A new reverse mortgage bill poised to become law in New York stands to change the way reverse mortgage professionals do business in the state. The bill, passed by the State Assembly in May and now awaiting the signature of Governor Andrew Cuomo, takes sweeping aim at what it calls “deceptive practices,” requiring lenders to provide supplemental consumer protection materials, and imposing restrictions on lenders related to their payment of insurance premiums and property taxes.
The bill also requires that both lenders and borrowers be represented by an attorney at the time of closing, and at least one attorney must be present to conduct the closing itself.
An originator based in the New York area describes a degree of ambivalence toward what the law will require, partially because some loan officers may have already been taking extra steps to follow some of the behaviors that are in the process of being formally legislated. Nevertheless, the bill’s associated documentation describes that the reverse mortgage industry in New York needs the new law since current regulations are believed to be “inadequate.”
“I think that responsible lenders are already quite careful in their wording of marketing pieces to avoid anything that may be construed as ‘unfair or deceptive,’” says Patricia Whitlock, loan officer with Quontic Bank based in Melville, N.Y. in an email to RMD. “I believe that the notices [of supplemental consumer materials] to borrowers are a positive improvement, and they should lead servicers to do a better job at warning borrowers who are approaching a point where they will have to take action.”
Many who work as originators in the reverse mortgage industry may already be predisposed to looking on the proverbial “bright side,” even if some aspects of this law may complicate some of their operations, Whitlock says. Still, there is one issue that could reach beyond the typically rosey disposition of a lot of originators where borrowers’ legal representation is concerned.
“Most loan officers have already learned to put a positive spin on additional protections imposed by the Department of Housing and Urban Development (HUD), such as lower PLFs, etc.,” she says. “The only issue I see should the bill become law is the added expense to the borrower if they are required to be represented by an attorney.”
The bill’s ‘justification’
The bill was sponsored in the New York State Assembly by Assemblymember Helene E. Weinstein, who represents Assembly District 41 encompassing the Sheepshead Bay, Flatlands, East Flatbush, Midwood and Canarsie neighborhoods in the New York City borough of Brooklyn.
In a memo circulated to New York state lawmakers summarizing the bill’s purpose, the bill is described as answering the necessity of regulating a complex product that is sold to a protected class with current regulations that are described as “inadequate.”
“Reverse mortgages are complicated and expensive financial products. Many seniors do not understand how they work or what their true long-term costs are,” the memo says. “Exacerbating this problem are unscrupulous lenders who market reverse mortgages as public services or government-sponsored products. Inadequate regulation of this industry resulted in a sharp uptick in defaults in 2016, as more seniors fell into foreclosure on these products, losing not only their homes, but also their most significant financial assets.”
By answering the issue of the allegedly “inadequate” regulation, the bill aims to reduce defaults and foreclosures for reverse mortgage borrowers across the state.
“This comprehensive new set of regulations will regulate the marketing, origination, and management of reverse mortgage products that fall under HUD’s home equity conversion mortgage program for seniors, in the hope of preventing defaults and foreclosures,” the memo says.
Trade association perspective
Lenders are largely mum on their views on the law, but the National Reverse Mortgage Lenders Association (NRMLA) has been actively communicating its concerns to the state’s lawmakers, expressing concern about the bill and some of its provisions should it be signed into law by the governor.
“While NRMLA continues to support consumer protections relative to reverse mortgage lending, we are concerned about some of the provisions contained in this bill,” said Steve Irwin, executive vice president of NRMLA in an email to RMD. “NRMLA and its outside counsel communicated our concerns to the bill’s sponsors in the New York Legislature prior to its passage.”
NRMLA also has expressed concerns about the law’s impact on other areas of HECM government, such as servicing.
“We stressed our concerns regarding certain provisions that might conflict with HECM regulations, concerns regarding the inability to refer to HECMs as FHA insured, when they are, in fact, FHA insured, and the burdens that will be placed on HECM servicers,” Irwin said.
Still, since the bill is likely to become law – at least barring an unlikely veto from New York Governor Andrew Cuomo – the trade association stands ready to at least ensure the implementation is manageable for the industry.
“If this bill does indeed become signed into law, then we will have to work with the State Regulators to try and ensure some common sense implementation,” Irwin said.