This memo was sent to me by a member of the National Reverse Mortgage Lenders Association:
Member Alert: NRMLA Trying to Resolve Licensing Issues in Washington State
June 2, 2008Washington state recently passed legislation (SB 6471) that may impact non-depository lenders, as well as the correspondents, subsidiaries and affiliates of depository lenders who make reverse mortgage loans in that state. SB 6471 requires that all non-exempt lenders doing business in Washington be licensed by the Department of Financial Institutions under the Consumer Loan Act (CLA) by June 12, 2008. As of June 12th, lending will no longer be permitted under the Mortgage Broker Practices Act (MBPA). Lender entities generally exempt from this change are those operating under Washington or federal law as banks, trust companies, thrifts, and credit unions–but not their subsidiaries, affiliates or correspondents. A bill synopsis is available here.
The change in licensing administration impacts the reverse mortgage sector as the CLA requires its licensees to use the simple interest method (RCW 31.04.125(2)) to calculate interest, which according to Washington Administrative Code (WAC 208-620-010) expressly precludes the compounding of interest, or negative amortization. Since negative amortization is a key term of all reverse mortgages currently in the marketplace, we are concerned that implementation of this law would adversely impact reverse mortgage lending. We believe this is a result neither the legislature intended nor one that serves the best interest of Washington’s expanding senior population.
In fact, we believe this is an oversight on the part of Washington state legislators’ and are diligently working with the state legislators and the Department of Financial Institutions (DFI) to seek an emergency clarification that would exempt reverse mortgages from the CLA requirement that prohibits the compounding of interest. The DFI has been very receptive to our concerns and we hope for a quick and positive outcome to this issue.
In the interim, we recommend lenders who do business in Washington consult with legal counsel to discern how this change may impact your ability to continue doing business in the State, and we strongly encourage affected members to submit their CLA licensing application to the DFI prior to the June 12th effective date.
We will keep you appraised as things progress.
Erin Gulick
Policy Associate
202.939.1745
Although I believe many seniors benefit from being able to utilze their equity through reverse mortgages, I don’t have 100% faith that they are in the clients best interest.
Not to plagarize, but I feel the same as Susan Lohse. I think that a reverse mortgage can be beneficial to seniors. I do not think it a “bad thing” for seniors to use the equity they have accumulated, as they like. It is not like they take the house with them when they pass on. I think it should be handled ethically like any other financial transaction regarding real estate. In essence it is their property, whether or not they use “their” money (equity) or leave it to their decendants.
Again tying back to our first article it is a fiduciary transaction and needs to be held to the same code of conduct.
I’m just not involved enough in reverse mortgages to comment on the above. It sounds as if those that are better contact their lawmaker.
As far as I know about the reverse mortgagest-are not being offered through brokers.(the mortgage lenders I’ve worked with in the past)
510-LO-44600
509 457-1978
I think that Reverse Mortgages can be a nice way for some people to get some income as the age. However, they can be expensive (fees) and they should be looked at very carefully by the L.O. to make sure that he/she is looking after the best interest of the borrower. There might be some better alternitives. I do think that the provider should be trained and qualifed to offer the product.
Reverse Mortages can be beneficials to some seniors but I believe must be caredfully examined for each individual. With the new licensing laws there is no real market for Brokers/Loan Originatiors to offer Reverse Mortgages. My company in the past has not ever offered the product but always referred older clients to obtain counsel and a specialist in the reverse mortgage field. I believe the licensing will help “weed out” our industry and in the end benefit all, including those who work in the reverse mortgage arena.
It is not practical to have RM’s regulated by CLA as well as the current reg’s we have as mortgage lenders. RM’s are often misunderstood, by the industry as well as the public. RM’s have safeguards in place to protect seniors. These loans have been a saving grace to many.In the future I feel they will become more prominant and will become a major part of one’s estate planning.