Once upon a time there was a well meaning attorney general and a well meaning legislature. Each claim that they care deeply about the older Americans that reside in their state.
Trying to prevent the contagion that afflicted forward mortgage borrowers, they crafted a bill that unknowingly effectively destroys the reverse mortgage industry in their state. This bill, if passed, will prevent seniors from effectively accessing the one program that can provide money; that could be the answer to their prayers; that takes the financial burden off their shoulders; that lets them sleep at night.
Legislators are elected (hired) to make life better for its citizens. Same holds true for their attorney general. Sometimes in trying to do a good job they become overzealous. Sometimes, when a band-aid will do, they resort to the use of a body cast. Sometimes the dosage of the pill not only kills all the germs, but kills the patient as well. Sometimes in their desire for that “perfect” result, all reasonableness flies out the window.
If the state only asked for help. Many reverse mortgage experts were willing to lend a hand. There are major trade organizations that could have answered all their questions as well. I can only surmise that the state sought to go it alone. Because if they did seek out advice, then they were surely not listening.
I can only assume that the bill’s desire is to protect seniors from those same miscreants that “preyed” upon “forward” mortgage borrowers in Minnesota. This, I hope was the genesis of the legislation.
An overzealous legislator or an overzealous attorney general is no different than an overzealous mortgage company. All three can cause untold destruction when they refuse to look at the consequences of their actions.
Let’s assume these forward mortgage companies contaminated the reverse mortgage industry in Minnesota. What should be done? Should we make up rules that prevent all reverse mortgage companies from doing business in the state? Should we make up rules that effectively prevent any borrower from gaining access to the reverse mortgage program? Should we make up rules that supersede federal law, which experience shows work quite well? Should we make up rules that look good on paper and make the politicians look good, while having no real redeeming feature? I ask just what should be done.
Well, if this was a ball game, (any ballgame) and a player flagrantly violates the rules, the player is thrown out of the game. Hmmmm. One would think that the state of Minnesota has the power to act against such mortgage companies and its originators. In simple terms this means suspending and revoking licenses. It means handing out fines. It does not mean PREVENTING the one program (the HECM- the reverse mortgage program insured by the federal government) that can financially change the lives of older Americans (62 or older) in your state.
Draconian rules never work.
Once upon a time a major lender in the United States was determining whether to do reverse mortgage lending business in Minnesota. Every other state follows the HUD rules, (3 day right of rescission) since the government insures these loans.
So the fundamental question becomes, why re-invent the wheel? Minnesota’s answer is sadly, “Because we can”.
When this lender discovers what Minnesota is trying to do, the executives will have a short discussion that will go something like this:
“Federal law protects the borrower (Regulation Z 12CFR226.23). It offers a three day waiting period just like any other refinance. In Minnesota things would work differently .If I understand this correctly, after the three day period expires the borrower will either get funds or have access to funds. The closing costs will be disbursed to a bunch of different providers. But the borrower can still cancel this loan. Am I missing something here”?
“It is hard to believe that intelligent people would expect a bank to do business under these circumstances. Total uncertainty becomes the rule in Minnesota. And Minnesota thinks it is protecting borrowers. Amazing”.
“It is Amazing. And HUD has already taken care of the counseling issues very nicely. You can see how their ideas have evolved over time. (Mortgagee Letters provide this information. HUD Mortgagee Letters-2008-28, 2007-08, 2006-25, 2004-25, 2004-48 & 2000-10)”.
“I’m not as concerned w/ counseling issues because I think they will see that there is nothing to legislate. What really bothers me is that we have to vouch for each originating company and its originators. And there is a huge forfeiture provision as well. We will be open to lawsuits and losses all day long. This is totally unacceptable. No lender will do business in this state”.
“You know they do the same thing for suitability requirements. If a mistake is made we are also open to a lawsuit”.
“So, I think we answered our own question”.
“Absolutely. The biggest shame of all is that these politicians will probably get re- elected even though they are hurting the seniors…and the politicians do not care”.
This is such a great article. read me article
Reverse Access Livedoor
Posted by: Reverse Access Livedoor | February 22, 2009 at 03:24 PM