Sponsored by:
Senator SHIRLEY K. TURNER
District 15 (Hunterdon and Mercer)
SYNOPSIS
Establishes pre-loan counseling requirements and borrower right of rescission for reverse mortgage loans.
CURRENT VERSION OF TEXT
As introduced.
An Act concerning reverse mortgage loans and supplementing P.L.1979, c.140 (C.46:10B-16 et seq.).
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. As used in this act:
"Borrower" means any individual inquiring about or applying for a reverse mortgage loan, whether or not the loan is granted, and any individual who has obtained a reverse mortgage loan.
"Lender" means a banking institution that is authorized in the State to make a reverse mortgage loan pursuant to section 3 of P.L.1979, c.140 (C.46:10B-18).
“Reverse mortgage” means a reverse annuity mortgage or a reverse direct payment mortgage as defined in section 2 of P.L.1979, c.140 (C.46:10B-17).
2. Prior to accepting a final and complete application for a reverse mortgage loan or assessing any fees, a lender shall:
a. provide the borrower with a written checklist, in 12-point type or larger, advising the borrower to discuss the following issues with a reverse mortgage counselor:
(1) how unexpected medical or other events that cause the borrower to move out of the borrower’s home earlier than anticipated will impact the total annual cost of the reverse mortgage loan;
(2) the extent to which the borrower’s financial needs would be better met by options other than a reverse mortgage loan, including less costly home equity lines of credit, property tax deferral programs, or governmental aid programs;
(3) whether the borrower intends to use the proceeds of the reverse mortgage loan to purchase an annuity or other financial or insurance product and the consequences of doing so;
(4) the effect of repayment of the reverse mortgage loan on other residents of the home securing the reverse mortgage loan after all borrowers have died or permanently left the home;
(5) the borrower's ability to finance routine or catastrophic home repairs, especially if maintenance is a factor that may determine when the reverse mortgage loan becomes payable;
(6) the impact that the reverse mortgage loan may have on the borrower's tax obligations and eligibility for government assistance programs, and the effect that losing equity in the home securing the reverse mortgage loan will have on the borrower's estate and heirs; and
(7) the ability of the borrower to finance alternative living accommodations, such as assisted living or long-term care, after the borrower's equity is depleted.
b. provide to the borrower the names and contact information for at least five counseling agencies domiciled in New Jersey that are approved by the United States Department of Housing and Urban Development to engage in reverse mortgage counseling pursuant to Subpart B. of 24 C.F.R. s.214, provided that the counseling agencies do not receive any compensation, either directly or indirectly, from the lender or from any other person or entity involved in originating or servicing the reverse mortgage or the sale of annuities, investments, long-term care insurance, or any other type of financial or insurance product and neither make loans nor refer borrowers to any person or entity that makes loans. The lender shall not pay any counseling service fees to a counseling agency without first informing the borrower in writing that this may create a conflict of interest.
c. receive a certification from the borrower or the borrower’s authorized representative attesting that the borrower has received in-person counseling on reverse mortgage loans from a counseling agency as described in subsection b. of this section that included information specified in subsection a. of this section and such other information as the Commissioner of Banking and Insurance may designate by regulation.
The certification shall be signed by the borrower and the counseling agency counselor, and shall include the date of the counseling and the name, address, and telephone number of both the counselor and the borrower. An electronic facsimile copy of the certification satisfies the requirements of this subsection. The lender shall maintain the certification in an accurate, reproducible, and accessible format for the term of the reverse mortgage.
A certification shall only be valid if dated at least three business days prior to the close of a reverse mortgage loan and shall expire 180 business days from the date it was signed.
3. If the Commissioner of Banking and Insurance or his designee determines that:
a. a reverse mortgage loan was executed with a borrower who has not received counseling pursuant to subsection c. of section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill), the reverse mortgage loan shall be rendered void and unenforceable.
b. a lender failed to comply with any provision of section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill), the commissioner or his designee may impose a $1,000 civil penalty upon the lender which shall be payable to the borrower.
4. a. A borrower shall not be bound for seven days after the borrower’s acceptance, in writing, of the lender’s written commitment to make the reverse mortgage loan, and shall not be required to close or proceed with the loan during that time period. The lender shall provide the borrower with written notice of the seven-day right of rescission, which shall be on a separate sheet of paper and in at least 12-point type. A borrower shall not waive the provisions of this section.
b. Nothing in this section shall prevent a borrower from rescinding a reverse mortgage loan within three days of execution, as provided pursuant to 12 C.F.R. s.1026.1 et seq.
