Provides for the regulation of reverse mortgages that are issued under the federal home equity conversion mortgage program; prohibits the deceptive advertising and issuance of such mortgages; requires that independent counseling be provided to applicants for such mortgages; requires lenders to provide notice of duty of mortgagor to pay certain property related expenses when equity in the real property is low or depleted; prohibits foreclosure on mortgaged property based on the failure of the mortgagor to live on the property, until an inspection has been made at the property; establishes a proved right of action with treble damages for violations of such provisions.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A5820A
SPONSOR: Weinstein
 
TITLE OF BILL: An act to amend the real property law, in relation to
regulation of reverse mortgages issued under the federal home equity
conversion mortgage for seniors program
 
PURPOSE OF BILL:
This bill places new regulations on reverse mortgage products pertaining
to the marketing, origination, and management of these products issued
in New York State under the federal home equity conversion mortgage
program for seniors.
 
SUMMARY OF PROVISIONS: OF BILL:
Section 1: Prevents any party from marketing reverse mortgage products
as a public service, a government-sponsored program, or anything other
than a commercial product. Further, a lender will not be permitted to
engage in any unfair or deceptive practices in connection with the
marketing or offering of reverse mortgage loans.
Lenders or their agents must provide a consumer protection information
sheet to be created by DFS in conjunction with any solicitation materi-
als they send to a New York address.
Lenders must provide a notice to seniors on their periodic account
statements if financial obligations related to the mortgage are being
paid through proceeds of the mortgage. This notice will provide the
senior with the expected month and year of the full depletion of the
funds.
Lenders must notify seniors in plain language when their Life Expectancy
Set Aside (LESA) or home equity line of credit is depleted to ten
percent or less of its value, must notify them of their balance, and
must notify them when it has been entirely depleted. The senior must
also be informed at this point that they must continue to pay obli-
gations such as mortgage insurance, homeowners insurance, and tax obli-
gations in order to avoid default, and that the LESA or home equity line
of credit will no longer pay these obligations. Further, if there is a
default, the lender may only pay the amount of the arrears.
Reverse mortgage lenders send out annual letters to seniors to verify
that they're still using the home as a primary residence (a requirement
of these financial products), but sometimes do not receive a response
and then initiate foreclosure proceedings. Under the new law, lenders
will be required to follow up with the senior and a primary contact via
a phone call and a visit to the borrower's home before initiating fore-
closure proceedings. They will be required to leave contact information
upon visiting the home if a senior does not respond to the annual
letter. Lenders will have to wait at least 30 days for a response from
the senior, in addition to any time period required by any other section
of law, before initiating a foreclosure action.
Lenders will be barred from charging seniors any fees for visiting their
home in order to verify their residence status.
The bill's provisions will be conditions precedent to a lender bringing
a foreclosure action on a HUD reverse mortgage. The bill's provisions
will be enforceable via treble damages and attorney's fees for prevail-
ing plaintiffs.
Section 2: The act will take effect on the ninetieth day after it
becomes a law, but the Department of Financial Services is authorized to
immediately begin promulgating regulations necessary to implement the
provisions of the act, and shall have one-hundred and eighty days to do
so.
 
EXISTING LAW:
Under current law, home equity conversion mortgages under the HUD
program are not subject to these regulations.
 
JUSTIFICATION:
Reverse mortgages are complicated and expensive financial products.
Many seniors do not understand how they work or what their true longterm
costs are. Exacerbating this problem are unscrupulous lenders who market
reverse mortgages as public services or government sponsored products.
Inadequate regulation of this industry resulted in a sharp uptick in
defaults in 2016, as more seniors fell into foreclosure on these
products, losing not only their homes, but also their most significant
financial assets.
Foreclosures in the reverse mortgage industry have taken place against
seniors for making payments mere cents short of their tax, homeowners
insurance, or mortgage insurance bills. Lenders eager to tap the equity
in these homes are sometimes aggressive to foreclose and see a return on
their investment. Seniors must be better protected by clearer informa-
tion and stricter regulations on the way that lenders market and manage
these complicated products.
This comprehensive new set of regulations will regulate the marketing,
origination, and management of reverse mortgage products that fall under
HUD's home equity conversion mortgage program for seniors, in the hope
of preventing defaults and foreclosures.
 
LEGISLATIVE HISTORY:
New bill, 2017.
 
FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:
To be determined.
 
