2008 -- H 7723 SUBSTITUTE A

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LC02092/SUB A

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2008

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A N A C T

RELATING TO PROPERTY-- REVERSE MORTGAGES

     Introduced By: Representatives Singleton, Moffitt, Corvese, and McCauley

     Date Introduced: February 26, 2008

     Referred To: House Corporations

It is enacted by the General Assembly as follows:

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     SECTION 1. Sections 34-25.1-7 and 34-25.1-8 of the General Laws in Chapter 34-25.1

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entitled "Reverse Mortgages" are hereby amended to read as follows:

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     34-25.1-7. Term of loan advancements. –Reverse mortgage loan requirement. --

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Reverse mortgage loan requirements. -- (a) A reverse mortgage loan shall comply with all of

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the following requirements:

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     (1) Reverse mortgages may be written over any period currently in use by lending

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institutions, with the outstanding balance due and payable upon the first to occur of the maturity

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of the loan or the mortgagor's default thereunder which cause the entire loan to become due and

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payable. Interest on outstanding advances may either be charged to the mortgagor throughout the

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term of the loan, or may be A reverse mortgage loan may provide for a fixed or adjustable interest

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rate or combination thereof, including compound interest. Interest on a reverse mortgage loan

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shall be accumulated and due upon the first to occur of the maturity of the loan or the mortgagor's

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default thereunder which cause the entire loan to become due and payable.

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      (b) A portion of the mortgage proceeds of a reverse mortgage may be used to purchase

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an immediate or deferred life annuity contract from companies authorized to issue annuity

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contracts in this state. In such cases, the monthly annuity payments may be used to pay interest

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payments on the mortgage loan with the remainder forwarded to the mortgagor. Repayment of

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principal in such cases would occur upon the first to occur of the maturity of the loan, the

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mortgagor's default thereunder or the closing of the mortgagor's estate.

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      (2) Prepayment, in whole or in part, shall be permitted without penalty. Notwithstanding

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the foregoing, where a mortgagee has waived all of the usual fees associated with a reverse

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mortgage loan, a mortgagee may impose a prepayment penalty in accordance with the provisions

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of Rhode Island general laws section 34-23-5, and shall provide that: (i) the prepayment penalty

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will be calculated as a percentage of the available credit commitment as stated in the reverse

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mortgage loan documents, which penalty shall not exceed the total of the usual fees that were

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initially absorbed by the mortgagee; and (ii) for an prepayment penalty imposed under the

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provisions of Rhode Island general laws subsection 34-23-5(b), the amount of the prepayment

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penalty shall not exceed the total of the usual fees that were initially absorbed by the mortgagee,

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reduced on a prorate basis by the percentage of the months remaining in the prepayment penalty

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term to the full prepayment penalty term. A mortgagee may not imposed a prepayment penalty

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under this subsection if the prepayment is caused by the occurrence of any event specified in

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Rhode Island general laws subdivisions 34-25.1-7(5)(ii), (iii), (iv) or (v).

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     (3) If a reverse mortgage loan provides for periodic advances to a borrower, these

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advances shall not be reduced in amount or number based on any adjustment in the interest rate.

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     (4) A lender that is found by an appropriate court to have failed, beyond any applicable

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notice or cure periods, to make loan advances as required in the loan documents, shall forfeit to

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the borrower treble the amount wrongfully withheld plus interest at the legal rate.

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     (5) The reverse mortgage loan may become due and payable upon the occurrence of any

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one of the following events:

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     (i) The home securing the loan is sold or title to the home is otherwise transferred.

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     (ii) All mortgagors cease occupying the home as a principal residence, except as provided

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in subdivision (6).

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     (iii) For a period of longer than twelve (12) consecutive months, a mortgagor fails to

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occupy the property because of physical or mental illness and the property is not the principal

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residence of at least one other mortgagor.

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     (iv) Any fixed maturity date agreed to by the lender and the mortgagor occurs.

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     (v) An event occurs which is specified in the loan documents and which jeopardizes the

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lender's security.

