Washington state recently passed legislation (SB 6471 ) that may impact non-depository lenders, as well as the correspondents, subsidiaries and affiliates of depository lenders who make reverse mortgage loans in that state. SB 6471 requires that all non-exempt lenders doing business in Washington be licensed by the Department of Financial Institutions under the Consumer Loan Act (CLA) by June 12, 2008. As of today, lending will no longer be permitted under the Mortgage Broker Practices Act (MBPA). Lender entities generally exempt from this change are those operating under Washington or federal law as banks, trust companies, thrifts, and credit unions–but not their subsidiaries, affiliates or correspondents. A bill synopsis is available here.
What does this matter for reverse mortgages? The CLA requires its licensees to use the simple interest method (RCW 31.04.125(2)) to calculate interest, which according to Washington Administrative Code (WAC 208-620-010) expressly precludes the compounding of interest, or negative amortization. Since all reverse mortgages are negative amortization loans this would adversely impact reverse mortgage lending.
NRMLA did state they believe this is a result neither the legislature intended nor one that serves the best interest of Washington’s expanding senior population. They are working with the state legislators and the Department of Financial Institutions (DFI) to seek an emergency clarification that would exempt reverse mortgages from the CLA requirement that prohibits the compounding of interest. The DFI has been very receptive and they hope for a quick and positive outcome to this issue.
I’ve seen a letter from JB Nutter stating that they will no longer accept reverse mortgage applications until the bill is amended and I’m sure others will do the same. The Olympian published an article in their newspaper about it today as well.
Once I get any updates I will be sure to pass them on.