Codified guidance on the Home Equity Conversion Mortgage (HECM) program from the federal government can often arrive unexpectedly, or with little warning relating to a new policy that may be handed down by the U.S. Department of Housing and Urban Development (HUD) or the Federal Housing Administration (FHA). The federal government, of course, has a lot of large issues that can often take a larger share of political and legislative bandwidth when compared to the weight that HECM can have on the trajectory of the nation, but this isn’t always the case when it comes to legislatures operating at the state level.
State legislators can often turn their attention to the ways the reverse mortgage industry operates in their territories at the drop of a hat, and there is often very little shortage of state legislation aimed at affecting reverse mortgages in some way. Sometimes, that state legislation – while well-intentioned on the part of a state lawmaker – may run afoul of or conflict with federal guidance, requiring industry input so that business remains viable for reverse mortgage companies in a particular territory.
This is where the National Reverse Mortgage Lenders Association (NRMLA)’s State and Local Committee comes in, which meets on a regular or as-needed basis to determine whether or not pieces of state reverse mortgage legislation require some kind of intervention on the part of the industry. Recently at the NRMLA Virtual Policy Conference, members of the committee reviewed active legislation in several states which would affect the way the reverse mortgage business operates there. One of the states reviewed recently was Texas.
Texas House Bill 1129: False, misleading, or deceptive advertising in a reverse mortgage
Texas House Bill (HB) 1129 is an act “relating to false, misleading, or deceptive advertising made in connection with a reverse mortgage loan agreement,” according to the text of the legislation. It basically aims to define the parameters of what qualifies as deceptive advertising, while also listing that a piece of material found to be in violation of the proposed law would constitute a violation of Texas’ Business & Commerce Code as a deceptive trade practice.
NRMLA’s action on this bill specifically is designed to rein in what it determined to be an initially overbroad application of a potential new law, according to Scott Norman, NRMLA co-chair and Finance of America Reverse (FAR) VP of field retail and director of government relations. Norman is very experienced in the reverse mortgage regulatory matters of the state, as he helped contribute to the effort authorizing reverse mortgages in the state, originating the first reverse mortgage in Texas himself.
NRMLA is supportive of any legislation that aims to strengthen consumer protections for seniors participating in the reverse mortgage business, but the original version of this Texas bill required some active dialogue, Norman says.
“The problem with this legislation, frankly, is that it was too open-ended, and it really [did not] have a start time or a stop time,” Norman explained at the NRMLA Virtual Policy Conference. “And theoretically, [a borrower] could – 10 years from now – come back and say, ‘so and so said something to me that I think was somewhat confusing, and I feel like I’ve been harmed.’ And so, what we are working on [is putting] together an amendment to House Bill 1129 to narrow the scope of what they’re trying to do.”
Part of the effort of the association revolves around maintaining the consumer protection language present in the bill, but to give it a clearer point by which it can operate while ensuring that seniors are protected from advertising practices which may be misleading. These can include mailers which try to apply some kind of time-sensitivity to getting a reverse mortgage; advertising using eagle imagery that is evocative of a government document; or describing a reverse mortgage as some kind of government benefit, which it is not.
“[Such practices are] how we get into legislation like this that is certainly well-intentioned, but we need to work within not only what the federal guidelines allow – and certainly NRMLA has got a lot of guidelines that they like to work with – so we’re really trying to narrow this down,” Norman explains. “We don’t have a problem with the idea of a consumer protection bill, we have a problem with the idea that it’s so completely open-ended, that anybody can say anything, and anybody can cry wolf at any given time, even 5-10 years down the road.”
The latest draft of HB 1129 has emerged from the Texas legislature’s Pensions, Investments and Financial Services Committee with full approval, and it has yet to be scheduled for a vote on the floor of the State House in Austin.
SB 362: satisfaction of a reverse mortgage after the death of the ‘last surviving’ borrower
Texas Senate Bill (SB) 362 is a piece of legislation which relates “to the satisfaction of a reverse mortgage loan after the death of the last surviving borrower,” according to the legislation’s most recently-filed version.
“This section applies only to an heir who is an immediate family member of a borrower,” the bill reads. “After the death of the last surviving borrower of a reverse mortgage loan secured by the borrower’s residence, the lender shall allow an heir who inherits the residence not less than six months after the date of the death of the borrower to satisfy the loan before beginning the foreclosure process on the residence.”
While also well-intentioned, Norman says, the text as laid out in the proposed bill would conflict with federal guidance, requiring dialogue from the trade association to the legislature, Norman says.
“This is how it gets a little bit cross with what the federal guidelines are,” Norman explains. “We basically have six months before the lender or the servicer can do anything as it relates to the borrower’s death. What they’re, in essence, trying to do is to make sure that the family doesn’t lose out on that equity and ability to live in the house, borrow that equity, and use that as a wealth builder.”
Legislation like this has emerged several times in the past in other states, and while the idea isn’t seen as a bad one by the association, the way the legislation in this case is drafted could make things difficult for reverse mortgage compliance personnel trying to parse between state and federal rules governing the industry, Norman explains.
“This is something that we’re trying to either debate all together, or work on some alternative language,” he says.
Legislative session ends, both bills fail to advance
After this story was initially published, RMD received an update from Scott Norman who related that the current session for the Texas legislature has concluded as of May 31, with both of these reverse mortgage bills failing to advance. However, the resulting debate that stemmed from the introduction of both bills made for some encouraging progress.
“I consider it two great wins for the industry,” Norman explained to RMD. “We had an occasion to explain reverse mortgages to an entirely new group of legislators, and that’s always a great opportunity for our industry. It was a productive session.”
Recently, Texas Gov. Greg Abbott (R) indicated that a special session of the legislature will be called, however this is expected to focus on other, more controversial issues currently being debated by state lawmakers, according to the Texas Tribune.