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     (6) Repayment of the reverse mortgage loan shall be subject to the following additional

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conditions:

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     (i) Temporary absences from the home not exceeding one hundred twenty (120)

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consecutive days shall not cause the mortgage to become due and payable.

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     (ii) Extended absences from the home exceeding one hundred twenty (120) consecutive

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days, but less than one year, shall not cause the mortgage to become due and payable if the

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mortgagor has taken prior action which secures and protects the home in a manner satisfactory to

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the lender, as specified in the loan documents.

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     (iii) The lender's right to collect reverse mortgage loan proceeds shall be subject to the

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applicable statute of limitations for written loan contracts. Notwithstanding any other provision of

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law, the statute of limitations shall commence on the date that the reverse mortgage loan becomes

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due and payable as provided in the loan agreement.

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     (iv) The lender shall prominently disclose in the loan agreement any interest rate or other

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fees to be charged during the period that commences on the date that the reverse mortgage loan

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becomes due and payable, and that ends when repayment in full is made.

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     (7) A lender shall not require an applicant for a reverse mortgage to purchase an annuity

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as a condition of obtaining a reverse mortgage loan. A reverse mortgage lender or a broker

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arranging a reverse mortgage loan shall not:

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     (i) Offer an annuity to the mortgagor prior to the closing of the reverse mortgage or

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before the expiration of the right of the mortgagor to rescind the reverse mortgage agreement.

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     (ii) Refer the mortgagor to anyone for the purchase of an annuity prior to the closing of

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the reverse mortgage or before the expiration of the right of the mortgagor to rescind the reverse

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mortgage agreement.

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     (8) Notwithstanding anything in chapter 34-25.1 to the contrary, the fees, costs and

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payments that may be charged in connection with the origination and closing of a reverse

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mortgage loan shall not be other than the following and only may be charged provided they are

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properly disclosed to the mortgagor(s) as required in chapter 34-25.1:

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     (i) An application fee, which may be collected prior to closing, shall be designated as

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such and shall not be a percentage of the principal amount of the loan or amount financed, and

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shall be reasonably related to the services to be performed;

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     (ii) a loan origination fee;

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     (iii) The cost of document preparation which is reasonably related to the services

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provided;

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     (iv) The cost of appraising or surveying the property;

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     (v) The cost of a title examination, an abstract of title or title insurance;

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     (vi) The cost of a tax search for tax liens existing at the time of closing if such search is

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not included in the title examination;

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     (vii) The payment to discharge any existing liens on the real property securing the loan;

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     (viii) The cost of recording the reverse mortgage loan;

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     (ix) The cost of actual attorneys' fees charged to the lender in connection with the closing

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of such loan;

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     (x) The cost of a credit report;

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     (xi) The cost of a flood zone search;

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     (xii) The cost of an inspection to be paid in connection with the origination of the loan

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but not subsequent to the loan closing;

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     (xiii) The payment for any repairs contracted for at or before the loan closing irrespective

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of whether such repairs are completed at the time of closing and/or whether the funds are held in

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escrow;

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     (xiv) The cost of purchasing mortgage insurance;

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     (xv) The payment of real estate taxes and property insurance; and

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     (xvi) such other costs as shall be permitted to be charged by the director of the

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department of business regulation.

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      (c)(9) Any reverse mortgage made in the this state prior to passage of this act July 14,

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2006, the effective date of P.L. 2006, chapter 625, section 1, shall be deemed in compliance with

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chapter 34-25.1 as amended by this act in effect as of July 14, 2006 if made pursuant to the

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provisions of section 255 of the National Housing Act and the regulations thereunder.

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     (10) With the exception of subsections 34-25.1-7(a)(4), 34-25.1-7(a)(6)(iii), 34-25.1-

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7(a)(7), and 34-25.1-7(a)(9), section 34-25.1-7 shall not apply to: (i) any national bank, federal

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savings bank or financial institution (as defined in section 19-1-1) that is insured by the Federal

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Deposit Insurance Corporation or to the wholly owned subsidiary of any of the foregoing; or: (ii)

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any reverse mortgage loan that is subject to and that complies with 12 USC section 1715z-20 and

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the federal regulations promulgated with respect thereto (including without limitation 24 CFR

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Part 206).