5. This act shall take effect on the first day of the third month next following enactment, except the commissioner may take any anticipatory administrative action in advance as shall be necessary for the implementation of this act.
STATEMENT
This bill establishes pre-loan counseling requirements and a borrower right of rescission in regard to reverse mortgages. A reverse mortgage is a home loan that allows a homeowner to convert a portion of the equity in their home into cash. Under New Jersey law, borrowers of reverse mortgages must be at least 60 years of age or older.
The provisions of this bill are designed to inform and educate borrowers about the benefits and consequences of reverse mortgages before a loan is closed, and prevent lenders from misleading borrowers or misrepresenting the reverse mortgage process. Under the bill, a borrower is defined as any individual inquiring about or applying for a reverse mortgage loan, whether or not the loan is granted, and any individual who has obtained a reverse mortgage loan.
Under this bill, prior to accepting a final and complete application for a reverse mortgage loan or assessing any fees, a lender must complete certain responsibilities. First, the lender must provide the borrower with a written checklist advising the borrower to discuss the following issues with a reverse mortgage counselor:
(1) how unexpected medical or other events that cause the borrower to move out of the borrower’s home earlier than anticipated will impact the total annual cost of the reverse mortgage loan;
(2) the extent to which the borrower’s financial needs would be better met by options other than a reverse mortgage loan, including less costly home equity lines of credit, property tax deferral programs, or governmental aid programs;
(3) whether the borrower intends to use the proceeds of the reverse mortgage loan to purchase an annuity or other financial or insurance product and the consequences of doing so;
(4) the effect of repayment of the reverse mortgage loan on other residents of the home securing the reverse mortgage loan after all borrowers have died or permanently left the home;
(5) the borrower's ability to finance routine or catastrophic home repairs, especially if maintenance is a factor that may determine when the reverse mortgage loan becomes payable;
(6) the impact that the reverse mortgage loan may have on the borrower's tax obligations and eligibility for government assistance programs, and the effect that losing equity in the home securing the reverse mortgage loan will have on the borrower's estate and heirs; and
(7) the ability of the borrower to finance alternative living accommodations, such as assisted living or long-term care, after the borrower's equity is depleted.
Second, the lender must provide to the borrower the names and contact information for at least five counseling agencies domiciled in New Jersey that are approved by the United States Department of Housing and Urban Development to engage in reverse mortgage counseling. Under the bill, the counseling agencies must not receive any compensation, either directly or indirectly, from the lender or from any other person or entity involved in originating or servicing the reverse mortgage or the sale of annuities, investments, long-term care insurance, or any other type of financial or insurance product. In addition, the counseling agencies must neither make loans nor refer borrowers to any person or entity that makes loans. Furthermore, the lender must not pay any counselling service fees to a counseling agency without first informing the borrower in writing that this may create a conflict of interest.
And finally, the lender must receive a certification from the borrower or the borrower’s authorized representative attesting that the borrower has received in-person counseling on reverse mortgage loans from a counseling agency as described in the bill. The counseling session must include a discussion of the issues listed on the written checklist that is required under this bill to be provided by the lender to the borrower. Under the bill, a certification is only valid if dated at least three business days prior to the close of a reverse mortgage loan and expires 180 business days from the date it was signed by the counselor and borrower.
In addition to these responsibilities imposed upon lenders, this bill establishes certain enforcement mechanisms. For example, a reverse mortgage executed with a borrower who has not received pre-loan counseling as outlined in the bill will render the terms of the reverse mortgage void and unenforceable. Also, a failure by a lender to comply with any of the bill’s pre-loan counseling requirements may result in a $1,000 civil penalty payable to the borrower.
This bill also provides reverse mortgage loan borrowers with a seven day right of rescission after the borrower’s acceptance, in writing, of the lender’s written commitment to make the reverse mortgage loan. During this time period, the borrower cannot be required to close or proceed with the loan, which allows the borrower more time to deliberately consider the loan contract. The lender must provide the borrower with a written notice regarding the borrower’s seven-day right of rescission.