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Reverse Mortgage Lenders Prepare to Resume New York Business After Pause

After pausing reverse mortgage origination operations in New York last month due to a series of new regulations that the state’s governor recently signed into law, at least one major lender has resumed its operations in the state while others are in the midst of preparing to do the same.

As of late last week, Reverse Mortgage Funding (RMF) has resumed its origination operations in the state of New York, according to a communication the company sent to its partners which was obtained by RMD. The company later confirmed that operations in the state of New York have resumed, while other major lenders that had paused operations within the state for similar reasons shared that they were preparing to resume operations in the state shortly.

Starting originations back up, highlights of changes

According to the partner communication sent out by RMF, reverse mortgage originations in the state of New York have resumed as of late last week. RMF President David Peskin confirmed that business is once again operating in New York state after being reached for comment by RMD.

“After pausing originations in New York to better understand the state’s new regulations, RMF is pleased to resume operations as of Friday, April 10, 2020,” Peskin told RMD in an email. “We are happy to continue doing business in the state and helping homeowners in our own backyard.”

That’s not to say that business is resuming without incident, however, as the sweeping new regulations signed into law in December by Governor Andrew Cuomo have necessitated some changes in reverse mortgage origination operations. Some aspects of origination that have changed to take the new regulations into account include points related to broker compensation, property appraisals and a new “cooling off” period for new applications.

Total broker compensation – comprised of origination and lender-paid compensation – is now limited to 3% of the value of the property; reverse mortgage applications over the phone are now prohibited; and the borrower can only pay for an initial property appraisal even in instances where the Department of Housing and Urban Development (HUD) may require a second appraisal due to 2018’s collateral risk assessment.

There is also now a 72-hour “cooling off” period built into each transaction that cannot be waived, where the applicant is required to wait 3 calendar days after submitting an application before signing a commitment, or proceeding in any way with a reverse mortgage loan. During this period, no services can be ordered, nor can an FHA case number be ordered.

The borrower and the lender must also retain separate attorneys at the time the loan closes, and both lenders and brokers must maintain toll-free phone and fax numbers.

Other lenders preparing to resume New York business

After serving as one of the lenders that put a pause on its operations in New York last month, American Advisors Group (AAG) is making initial preparations to resume its originations in the state after reviewing the impact of the new regulations on its own operations.

“We’re finalizing the details to move forward with new originations and addressing the active loans in our pipeline,” an AAG spokesperson told RMD via email.

Finance of America Reverse (FAR) similarly suspended its operations in March, but had allowed applications dated prior to the implementation of the new regulations to go through later that month. However, it is prepared to resume processing of applications for loans covered by the new regulations as of Monday, April 13.

“FAR reopened HECM pipeline loans (loans with an application date prior to March 5, 2020) on March 13, 2020,” said Britany Luth, VP of best practices at FAR. “We have been diligently working since then on the new disclosure requirements and will be reopening new HECM applications and borrowers with an application date after March 5, 2020 later [Monday].”

Also aware of the interruption in operations within the state has been the National Reverse Mortgage Lenders Association (NRMLA), which has been working diligently to address the concerns of lawmakers and lenders. While the association is pleased that things are beginning to move in the state once again, the work to fully understand the scope of the new regulations is not yet complete.

“NRMLA has been keenly aware of the issues that caused an interruption in business in New York, and we are delighted that origination operations are starting to come back online in New York,” said NRMLA President Steve Irwin in an email to RMD. “There still remain some unresolved issues in that state, and the working group that was formed out of our Risk & Compliance Committee continues to coordinate with our outside counsel to seek additional clarification from the New York Department of Financial Services.”

Originators with questions about the implementation of the new regulations should speak with their account executives about any questions they may have.

Recent history

First introduced to the New York State Assembly as Assembly bill A5626, the legislation was first passed by the legislative body to take aim at what it calls “deceptive practices” in the reverse mortgage business. 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.

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 both houses of the state legislature in the summer of 2019, and Governor Andrew Cuomo signed it into law in mid-December.

The New York Department of Financial Services (NYDFS) issued the new regulations that accompanied the law on March 5, the law’s effective date. This led to lenders suspending much of their origination activities that month to fully discern the impact of the new regulations.