At the moment,the only constant in the reverse mortgage industry is change. Recent reforms to the FHA-backed HECM product, including principal and withdrawal limits, and protections surrounding non-borrowing spouses, have made it less of a need-based product of last resort and more of a retirement planning tool. These changes mainly apply on the federal level, but what about at the state level? While 98 percent of the reverse mortgages issued in the United States are federally backed, more than half of the states in the U.S. have regulations that apply to reverse mortgages. The past few months saw legislation in both California and Massachusetts, and NRMLA is watching more than 30 pieces of pending legislation in 12 states.
California: The Golden State
August brought the approval of Assembly Bill 1700 (AB 1700) by the California State Senate. Sponsored by California Assemblyman Jose Medina, the bill, first introduced in February, mandates a seven-day waiting period from the date of loan counseling to the date lenders may take an application or assess any fees. AB 1700 is very similar to a previous bill introduced by Medina in February 2013, which also required the waiting period, along with a required “suitability checklist” for reverse mortgage borrowers. A few months later, after meeting with NRMLA members, Medina took that version out of consideration. NRMLA expressed concerns about the extra stress the checklist and waiting period would add to the lending process.
The recently approved AB 1700 also requires lenders to provide a worksheet that addresses issues borrowers are advised to discuss with their counselor. The completed worksheet will need to be signed by both parties before a lender can move forward with an application. Jim Milano, partner at the law firm of Weiner Brodsky Kider, notes that the worksheet, once created, will be slow to reflect further expected revisions to the FHA HECM program, such as Financial Assessment.
The requirements introduced by the bill and the existing law are redundant. Currently, law prohibits a lender from taking an application before providing a specified disclosure notice and written checklist to the potential borrower. The new bill replaces the written checklist requirement with the amended worksheet. Before completing an application for a reverse mortgage, California lenders will also be required to provide borrowers with a listing of no fewer than 10 HUD-approved counseling agencies. Milano also notes the marketing, origination and processing timeline for a reverse mortgage can already be a very long process. Once a senior decides to proceed with a reverse mortgage, after what can be a lengthy decision process, seniors may be eager to access the equity in their homes, and the seven-day cooling-off period will cause additional delays. The cooling-off period could also be considered superfluous in light of Regulation Z: The federal Truth in Lending Act already includes the Right of Rescission, the opportunity to cancel 8 the loan without penalty, within three business days of the closing date. While both Houses have passed AB 1700, there is no official word on when Governor Jerry Brown plans to sign the bill into law.
Massachusetts: Face-to-Face
A condition requiring face-to-face loan counseling for low-income seniors has been pending in the Massachusetts legislature for nearly four years. Since 2010, members of the reverse mortgage industry have worked toward delaying the start of the in-person counseling, succeeding in 2010 and in 2012. In August, Governor Deval Patrick signed an economic development bill that delays the start of of the face-to-face counseling requirement again, until 2016. For some, the delay is a success. Mandating in-person counseling creates challenges for seniors without reliable access to transportation and generates stress for the limited number of counselors expected to cover the entire state. John Lunde, founder and president of Reverse Market Insight, says if the bill is signed into law, the reverse market business in Massachusetts may become increasingly focused on urban areas. “Will counselors be expected to drive hundreds of miles to access seniors in remote and rural areas?” Lunde asks. There simply are not enough counselors at the moment to meet demand. The majority of counseling organizations operating within Massachusetts are nonprofit and less able to add additional staff to provide adequate coverage for the state’s seniors. Forcing face-to-face counseling will significantly affect the ability of the industry to meet the state’s requirements while servicing seniors seeking reverse mortgages.
Pennsylvania: Land of Opportunity?
According to 2010 Census data (the most recent available), Pennsylvania ranks fifth in the United States for number of residents over 65. If calculated by percentage of population aged 65-plus, Pennsylvania ranks fourth; older Americans make up 15.5 percent of the state. Florida has the greatest proportion of people who are at least 65 (17.3 percent), followed by West Virginia (16 percent), Maine (15.9 percent), Pennsylvania and Iowa (14.9 percent). Pennsylvania and Florida are the only states to rank in the top five in both number of seniors and seniors as a percentage of population. Demographic projections predict Pennsylvania will remain in the top five through 2030, as the last of the baby boomers reach retirement age. “Pennsylvania is usually the one that surprises people most when we rank the largest reverse mortgage markets by loan count, and it’s top five in terms of the number of age-eligible households,” Lunde says.
Texas: Late Start, Fast Growth
The reverse mortgage industry in Texas may have gotten a late start, but it was quick to make up for the delay. The Lone Star State was last to allow reverse mortgages, beginning just 14 years ago in 2000. In its first 10 years of reverse mortgages, Texas homeowners accessed more than $5 billion. Texas is now the second-largest market for the product, not too far behind California. State-level laws governing reverse mortgages are part of the state constitution. Texas was also the last state to allow reverse mortgages for purchase. For Purchase loans were allowed in November 2013, with the first loans closing earlier this year. The market for HECM for Purchase loans will grow thanks to a boom in homebuilding in three of the state’s largest metropolitan areas. A study by real estate website Trulia found Houston, Austin and Dallas among the top 10 of cities experiencing a building boom. Houston took fourth place with a 61 percent increase in homebuilding permits issued in 2014. Austin ranked No. 7 with a nearly 40 percent increase and Dallas was close behind at No. 8 with a 36 percent increase. All three cities also enjoyed large growth in asking prices: 10.4 percent, 12.3 percent and 7.6 percent respectively.
The Lone Star State’s late entrance into the reverse market began 143 years ago, according to Scott Norman, vice president of sales at Urban Financial of America and an expert in the Texas market, who completed the state’s first reverse mortgage in 2000. The restrictions on mortgage borrowing date back to the first days of Texas’ statehood in 1845, when the constitution banned home loans entirely. It wasn’t until the late 1990s that home equity loans became legal. “The uniquely protective home equity laws of Texas are embedded in the constitution; any attempt to amend it is not looked upon with open arms,” Norman says. “It’s a demanding undertaking that literally takes years to prepare for.”