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     34-25.1-8. Mortgagees authorized to take reverse mortgages. -- (a) Domestic

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building-loan associations, whether organized by special act of the general assembly or pursuant

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to the provisions of chapter 22 of title 19, foreign building-loan associations subject to the

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provisions of chapter 24 of title 19, savings and loan associations organized under the laws of the

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United States of America, credit unions subject to the provisions of chapter 21 of title 19, loan

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and investment banks subject to the provisions of chapter 20 of title 19 and other financial

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institutions are expressly authorized to make loan secured by mortgages entitled as provided in

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section 34-25.1-1 and containing the provisions required in sections 34-25.1-1 and 34-25.1-2 to

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be contained in the provisions of the mortgages; provided that such loans comply in other

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respects with the requirements of law, if any, relating to loans secured by real estate mortgages

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made by such institutions and with the requirements of this chapter.

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      (b) Other mortgagees are authorized to make loans on the security of such mortgages if

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such mortgages comply with the requirements of this chapter.

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     (c) All reverse mortgage loan officers must be registered and/or licensed under Rhode

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Island general laws section 19-14-1 et seq. as mortgage loan originators, unless otherwise exempt.

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     (d) The authority of the director of the department of business regulation or his or her

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designee to revoke licenses pursuant to chapter 19-14-13 shall apply to any lender that fails to

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comply with the requirements of this chapter.

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     SECTION 2. Chapter 34-25.1 of the General Laws entitled "Reverse Mortgages" is

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hereby amended by adding thereto the following sections:

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     34-25.1-9. Required counseling. -- (a) All lenders shall deliver to all reverse mortgage

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loan applicants a statement, if available, prepared by the department of elderly affairs on the

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advisability and availability of independent counseling and information services. With respect to

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every reverse mortgage loan, the prospective mortgagor(s) shall complete a reverse mortgage

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counseling program. An original certificate, dated and signed by both the counselor and the

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mortgagor(s), certifying that the counseling required by section 34-25.1-9 has taken place, shall

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be delivered to the mortgagee at least three (3) business days prior to the closing of the loan. The

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lender shall not process a reverse mortgage loan application, other than ordering an automated

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valuation model and a preliminary title search, until the counseling required by this section has

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been completed and the certificate of counseling is delivered to the mortgagee.

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     (b) The reverse mortgage counseling program shall include, but is not limited to, all

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matters enumerated in subsections 34-25.1-9(e)(1) through (6). The department of elderly affairs

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shall establish and maintain a list of counseling programs that are deemed to satisfy the

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requirements of section 34-25.1-9 and shall make such list available to all lenders and to the

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public. A counseling agency approved by the United States Department of Housing and Urban

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Development to provide reverse mortgage counseling shall be deemed to be approved to provide

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the counseling required by section 34-25.1-9, provided that: (1) the counseling agency is not

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affiliated with the reverse mortgage lender; and (2) the counseling agency complies with the

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counseling requirements of section 34-25.1-9. The director of the department of elderly affairs

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shall have the right to prescribe the form of counseling certificate that will meet the requirements

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of subsection 34-25.1-9(a).

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     (c) Counseling shall comply with the following requirements: (1) It shall be conducted in

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person; however, if the prospective mortgagor(s) cannot or choose(s) not to travel to a housing

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counseling agency and cannot be visited by a counselor in their home, telephone counseling shall

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be permitted by counseling agencies that are authorized by the department of elderly affairs to

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conduct telephone counseling. (2) The reverse mortgage loan shall close within one hundred

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eighty (180) days after the prospective mortgagor(s) sign(s) the counseling certificate. If the

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reverse mortgage loan does not close within such one hundred eighty (180) day period, the parties

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shall be required to again comply with the counseling requirements of this section. (3)

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Mortgagees shall provide prospective mortgagors with the name of at least three (3) independent,

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authorized counseling agency in the state. The mortgagee shall not recommend a counseling

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agency that is an affiliate of the mortgagee.

