Minnesota Reverse Mortgage Bill Sent To Governor For Signature, Includes 10 Day Rescission & More

Several bills were sent to Minnesota Governor Tim Palenty last week and one of those was SF 489/FH 528 which was passed by the Senate and House by a vote of 65-2 and 97-31 respectively.

The bill includes several important changes which could negatively impact reverse mortgage lenders in the state of Minnesota.  Beth Paterson of Reverse Mortgage SIDAC has been working with legislators non stop for the last few months and points to the following parts of the bill which could cause problems.

10 day rescission period:

The rescission must be in writing and sent by certified mail to the lender at the address stated in this document."
(c) Notice of recission is effective when the borrower deposits a certified letter properly addressed and postage prepaid in the mailbox.
(d) A notice of rescission given by the borrower need not take a particular form and is sufficient if it indicates by any form of written expression the intention of the borrower not to be bound by the reverse mortgage transaction.
(e) No act of the borrower is effective to waive the right to rescind as provided in this section.


Prior to referring a prospective borrower for counseling under subdivision 8, a lender must have reasonable grounds for believing that a reverse mortgage loan is suitable for the borrower and must make reasonable inquiries to determine suitability. Suitability for a reverse mortgage loan will be determined by reference to yhe totality of the particular borrower’s circumstances, including, but not limited to, the borrower’s income, age, assets, the costs and benefits of a reverse mortgage loan, and other
financial options available to the borrower.

Counseling; requirement; penalty:

Prior to accepting a final and complete application for a reverse mortgage loan or assessing any fees, a lender must:

(1) refer the prospective borrower to an independent housing counseling agency approved by the United States Department of Housing and Urban Development for reverse mortgage counseling. The lender shall provide the prospective borrower with a list of at least three independent housing counseling agencies approved by the United States Department of Housing and Urban Development. The lender shall positively promote the benefits of reverse mortgage counseling to the potential borrower; and

(2) Receive a certification from the applicant or the applicant’s authorized representative that the applicant has received counseling as defined in this subdivision from an independent counseling agency as described in clause (1). The certification must be signed by the applicant and the counselor from the independent agency and must include the date of the counseling, and the name, address, and telephone number of both the counselor from the independent agency and the applicant. The lender shall maintain the certification in an accurate, reproducible, and accessible format for the term of the reverse mortgage. A failure by the lender to comply with this subdivision results in a $1,000 civil penalty payable to the borrower. For the purposes of this subdivision, "counseling" means that during a session, which must be no less than 60 minutes, the following services are provided to the borrower:

(i) a review of the advantages and disadvantages of reverse mortgage programs;
(ii) a discussion of the borrower’s finances, assets, liabilities, expenses, and income needs and a review of options other than a reverse mortgage loan that are available to the borrower, including other housing, social services, health, and financial options;
(iii) a review of other home equity conversion or other loan options that are or may become available to the borrower;
(iv) an explanation of the financial implication of entering into a reverse mortgage loan, including the costs of the loan;
(v) an explanation that a reverse mortgage loan may have tax consequences, affect eligibility for assistance under federal and state programs, and have an impact on the estate and heirs of the borrower;
(vi) an explanation of the lending process; and
(vii) an opportunity for the borrower to ask questions of the counselor.

Cross Selling:

No producer shall sell or encourage the purchase of an annuity, life insurance, or long-term care insurance product where the producer knows or should know that the
purchase will be made using proceeds from a reverse mortgage.
(b) This section shall not apply with respect to the purchase of an annuity, life insurance, or long-term care insurance product made more than 18 months after the date the reverse mortgage loan was made."

It’s not clear what lenders response will be but Patterson told RMD that Wells Fargo testified at the conference committee last week and said it has issues with the suitability provision because there is no guidance about how it’s determined.  Wells added that if the law was passed in its current form they would seriously consider no longer offering reverse mortgages in Minnesota.

Governor Palenty will have three days to sign or veto the legislation.  If signed the changes will become effective August 1st, 2009.  If you would like to see the committee meeting you can see the video here.

Also, check out the email that AARP sent its members about SF 489 in Minnesota.  I don’t see how this will bill will help protect seniors from foreclosure.  

AARP Reverse Mortgage Legislation


SF 489

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