EFFECTIVE DATE:
90th day after it shall have become a law.
STATE OF NEW YORK
________________________________________________________________________
5820--A
Cal. No. 414
2017-2018 Regular Sessions
IN ASSEMBLY
February 16, 2017
___________
Introduced by M. of A. WEINSTEIN, MOSLEY, ABBATE, COLTON, CYMBROWITZ,
GALEF, ZEBROWSKI, JOYNER, ORTIZ, RIVERA, BLAKE, GLICK, DINOWITZ,
CARROLL, D'URSO, STECK, HYNDMAN, RICHARDSON, DAVILA, AUBRY, SEAWRIGHT,
ABINANTI, WALLACE, CAHILL -- Multi-Sponsored by -- M. of A. COOK,
ENGLEBRIGHT, NOLAN, SIMON, THIELE -- read once and referred to the
Committee on Judiciary -- ordered to a third reading, amended and
ordered reprinted, retaining its place on the order of third reading
AN ACT to amend the real property law, in relation to regulation of
reverse mortgages issued under the federal home equity conversion
mortgage for seniors program
The People of the State of New York, represented in Senate and Assem-bly, do enact as follows:
1 Section 1. The real property law is amended by adding a new section
2 280-b to read as follows:
3 § 280-b. Federal home equity conversion mortgage regulation. 1. For
4 the purposes of this section, the following terms shall have the follow-
5 ing meanings:
6 (a) Reverse mortgage loan. A reverse mortgage loan as defined in
7 section two hundred eighty of this article, which is issued in this
8 state pursuant to the home equity conversion mortgage for seniors
9 program operated by the federal Department of Housing and Urban Develop-
10 ment.
11 (b) Authorized lender. An authorized lender as defined in section two
12 hundred eighty of this article authorized to make reverse mortgage
13 loans, as defined in this section.
14 (c) Superintendent. The superintendent of financial services estab-
15 lished pursuant to section two hundred two of the financial services
16 law.
17 2. No authorized lender or any other party or entity shall in any
18 manner, in the marketing or offering of reverse mortgage loans, engage
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[] is old law to be omitted.
LBD07787-08-8
A. 5820--A 2
1 in any unfair or deceptive practices in connection with the marketing or
2 offering of reverse mortgage loans, and, additionally, shall not:
3 (a) use the words "public service announcement" in any commercial,
4 mailing, advertisement or writing relating thereto; or
5 (b) use the words "government insured" or other similar language
6 representing that reverse mortgage loans are insured, supported and
7 sponsored by any governmental entity in any commercial, mailing, adver-
8 tisement or writing relating thereto; or
9 (c) represent that any such loan is other than a commercial product.
10 3. (a) Every authorized lender or its agent shall provide, with any
11 solicitation for reverse mortgage products mailed to a physical address
12 within the state, supplemental consumer protection materials the content
13 and form of which shall be specified by the superintendent or his or her
14 designee.
15 (b) Every authorized lender shall provide each applicant or potential
16 applicant for a reverse mortgage loan with the telephone number and
17 internet website address provided by the federal Department of Housing
18 and Urban Development for the purposes of acquiring home equity conver-
19 sion mortgage counseling.
20 (c) The superintendent is authorized to promulgate such rules and
21 regulations as he or she shall deem necessary to implement the
22 provisions of this subdivision.
23 4. (a) Reverse mortgages secured by residential real property within
24 the state shall be subject to the rules and regulations of the federal
25 Department of Housing and Urban Development relating to the home equity
26 conversion mortgage program.
27 (b) For all borrowers whose tax payments, mortgage insurance payments,
28 homeowners insurance payments, or payments stemming from any other prop-
29 erty obligation or obligations are administered by the authorized lend-
30 er, and where these payments are derived from the proceeds of the mort-
31 gage, the authorized lender shall provide on the borrower's periodic
32 account statement the current balance remaining in the borrower's line
33 of credit or lifetime expectancy set aside, the projected annual proper-
34 ty charges for that year, and a notice which reads in at least twelve
35 point type: "YOUR TAXES AND INSURANCE ARE CURRENTLY BEING PAID BY THE
36 PROCEEDS OF THIS MORTGAGE. THE FUNDS THAT HAVE BEEN SET ASIDE ARE
37 EXPECTED TO BE EXHAUSTED AFTER THE TAX AND INSURANCE PAYMENTS OF (SPECI-
38 FY EXPECTED MONTH AND YEAR). IF THE PROCEEDS OF THIS MORTGAGE CANNOT PAY
39 THE TAXES AND INSURANCE, YOU MUST PAY THESE OBLIGATIONS OR YOUR HOME MAY
40 BE LOST TO FORECLOSURE. PLEASE NOTE THAT AS TAX AND INSURANCE AMOUNTS
41 CAN VARY YOU SHOULD CONTINUE TO REVIEW THIS NOTICE FOR CHANGES."
42 (c) An authorized lender shall, by telephone and first class mail,
43 inform and provide notice to a mortgagor when his or her home equity
