Legislative and Regulatory Roundup MBA's Reverse Mortgage Lending

							 Legislative and Regulatory Roundup

MBA's Reverse Mortgage Lending Conference 2009
              San Diego, California
                September 11, 2009
                    Kris D. Kully
                  K&L Gates LLP
                 Washington, D.C.
                  (202) 778-9301
              kris.kully@klgates.com


                 Joseph DeMarkey
                 Regional Director
                   MetLife Bank
                  (508) 429-6271
              jdemarkey@metlife.com
FHA Home Equity Conversion Mortgage (HECM) Updates
   HECM Origination Fees: ML 2008-34 (10/31/2008)
      Minimum of $2,500; Maximum of $6,000
      2% of MCA up to $200,000
      Plus 1% of MCA > $200,000
   HECM Loan Limits: Nationwide loan limits of $625,500, through December 31,
    2009. ML 2009-07 (02/24/09)
   Clarification of Counseling Requirements: ML 2009-10 (03/27/2009)
      Applicant must initiate communications with counselor, without lender’s
          assistance, and counselor must be independent third party
      Lender must provide list of approved agencies (at least 10  5 within local
          area (1 within driving distance) and 5 enumerated agencies)
      Counselors must review and document budget analysis
      New HECM Counseling Certificate (addresses how fees will be paid –
          upfront, financed, waived; ML 2008-12)
   HECM for Purchase Program: ML 2009-11 (03/27/2009) (supersedes ML 2008-
    33).
      MCA – lesser of appraised value, sales price, or FHA limit


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FHA Home Equity Conversion Mortgage (HECM) Updates
   Reminder of HECM Refinance Requirements: ML 2009-21 (06/30/2009)
      HECMs that have been assigned to HUD (that are not finally due/payable)
        can be refinanced/insured with reduced upfront MIP.
      Must provide Anti-Churning Disclosure.
      Borrower may waive/opt-out of counseling if within 5 years of previous
        HECM, borrower receives Anti-Churning Disclosure, and the increase in the
        principal limit is at least 5 times the transaction costs (must include estimate
        of increase in case binder).
      Not available for HECM for Purchase.
   Counseling Final Rule: (09/02/09)
      Establishes testing standards to qualify individuals as HECM counselors.
      Establishes HECM Counseling Roster of eligible individual counselors
        (automatic inclusion for qualified counselors, removal for cause, procedure
        for reinstatement).
      HECM counselors who have passed the examination will be placed on the
        Roster for 3 years, after which the counselor must retake the exam.


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FHA Home Equity Conversion Mortgage (HECM) Non-
Updates
 HECM for Coops – No word yet from HUD.

 Restrictions Related to Financial/Insurance Products –
  Enacted by HERA; HUD announced intention to solicit
  comments prior to issuing definitive guidance (ML 2008-
  24; 09/16/2008). No further word yet from HUD.




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State Law Updates
   New Hampshire – Enacted new requirements effective July 31, 2009.
        Prohibits a “yield spread premium” in a reverse mortgage transaction.
         (YSP = cash rebate paid to a mortgage broker or mortgage originator
         that is based on selling an interest rate to a borrower that is above the
         wholesale par rate for which the borrower qualifies.)
        Prohibits a broker or funder of reverse mortgage transactions (and any
         affiliate of those persons) from any participation or association with
         “financial or insurance activity” (or employment of any person who
         does). No express allowance for firewalls.
        Prohibits directly or indirectly requiring the purchase of any other
         financial or insurance product as a condition of obtaining a mortgage.




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State Law Updates
   New York – Enacted Reverse Mortgage Fairness Act of 2009 (eff. Oct. 26,
    2009):
      Addresses property and income tax treatment of reverse mortgage loan
        proceeds.


   New York – Requirements for registration of mortgage loan servicers (eff.
    July 1, 2009):
        Expressly applicable to nonexempt servicers of reverse mortgage loans
         (as well as forward loans) – persons making payments to borrowers
         under reverse mortgage loans.




