Minnesota Attorney General Lori Swanson and other politicians introduced new legislation to prevent reverse mortgage lenders from taking advantage of senior citizens.
Swanson said that the mortgage crisis has led many brokers and lenders into the reverse mortgage business, where they try to persuade seniors to take out the loans to convert home equity into cash. "Reverse mortgages are good for some seniors but not all seniors," Swanson said. "Seniors should go slow to make sure they fully understand the product and whether it is in their best interest."
According to the press release, the legislation would require seniors seeking a reverse mortgage to get independent counseling on the risks and benefits of the loan. In addition, lenders would have to have reasonable grounds for believing the reverse mortgage is good for the borrower.
The real kicker is that the legislation would allow seniors to rescind a reverse mortgage agreement within 30 days. Below is the section of S.F. No. 489 that details the 30 day recission period:
(a) The borrower may rescind any reverse mortgage within 30 days of execution by providing written notice to the lender. Any payments received in connection with the reverse mortgage must be returned within 15 days of rescission. Any mortgage filed in connection with a reverse mortgage loan is null and void upon rescission. The lender shall file a satisfaction of mortgage within 15 days of the rescission.
(b) The lender shall provide the borrower with the following notice, which must be on a separate piece of paper and in at least ten-point type, between 24 to 72 hours prior to execution of the reverse mortgage:
"You are entitled to rescind (cancel) this reverse mortgage transaction for any reason within thirty days from the day you execute the reverse mortgage documents. The rescission must be in writing and sent by certified mail to the lender at the address stated in this document. Upon rescission, you must return any and all payments you received from the reverse mortgage to the lender, at the address stated in this document, within fifteen days."
(c) Notice of recission, is effective when the borrower deposits a certified letter properly addressed and postage prepaid in the mailbox.
(d) A notice of rescission given by the borrower need not take a particular form and is sufficient if it indicates by any form of written expression the intention of the borrower not to be bound by the reverse mortgage transaction.
(e) No act of the borrower is effective to waive the right to rescind as provided in this section.
I’m all for protecting seniors but this is a little crazy. It’s politicians like Ms. Swanson that make me think of what Meg Burns said last year at an MBA conference in Washington:
“I have grave concerns about the overzealous attention by legislators to the reverse-mortgage sector. Federal regulators are going to pay attention, but they don’t know the product. We have yet another party entering this world who wants to layer on additional consumer protection, but they don’t understand the product well enough-[and yet] we have auditors nipping at our heels.”
Meg Burns – Director, Single Family Program Development, Department of Housing and Urban Development