A bill in New York requiring area lenders to notify the state’s Department of Financial Services (DFS) and mortgagors of an impending foreclosure action on reverse mortgage borrowers has been signed into law by Governor Andrew Cuomo, codifying the measure into law after being passed by both houses of the state legislature this past summer.
The bill, known as A5627 in the State House and S4408 in the State Senate, is designed to further regulate loans issued in New York under the Home Equity Conversion Mortgage (HECM) program sponsored by the Federal Housing Administration (FHA) and the U.S. Department of Housing and Urban Development (HUD).
Intent of the new law
“Lenders must now notify the Department of Financial Services when engaging in foreclosure proceedings against a borrower, and must also provide proof to the department that HUD has granted prior approval to accelerate the loan, proof of the default and notice to the borrower, and any other information required by the department,” reads section 1 of the bill.
It also calls on the New York DFS to provide a foreclosure notice directly to the borrower, at the same time providing resources that the borrower may use to assist them during the foreclosure process.
“This legislation is intended to help more senior citizens avoid being foreclosed on and be able to stay in their homes,” said New York State Senator Andrew Goundares, the sponsor of the bill’s Senate version in an email to RMD after its passage in the summer.
The bill also requires lenders operating within the state to engage in loss mitigation as defined by DFS before foreclosing, and “prevents lenders from making advance payments on mortgage insurance or tax liabilities,” the bill reads.
These new requirements will be conditions that must be observed prior to the institution of a foreclosure action on a HECM loan, and will be enforceable by, “providing treble damages and attorney’s fees to prevailing plaintiffs,” the bill reads.
RMD reached out to reverse mortgage servicers for comment on this new law but representatives at each company declined, citing a need to further appraise the potential impact this development will have on their operations.
New York’s recent reverse mortgage history
Reverse mortgage-related legislation has moved quickly in New York between late 2019 and mid-2020. Last December, Cuomo signed a sweeping bill into law which took 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 passage of that bill and lingering compliance questions led briefly to a pause in New York-area reverse mortgage business, as lenders grew concerned over how best to understand the impact that the new regulations would have on the business. Originations in New York largely resumed a month later.
Gov. Cuomo, former HUD Secretary
As a governor, Cuomo likely has a higher level of familiarity with the HECM program compared with many of his colleagues in other states, since he served as Secretary of HUD during the second term of President Bill Clinton from 1997-2001.
In 2000, then-FHA Commissioner William Apgar described for the U.S. Senate Subcommittee on Housing and Transportation the success of the HECM program at that time, detailing how Clinton’s HUD under Cuomo’s leadership was preparing to implement a set of “enhancements” to the program, including an increase of the origination fee to entice more lenders to enter the space.
Read the text of the recently-signed bill at the New York State Senate.