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New York State Issues New Reverse Mortgage Regulations

The New York State Department of Financial Services (NYDFS) has issued new reverse mortgage regulations, implementing the recently-passed New York State Assembly Bill A5626. The regulations went into effect as of March 5, 2020.

Assembly bill A5626 was first passed by the New York State Assembly in May, and takes sweeping aim at what it calls “deceptive practices,” requiring reverse mortgage lenders to provide supplemental consumer protection materials while imposing additional 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. The bill was passed in the state legislature in the summer of 2019, and Governor Andrew Cuomo signed it into law in December.

“[The regulation] provides that only licensed or exempt entities may make reverse mortgage loans and describes the financial responsibility requirements that must be met by licensees and information that must be provided by exempt organization before the department will grant them authority to do reverse mortgage loans,” NYDFS said in its summary of a portion of the new regulations.

A separate sub-section “covers loan-to-value ratio limitations and financial fitness assessments of applicants and related ‘set aside account’ provisions for certain loans,” while also granting consumers “a right to cancel for three (3) business days after the issuance of a commitment.”

“What this bill does is creates a new section in the real property law that basically defines a reverse mortgage, and it says if you make a HECM in New York then you’ll need a separate approval by the New York Department of Financial Services,” said Jim Milano, partner at Weiner Brodsky Kider in a presentation last November. “If you make a HECM in New York today, you need a mortgage banker or broker license, which is the forward mortgage license that lenders need pretty much anywhere if you originate reverses. In New York when the Governor signs the bill, in addition to that license, you’ll need a separate approval to make HECMs.”

Shortly after the passage of the bill, the National Reverse Mortgage Lenders Association (NRMLA) expressed concern for some of its provisions according to the association’s then-SVP and current President Steve Irwin.

“While NRMLA continues to support consumer protections relative to reverse mortgage lending, we are concerned about some of the provisions contained in this bill,” Irwin said in a July 2019 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.”

Recently, New York Governor Andrew Cuomo vetoed another piece of legislation which would have permitted reverse mortgages on co-operatives in the state, citing insufficient borrower protections as the primary reason for his veto.

Members of NRMLA were notified by email on Friday afternoon of the regulations’ publication in concert with the provisions of the passed law.
Read the guidance on the new regulations issued by NYDFS.