Reverse mortgage lenders who have approval to generate reverse mortgages in the state of New York have largely paused their application processes for new loans within the state, RMD has learned, which has been confirmed by multiple lenders. This is in response to sweeping new regulations that have recently gone into effect there, according to multiple industry professionals and lenders who operate within the state.
Lenders have indicated that the pausing of business activity is a temporary interruption as opposed to a longer-lasting reaction to the implementation of the new regulations, according to statements from lenders.
Lenders hit ‘pause’ in New York
Britany Luth, VP of best practices at Finance of America Reverse (FAR), confirmed that operations in New York are “interrupted” but that this is temporary pending the application of the new regulations.
“As with any new regulation that impacts the reverse mortgage industry and FAR and its clients, there is an expected and often necessary period of transition and possible interruption of services as the practical application of those new measures are understood, applied and implemented,” Luth told RMD in an email. “FAR is hard at work and in the process of applying the new regulations introduced in New York and fully expects any related interruption to be resolved in the near-term.”
American Advisors Group (AAG) also confirmed for RMD that it is evaluating the current regulatory climate, leading to a suspension of business activity in the state.
“We’ve paused activity in New York while the industry works to understand and implement recently passed regulations,” an AAG spokesperson told RMD.
Representatives from other reverse mortgage lenders declined a request to comment on the matter, with some instead directing RMD to guidance from the National Reverse Mortgage Lenders Association (NRMLA).
“At NRMLA, we are aware of the issues related to this interruption in business, and have convened a working group to document and craft a comment letter to the New York Department of Financial Services regarding the interruption to business this has caused,” said Steve Irwin, president of NRMLA in an interview with RMD. “We are also coordinating with our outside counsel and industry leadership in crafting our position, while also working towards clarification on some of the outstanding issues. That work is ongoing.”
New York-area reverse mortgage industry players expressed concern to RMD over an inability to get loan applications processed in recent days.
“I have a loan in process, we got everything back, but we can’t submit it,” one reverse mortgage originator in the state told RMD under the condition of anonymity.
Several lenders have recently gained approval to originate reverse mortgage loans in the state of New York over the last several months. Reverse Mortgage Funding (RMF) and Longbridge Financial gained approval to originate Home Equity Conversion Mortgages (HECMs) there this past October, while FAR gained approval to originate its proprietary ‘HomeSafe’ loan there this past July.
The new regulations
The new regulations, which went into effect on March 5, result from New York State Assembly bill A5626, which was first passed in May, and takes sweeping aim at what it calls “deceptive practices.” It requires 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. New York Governor Andrew Cuomo signed the bill into law in December.
The law also requires that lenders and borrowers be represented by an attorney at the time of closing, and at least one attorney must be present on the sides of both the lender and the borrower to conduct the closing itself. The bill can be broken down into four primary categories: regulatory approval; marketing and origination practices and disclosures; servicing practices and disclosures; and penalties for violations.
“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 law firm Weiner Brodsky Kider during a presentation in November.
Originating a HECM loan now requires an additional approval, according to Milano.
“If you make a HECM in New York [prior to the new law], you [would] 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.”
On the marketing side, the law also contains a general prohibition on what it calls “deceptive practices,” including in marketing communications. Three specific elements are called out in the rules: reverse mortgage advertising cannot use the terms “public service announcement,” and “government-insured,” or similar language.
Shortly after the passage of the bill, the NRMLA expressed concern for some of its provisions according to 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 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.”