44 line of credit or life expectancy set aside is depleted to ten percent
45 or less of its value. Such notice shall inform the mortgagor of his or
46 her obligations relating to such real property including, but not limit-
47 ed to, mortgage insurance, homeowners insurance and real property taxes
48 previously paid by such line of credit or life expectancy set aside, and
49 that such obligations must continue to be paid when the home equity line
50 of credit or life expectancy set aside is depleted. Such notice shall
51 use plain language, written in a clear and coherent manner using words
52 with common and every day meanings, appropriately divided and captioned
53 by its various sections.
54 (d) Each authorized lender shall, by telephone and first class mail,
55 inform and provide notice to a mortgagor when his or her home equity
56 line of credit or life expectancy set aside is depleted. Such notice
A. 5820--A 3
1 shall inform the mortgagor of his or her obligations relating to the
2 mortgaged real property including, but not limited to, mortgage insur-
3 ance, homeowners insurance and real property taxes, and that the home
4 equity line of credit or life expectancy set aside will no longer pay
5 these obligations. Such notice shall use plain language, written in a
6 clear and coherent manner using words with common and every day mean-
7 ings, appropriately divided and captioned by its various sections.
8 5. No authorized lender shall make an advance payment for any obli-
9 gation arising from mortgaged real property. Furthermore, in the event a
10 mortgagor defaults upon the payment of mortgage insurance premium, home-
11 owners' insurance premium or real property tax related to the mortgaged
12 property, the authorized lender may only pay those premiums and/or taxes
13 which are in arrears.
14 6. In the event that an authorized lender seeks to foreclose on a
15 reverse mortgage loan on the basis that the mortgaged real property is
16 no longer the primary residence of or occupied by the mortgagor, if
17 during the verification of the mortgagor's primary residence and/or
18 occupancy no responses are received in response to mailings relating
19 thereto, such lender shall cause a telephone call to be made to the
20 mortgagor, or if the mortgagor is unreachable by telephone, a designated
21 third-party specified by the mortgagor, and an in person visit to be
22 made to the mortgagor at the mortgaged real property to be made prior to
23 the commencement of any foreclosure proceeding. During such visit, the
24 authorized lender or its agent shall provide clear information as to who
25 they are, that the visit pertains to the reverse mortgage, the reason
26 for the home visit, and the telephone number to call for further infor-
27 mation. The authorized lender must wait at least thirty days following
28 such visit, in addition to any additional time or notice requirements
29 specified by any other provision of law, before initiating a foreclosure
30 action on the basis that the mortgaged real property is no longer the
31 primary residence of the mortgagor. If the mortgagor contacts the
32 authorized lender and provides proof of residence or occupancy after
33 such visit but before the commencement of a foreclosure action, the
34 authorized lender shall be barred from initiating such foreclosure
35 action. Furthermore, no authorized lender shall charge a mortgagor any
36 fee for any such visit and inspection. This prohibition on the imposi-
37 tion of fees shall include any and all inspections conducted by the
38 authorized lender to verify the status of the reverse mortgage, or any
39 suspected or actual default condition.
40 7. Both the authorized lender and the mortgagor shall be represented
41 by an attorney or attorneys at the time of the closing on the reverse
42 mortgage, and each such party shall have at least one attorney present
43 to conduct the closing.
44 8. Any person who has been injured by reason of any violation of this
45 section or any violation of the rules and regulations of the federal
46 Department of Housing and Urban Development relating to the home equity
47 conversion mortgage program may bring an action in his or her own name
48 to recover treble his or her actual damages, plus the prevailing
49 plaintiff's reasonable attorney's fees.
50 9. Compliance with the provisions of this section shall be conditions
51 precedent to commencing an action to foreclose upon a home equity
52 conversion mortgage which is subject to the provisions of this section,
53 and the failure to comply therewith shall be a complete defense to a
54 foreclosure action.
55 § 2. This act shall take effect on the ninetieth day after it shall
56 have become a law; provided, that, effective immediately the superinten-
A. 5820--A 4
1 dent of financial services is authorized and directed to amend, add
2 and/or repeal any rules and regulations necessary to implement the
3 provision of this act within 180 days after this act shall have become a
4 law.