HECM loan’s accrued interest from consuming 100% of the equity.

  • Someone better monitor the legislation. If it’s poorly written maybe HECM recourse will be limited to X + 0.2*( Y-X ) where X is current home value and Y is future ‘appreciated’ home value. Now recourse is Y.

  • Equity Share is still mentioned on page 1 of the 1009. Could it mean that by “shared” appreciation, they mean that a senior who cashed everything out at 62 and lives for 30 years may find that both the home and loan balance have appreciated more than 20% but the lender can only collect a maximum of 20% from the appreciation to pay off the loan balance; if so, and these are HECM reverse mortgages, it just makes FHA liable for any difference even though there is still equity in the home.

    • Mtxu,

      The Form 1009 is not just a HECM application form.

      Unless the shared appreciation component on a particular reverse mortgage meets the FHA standard in HECM Handbook 4235.1, it is plain and simple not be a HECM. So I do not get your point.

      FHA/HUD is not a lender. It insures loans which meet its criteria.

    • Mtxu,

      The Form 1009 is not just a HECM application form.

      Unless the shared appreciation component on a particular reverse mortgage meets the FHA standard in HECM Handbook 4235.1, it is plain and simple not be a HECM. So I do not get your point.

      FHA/HUD is not a lender. It insures loans which meet its criteria.

  • Equity Share is still mentioned on page 1 of the 1009. Could it mean that by “shared” appreciation, they mean that a senior who cashed everything out at 62 and lives for 30 years may find that both the home and loan balance have appreciated more than 20% but the lender can only collect a maximum of 20% from the appreciation to pay off the loan balance; if so, and these are HECM reverse mortgages, it just makes FHA liable for any difference even though there is still equity in the home.

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