The reverse mortgage industry in Massachusetts may have dodged the bullet again– but it’s not clear how long it can keep out of danger.
Reverse mortgages allow borrowers to tap into the equity built up in their home to pay for their living expenses in retirement, while still living in their homes. When the borrower or their estate sells the home, the loan is paid off. Almost every reverse mortgage is issued under the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program, in order to for lenders to take advantage of federal wrap insurance on the loans. Under the HECM program, borrowers must be 62 or older in order to take out the loan, the property to be mortgaged must be their primary residence and, crucially, they are required to receive counseling to make sure they fully understand the terms of the loan before it can be issued.
In the wake of the housing crash and foreclosure crisis, state lawmakers decided to stiffen those requirements for potentially vulnerable Massachusetts seniors. A law passed in 2010 requires seniors who have a gross incomes less than 50 percent of the area median and assets, excluding their primary residence, valued at less than $120,000, receive their counseling in person and that a mandatory cooling-off period must ensue before they can take out the loan.
The problem is that while the agency created the requirements, it didn’t provide any funds to implement them. The most recent roster compiled by the FHA lists only 12 counseling agencies that can provide reverse mortgage counseling for HECMs in Massachusetts, almost all in the eastern half of the state. Only a scant handful provide in-person counseling. The vast majority of borrowers receive their counseling over the phone, through a few large national firms that specialize in such counseling.
Rock And A Hard Place
Without more funds to provide in-person counseling, the implementation of the requirement would cause months of delays for borrowers – and that’s the best-case scenario. The penalties for lenders who fail to meet the requirement are so stiff – under the 2010 law, the loan terms are rendered unenforceable and the lender may have their banking license revoked – that allowing it to take effect could effectively put a stop to reverse mortgage lending in the state, lenders say.
“The bottom line is that it was flawed legislation from the beginning,” said George Downey, president of Harbor One Mortgage Solutions in Braintree. “There’s clearly a lack of capacity, and there just isn’t the counseling network out there to support it.”
Lenders have already twice successfully argued for a delay of the in-person counseling requirement. An amendment to a bill passed last week by the House and currently under consideration in the Senate will extend the implementation deadline a further two years, to 2016.
But in the four years since the law’s passage, little has changed on the ground with regard to increasing in-person counseling resources. It’s not clear how long the can may be kicked down the road.
“Since those two years have gone by [since the last extension], nothing has changed. If anything, it’s worse than it was before,” said Downey.
Yet while the rollout of the law itself may be temporarily stymied in the Bay State, the idea behind it may be beginning to attract mimics. One other state, North Carolina, already requires in-person counseling for reverse mortgage borrowers. Bills requiring similar mandates have been filed in several other states, including California.
That’s especially troubling, the industry argues, because there’s little data to support the idea that in-person counseling is necessarily more effective than counseling over the phone.
“We have to get this matter resolved in the next two years, so that our seniors aren’t put at a tremendous disadvantage,” said Downey.
Email: csullivan@thewarrengroup.com
