The Reverse Mortgage Bill Written By Minnesota Legislature Is A Primer For Other Legislative Bodies On What Not To Do

Beth Paterson is EVP of Prestige Mortgage LLC, in St Paul Minnesota. She is an experienced reverse mortgage loan officer who has dissected this bill. Upon examination, she has concluded that if this bill becomes law, it will not only throw  out the scam artists who prey on our seniors, but will also throw out the reverse mortgage industry as well.

Her detailed and in depth examination will keep you riveted. She may as well have asked that proverbial question: Why would such important legislation seek to merely re-invent the wheel? Actually,  if this sad piece of legislation becomes law, Minnesota would have made the round  wheel into a square………it is that bad.

Comments

[lucas law firm]

I read your posts regularly, and am so happy you take the time to spell things out in a clear, concise, easy-to-understand manner.

LLC

[James E. Veale, CPA, MBT]

I am glad to see the effort that Ms. Paterson has put into her rebuttals; however, they are primarily based on HECMs. Although many of us would like to see an all HECM world, there are potentially many different proprietary products that could be offered in the future.

Minnesota like all other states needs laws to protect seniors against actual and perceived potential abuses. HECM laws are not sufficient, unless HECMs are the only RM products we will ever provide. The problem is this bill will destroy not enhance the RM market.

I strongly exhort those who do not want to see “state governments gone wild on FMS”, to join together and create the substance of a Model State Reverse Mortgage Act. If we do not recognize the need and sit back while each state enacts its own version of the other state acts, we will never see the end of more and more refinements to existing (and new) reverse mortgage laws in each state. Worse yet they will probably differ in many ways.

For example, two states (Minnesota and California) want a 30 day rescission period. We all know this will not work. However, how about making a rule that the date between issuance of a FHA Case Number and final loan doc signing can be no less than 30 days. Also why not make a requirement that the loan officer provide the borrower with a representative monthly loan statement so that the borrower can get used to how it will look and work.

Other than the trouble with the 30 day rescission proposal, the biggest problem with this bill is the suitability analysis a lender (RM originator/underwriting) is required to perform. Of course like all new laws there are no standards to guide those who are required to perform it.

I have never seen an industry so vain. Too many times we claim “we educate”. Not many meet the standard of educating. I believe what we do is present and help seniors understand many of the complexities of our product which is very good. The more that we claim we achieve in our presentations, the higher standard state lawmakers will require of us. Let’s lower the bar on expectations and deliver more than expected.

This bill is so worried about perceived conflicts of interest in the counseling area; yet it wants the lenders to determine suitability. Isn’t that an even bigger potential conflict of interest?

Why isn’t the burden being placed on the counselors? Counseling for most seniors we work with runs about 30 minutes on average and they pay $125 for that half hour. Isn’t that a $250 per hour counseling rate? Why not stretch the session to one hour and expand the discussion of alternatives to take in suitability. Maybe the fee could be upped by $25. Certainly $150 per counseling hour should be sufficient for the counseling agency, even if the counselor has to set up the appointment and fill out some paper work thereafter. If this were the case where would the conflict of interest be?

I personally would remove all statements that declare seniors to be adults who can make their own decisions. As we all know many times seniors are in no condition to be making financial decisions on their own. Others even at 93 still are. It all depends on the person and his/her physical and mental state.

I firmly disagree with the cross selling statement. Senator Claire McCaskill’s proposal did not go far enough. The HERA standard is too low and clumsy. For example, in my state anyone can sell financial instruments that are exempt from SEC or California Department of Corporations or Department of Insurance oversight.

Yet a reasonable standard to apply could have been set up. An (less preferred but) easier to apply standard would have been to require those selling HECMs to retire all insurance and securities licenses. Further all HECM sales staff should have to sign a declaration annually under penalties of perjury proclaiming that in the last 12 months they have not sold any insurance, annuities, or other financial products to anyone and have no intention of doing so during period that they are providing HECMs to seniors. Further the statement should also declare that the originator has not introduced and does not intend to introduce other persons to sell products the originator is not permitted to sell nor has the originator received any direct or indirect compensation as a result of such sales. Lenders should be required to sign under penalties of perjury, annual statements declaring that they have received no income or profits of any kind from the sale of financial or insurance products to HECM borrowers to whom they have provided HECMs in the last twelve months and that they have sufficient safeguards and active policies to prevent the transfer of information on any past, present or future transactions to those who sell the prohibited products within their entity or any related entity and they have no knowledge of any such violations. If Congress does not adopt such a standard, let the states do it. It would be much easier to comply with and enforce.

Since I am not involved in selling HECMs to Minnesota residents, I feel as if I have already stepped on too many toes. I believe that those in Minnesota should start working with Ms. Paterson and the NRMLA staff to present their ideas to the Minnesota legislative branch of government.

Ms. Paterson has achieved a monumental and excellent start! Her work product points out how much more we in California have to do on the proposal our state is making in regard to reverse mortgages. The bill has many of the same problems the Minnesota proposal has plus a few “bonus" wrinkles.