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New York proposes new rules for reverse mortgages

Legislation would add protections for state’s senior citizens

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In addition to unveiling new legislation that would grant the New York Department of Financial Services the authority to ban individuals from working in the financial services industry, New York Gov. Andrew Cuomo also announced on Monday a series of new laws that would add financial protections for the state’s senior citizens.

Included among those proposals are new rules for reverse mortgages, which are similar to a traditional mortgage in that it is a loan with the borrower’s home as collateral, but unlike a traditional mortgage, borrowers do not have to repay the loan as long as they remain in their home.

Reverse mortgages are only available to borrowers that are 62 or older and either have already paid off their forward mortgage or be able to pay it off with proceeds from the reverse mortgage.

But as Cuomo’s office notes, some New York senior citizens face foreclosure from their home due to the complexity of reverse mortgages.

“Misled and misinformed by advertisements, seniors often choose reverse mortgages for an additional income without fully understanding that payments are still required for all taxes, insurance, and home maintenance,” Cuomo’s office said. “As a result of these deceptive practices, many senior citizens face foreclosure because of a missed tax or insurance payment.”

Under the state’s current laws, some consumer protections granted to forward mortgage borrowers, including the right to a settlement conference when facing a foreclosure, are not granted to homeowners with a reverse mortgage.

Cuomo’s newly announced legislative proposals would address that issue and others, his office said.

According to Cuomo’s office, in order to “safeguard seniors from the risks of reverse mortgages and provide equal protections to all homeowners,” Cuomo proposes the following actions:

  • Close Consumer Protection Loopholes: The Governor proposes amending the Real Property Actions and Proceedings Law and Civil Practice Laws and Rules to include reverse mortgages. This will require that the same consumer protections be provided to all homeowners, regardless of the lending product they utilize.
  • Launch Review of Regulations: The Governor will direct the Department of Financial Services to revisit and revise any rules and regulations pertaining to reverse mortgages. This will help to prevent future foreclosures and further protect New York homeowners.

Cuomo’s office also unveiled a series of additional financial protections for senior citizens, including the formation of an “Elder Abuse Certification Program.”

According to Cuomo’s office, the “Elder Abuse Certification Program” will be available for all banks located across New York.

Cuomo’s office said that the NYDFS will design the certification program, which will include training bank employees on how to recognize the signs of financial abuse.

Additionally, Cuomo proposed additional protections for senior citizens that grant financial institutions more authority, but that increased authority brings increased oversight.

“Currently, banks are insufficiently using their power to place holds on, or prevent suspicious transactions involving elder financial abuse,” Cuomo’s office said. “The Governor proposes new legislation further empowering banks to place holds on potentially fraudulent transactions in order to protect their consumers, and be immunized for doing so in good faith.”

Then, once potential fraud is identified and the bank applies a transaction, banks will be required to report to the appropriate state agencies to take action, Cuomo’s office said.

“Exploitation of seniors is a particularly heartless and heinous crime and this administration is committed to doing everything in its power to stop this abuse and ensure these New Yorkers receive the protections they deserve,” Cuomo said. “These proposals will help seniors keep their finances and assets from being vulnerable to thieves and unscrupulous practices, and stop those who seek to exploit them right in their tracks.”

NYDFS Superintendent Maria Vullo said that the new rules are a necessity.

“New York's seniors are entitled to the full protection of our laws, whether in their banking transactions or their reverse mortgages,” Vullo said. “These new laws will prevent bad actors from preying on the elderly. Under Governor Cuomo's leadership, DFS is proud to launch the first training and certification program for elder abuse, and will continue to protect all New Yorkers from predatory practices in the reverse mortgage market.”

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