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, 2008

Washington 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