Illinois Governor Signs Reverse Mortgage Protections Act into Law

After six weeks of sitting on the desk of Illinois Governor Bruce Rauner (R ), a bill that creates a series of reverse mortgage protections for borrowers was finally signed into law Monday.

Effective January 1, 2016, Senate Bill 1440, also known as the Reverse Mortgage Act, includes several provisions that require lenders and Illinois’ Office of the Attorney General to provide certain reverse mortgage disclosures to prospective borrowers. The act also implements a three-day “cooling-off” period, during which time a potential borrower cannot be required to close or proceed with the loan.

On the law’s disclosures piece, the Office of the Attorney General can develop the content and format of educational documents that provide independent consumer information regarding reverse mortgages, including potential alternatives to these loans and the availability of independent counseling services.

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This fashioned document shall also include a statement that the terms of a reverse mortgage may adversely affect the loan applicant’s eligibility to obtain a tax deferral under the state’s Senior Citizen Real Estate Tax Deferral Program. This tax-relief program allows qualified seniors to defer a maximum of $5,000 per tax year on their primary home. The loan, which is from the State of Illinois, is paid when the property is sold, or upon the death of the participant. 

In accordance with federal requirements, Illinois State law requires reverse mortgage lenders to provide potential borrowers with a list, including contact information, of agencies that are approved by the Department of Housing and Urban Development to conduct reverse mortgage counseling.

“Reverse mortgages should be taken out only after a consumer has had an opportunity to carefully consider his or her financial future and consult with a qualified housing counselor, and this law will help us make sure that consumers are better educated and protected against predatory lending practices and scams,” said Annie Thompson, spokesperson for the Office of the Attorney General, to RMD in an emailed statement.

Only the state’s Attorney General will be charged with enforcing any violations of the reverse mortgage rules. 

With the enactment of the Reverse Mortgage Act, Illinois now joins other states with cooling-off periods such as California and Connecticut.

As such, now in Illinois, a prospective borrower shall not be bound for three full business days after the borrower’s acceptance, in writing, of a lender’s written commitment to make a reverse mortgage loan.

“The purpose of this requirement is to provide potential borrowers with 3 business days to consider their decision whether to secure a reverse mortgage or not,” states Section 20(c.) of the Reverse Mortgage Act.

At the time of making a written commitment, the law states that the lender shall provide the borrower with a separate document in at least 12-point font that contains a disclosure of the three-day cooling-off period. 

Additionally, the Act states that no reverse mortgage commitment may be made unless all lenders involved in brokering and making the reverse mortgage loan certify, in writing, that the borrower has received from the lender the educational document prepared by the Office of the Attorney General; information regarding the cooling-off period; and that the reverse mortgage does not include any cross-selling requiring the loan applicant to purchase an annuity, investment, life insurance or long-term care insurance product.

However, lenders are not precluded from requiring the borrower purchase products meant to insure or protect the value of the home such as property and casualty insurance, title insurance, flood insurance or other products that are customer for residential mortgage or reverse mortgage transactions.

Consumer-focused housing advocacy groups, have applauded the passing of the Reverse Mortgage Act as it progressed through the Illinois State Legislature earlier this spring. State Senator Jacqueline Collins and Representative Arthur Turner were the chief sponsors of the legislation in the Senate and House, respectively. 

“We thank Governor Rauner for signing the bill into law and also thank Senator Collins and Representative Turner for their leadership on this issue,” said Bob Palmer, policy director of Housing Action Illinois, in a written statement.

Housing Action Illinois, an organization whose mission is to increase and preserve the supply of affordable and accessible housing in Illinois for low- and moderate-income households, says it looks forward to working with Attorney General Lisa Madigan’s office, HUD approved reverse mortgage counseling agencies, lenders, brokers and others to prepare for the implementation of the consumer education and protection measures.

“We want to make sure that seniors understand that while a reverse mortgage may be a good financial decision for them, it’s not a risk-free loan,” Palmer said. “We particularly want to make sure seniors understand all the things they need to do to avoid defaulting on the loan, such as keeping current on their property taxes and homeowner insurance.”

Written by Jason Oliva