(TRENTON) – Legislation sponsored by Assembly Democrat Daniel Benson to inform and educate borrowers about the benefits and consequences of reverse mortgages before a loan is closed was advanced by an Assembly Committee on Thursday.
“To prevent lenders from misleading borrowers or misrepresenting the reverse mortgage process, we must set specific guidelines to ensure that borrowers are fully informed on reverse mortgage loans before they sign closing documents,” said Benson (D-Mercer, Middlesex). “Many residents have lost their homes to the reverse mortgage loan process over the years as a result of misinformation or no information being provided at all. This legislation aims to educate borrowers and stop the practices of deceptive lenders.”
Under the bill (A-4753), 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.
Prior to accepting a final and complete application for a reverse mortgage loan or assessing any fees, lender must complete certain responsibilities. First, the lender would be required to provide the borrower with a written checklist advising the borrower to discuss certain specific issues with a reverse mortgage counselor before a deal can close.
The lender would be required to provide to the borrower the names and contact information for at least five counseling agencies located in the state that are approved by the United States Department of Housing and Urban Development engage in reverse mortgage counseling.
In addition, the lender must receive a certification from the borrower or the borrower’s authorized representative attesting that the borrower has received in-person counseling or counseling by phone on reverse mortgage loans from a counseling agency. A certification would only be 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.
“Many seniors use reverse mortgage loans to supplement their Social Security, meet unexpected medical expenses, and make home improvements so they can remain in their home longer,” Benson continued. “We must ensure better standards and consumer protections for seniors and all homeowners that are exploring the reverse mortgage loan option.”
The bill would also establish 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. The lender must provide borrowers with a written notice regarding the borrower’s seven day right of rescission. During the seven day 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 bill was approved by the Assembly Financial Institutions and Insurance Committee. It will now go to the Assembly Speaker for further consideration.