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State Law Updates
   Vermont – Enacted new reverse mortgage act (eff. July 2009)
        Generally Prohibits Proprietary Products – Prohibits issuing reverse
         mortgage loan unless:
            Lender is HUD-approved
            Loan complies with all HECM requirements
            Loan is insured by FHA or other agency, or is a government-
             sponsored enterprise product.
        Requires referral to counseling organization (face-to-face, unless the
         applicant cannot or chooses not to travel and cannot be visited by a
         counselor in their home, in which case telephone counseling is
         acceptable (with state banking department approval)).




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State Law Updates
   Vermont – Enacted new reverse mortgage act (cont.)
        Prohibitions for annuities (prohibits requiring an applicant to purchase
         an annuity as a condition of obtaining the reverse loan; prohibits
         offering or referring an applicant to anyone for the purchase of an
         annuity prior to closing or before the expiration of the right to rescind).
           No express allowance for firewalls.
        Banking Division Notice (08/04/09)
            Requirements for telephone counseling
                Must obtain approval
            Qualifications for telephone counselors
            Counseling must be in person whenever possible




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State Law Updates
   Washington: Enacted the Washington State Reverse Mortgage Act (eff. July 26, 2009)
        Amended Consumer Loan Act to provide that the Act’s prohibition against compound interest does not apply
         to reverse mortgage loans made in accordance with new Washington State Reverse Mortgage Act.

        Requirements for Licensees Providing Proprietary Reverse Mortgage Loans:
            Licensees must generally maintain irrevocable standby letter of credit necessary to fund all reverse
               mortgage loan requirements anticipated over the next 12 months, or $3 million, whichever is greater.
            Licensees must generally maintain minimum capital of $10 million.
                   Exemption: Licensees that only originate proprietary loans that are fully disbursed at closing
                       or that are sold into the secondary market to investors with sufficient credit rating, under
                       written commitment, for delivery within 10 days of closing.

        Requirements for Proprietary Reverse Mortgage Loans:
            May not offer without preapproval by state banking department
            Prohibits prepayment penalties, except if lender has paid or waived all usual fees or costs, the penalty
               does not exceed the total amount of usual fees or costs the lender absorbed or waived, and the
               lender provided prior written notice of the penalty.
            Requirements for timing of advances, and payment of late charges for late advances.




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State Law Updates
   Washington:
      Requirements for Proprietary Reverse Mortgage Loans (cont.):
           Disclosure in loan agreement of any interest rate or other fees to be charged when
             loan becomes due and payable, plus a legend identifying the reverse mortgage loan.
           Annual statement of loan advances, balance, other terms, and contact information
             for inquiries.
           Must obtain an appraisal (or use current tax assessment) and provide copies of
             appraisal within 5 days of borrower's written request.
           Borrower has same right to rescind as under TILA.
           Annuity/financial products restrictions – prohibits:
                  Requiring an applicant to purchase an annuity, insurance, or another product
                    as a condition of obtaining a loan;
                  Offering or referring the borrower to anyone for an annuity prior to closing or
                    before the expiration of the right to rescind;
                  Providing marketing info or sales leads regarding applicant;
                  Receiving compensation for an annuity sale or referral.




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State Law Updates
   Washington:
      Requirements for Proprietary Reverse Mortgage Loans (cont.):
           Lender and any other party that participates in the origination must maintain
             safeguards to ensure that individuals offering loans do not provide borrowers with
             any other financial or insurance products, and that individuals participating in
             origination have no ability or incentive to provide the borrower with any other
             financial or insurance product.
           Temporary absences not exceeding 180 consecutive days do not cause the
             mortgage to become due and payable;
                  Loan documents may specify that extended absences exceeding 180
                    consecutive days, but less than one year, will not cause the mortgage to
                    become due and payable if the borrower has taken prior action that secures
                    and protects the home in a manner satisfactory to the lender.
           Lender must refer the applicant to an independent housing counseling agency prior
             to accepting a final and complete application or assessing any fees.
                  List of at least 5 agencies, including at least 2 that can provide counseling by
                    telephone (telephone counseling only at the borrower's request).




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State Law Updates
   Washington:
        Requirements for Proprietary Reverse Mortgage Loans (cont.):
           Plain language counseling notice within three business days of
            receipt of completed application.
           Washington state resident must be at least 60 years of age.


        Requirements for All Reverse Mortgage Loans:
           Treble damages if lender defaults and fails to cure default.




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State Law Updates
   Pending California Reverse Mortgage Elder Protection Act (Assembly Bill 329)
         Would prohibit prepayment penalties.
         Would impose late charge of three times the amount unless an actual default is cured.
         Absences exceeding 60 consecutive days, but less than one year, do not cause loan to be due and payable
          in borrower took prior action to protect the home.
         Disclosures
         Would prohibit ties with certain other financial or insurance products, including with regard to any person that
          participates in origination, unless the lender maintains procedural safeguards to separate origination function
          from the financial or insurance product.
               Compliance with HECM requirements would constitute compliance with these restrictions (even for
                  non-HECM loans)
         Would require the lender to provide the prospective borrower with a list of at least 10 counseling agencies
          (currently law requires at least five, including at least two that can provide counseling by telephone).
         Would require lender to provide the prospective borrower, prior to counseling, with a written checklist of
          issues to discuss with the counselor, as stipulated in the bill.
         Would prohibit the counseling agency from receiving any compensation, directly or indirectly, from the lender
          or any other person or entity involved in originating or servicing the mortgage or the sale of annuities,
          investments, long-term care insurance, or any other type of financial or insurance product (although it would
          not prohibit the agency from receiving unrelated charitable or philanthropic financial assistance from the
          lender).
   Pending California Reverse Mortgage Provisions (Senate Bill 660)
         Would impose upon any person who recommends a reverse mortgage loan in anticipation of financial gain a
          duty of honesty, good faith, and fair dealing.
         Would require disclosure and checklist of issues to discuss with counselor.



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Fannie Mae Updates
   Adjustable Rate Index (Ann. 09-16; 06/01/09)
      Discontinued offering commitments to purchase adjustable-rate
       HECMs using the weekly average yield on U.S. Treasury securities
       adjusted to a constant maturity of one year (CMT).
      Will continue to offer commitments to purchase monthly adjustable-
       rate LIBOR-indexed HECMs (and fixed-rate HECMs).
      Effective Sept. 1, 2009.




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General Updates
 SAFE Act Mortgage Loan Originator Licensing
    48 states and the District of Columbia have
     passed legislation (CA bills pending).
    Depending upon state’s enactment,
     generally applies to loan originators of any
     “residential mortgage loan,” which would
     include reverse mortgage.



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General Updates
   FHA Approval Process for Condominiums (ML 2009-19; 06/12/2009)
      New Direct Endorsement Lender Review and Approval Process (DELRAP)
      Alternative HUD Review and Approval Process (HRAP)
      Eliminates spot loan approval process
      Project approval not required for “site” condos with condo rider, FHA-to-FHA
        streamlined refis, or FHA/HUD REO Division sales
      Environmental Reviews not required under DELRAP, or under HRAP once
        projects beyond HUD’s purview
      Project Eligibility:
            Presale: At least 50%
            Owner-Occupancy: At least 50%
            Conversion: One-year waiting period is eliminated
            Recertification Every Two Years
            Manufactured Housing Condo Projects eligible
      Effective for case numbers assigned Oct. 1, 2009.


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General Updates
   FHA Manufactured Housing Policy Guidance (ML 2009-16;
    05/21/2009)
      Describes changes to requirements for new and existing
       construction




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     Kris D. Kully
   K&L Gates, LLP
kris.kully@klgates.com



  Joseph DeMarkey
    MetLife Bank
jdemarkey@metlife.com




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