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     (d) In the event that counseling shall not be available free of charge, the mortgagee shall

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be responsible for the cost of the counseling to the extent that all other sources or funding the

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counseling by legitimate sources including, without limitation, non-profit organizations and

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grants have not been obtained. In the event that 12 USC section 1715z-20 or the federal

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regulations promulgated with respect thereto shall, at the time such counseling fee is due and

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payable by the mortgagee, expressly prohibit a mortgagee from being responsible for the cost of

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counseling, then subsection 34-25.1-9(d) shall not apply to a reverse mortgage loan that is subject

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to 12 USC section 1715z-20 and the federal regulations promulgated with respect thereto.

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     (e) Counseling shall include, without limitation, discussion of the following with the

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prospective mortgagor(s):

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     (1) Options other than a reverse mortgage that are available to the mortgagor(s),

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including other housing, social service, health, and financial options;

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     (2) Other home equity conversion options that are or may become available to the

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mortgagor(s), such as other reverse mortgages, sale-leaseback financing, deferred payment loan,

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and property tax deferral;

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     (3) The financial implications of entering into a reverse mortgage;

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     (4) A disclosure that a reverse mortgage may have tax consequences, affect eligibility for

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assistance under federal and state programs, and have an impact on the estate and heirs of the

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homeowner(s), as well as an explanation of how the reverse mortgage may affect the estate and

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public benefits of the mortgagor(s);

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     (5) Such other topics as shall be required to be addressed during counseling with respect

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to a reverse mortgage pursuant to 12 U.S.C. section 1715z-20, and/or any regulations

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promulgated pursuant thereto; and

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     (6) Such other topics as shall be required to be addressed by the director of the

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department of elderly affairs.

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     (f) Subsections 34-25.1-9(b), (c) and (e) shall not apply to any reverse mortgage loan that

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is subject to 12 USC section 1715z-20 and the federal regulations promulgated with respect

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thereto; provided that such loan complies with the counseling requirements set forth in 12 USC

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section 1715z-20 and the federal regulations promulgated with respect thereto (including without

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limitation 24 CFR Part 206).

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     34-25.1-10. Pre-closing disclosures. -- (a) At least three (3) business days before

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closing of the loan, all mortgagees, or their authorized representative who is then duly licensed by

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the Rhode Island department of business regulation as lender or as a loan broker shall provide in

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writing all of the following information to, each prospective reverse mortgage mortgagor:

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     (1) All information as shall be required to be disclosed in connection with a reverse

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mortgage loan pursuant to the Truth in Lending Act (15 USC section 1601 et seq.), Regulation Z

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(12 CFR Part 226), and 12 USC section 1715z-20 and the federal regulations promulgated with

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respect thereto (including without limitation 24 CFR Part 206); and

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     (2) All other information as shall be required to be disclosed by the director of the

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department of business regulation.

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     34-25.1-11. Annual account statements and other required disclosures. -- (a) At the

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closing of the reverse mortgage loan, the mortgagee shall provide to the mortgagor(s) contact

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information for the mortgagee's (or its assignee's or servicing agent's, as the case may be)

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employee(s) or agent(s) who have been designated specifically to respond to inquires concerning

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reverse mortgage loans. This information shall be provided by the mortgagee (or its assignee or

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servicing agent, as the case may be) to mortgagor(s) at least annually, and whenever this contact

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information concerning the designated employee(s) or agent(s) changes.

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     (b) On an annual basis and when the loan becomes due, the mortgagee shall issue to the

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mortgagor, without charge, a statement of account regarding the activity of the mortgage for the

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preceding calendar year, or for the period since the last statement of account was provided. The

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statement shall include all of the following information for the preceding year:

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     (1) The outstanding balance of the loan at the beginning of the statement period;

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     (2) Disbursements to the mortgagor;

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     (3) The total amount of interest added to the outstanding balance of the loan;

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     (4) Any property taxes, hazard insurance premiums, mortgage insurance premiums, or

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assessments paid by the mortgagee;

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     (5) Payments made to the mortgagee;

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     (6) The total mortgage balance owed to date;

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     (7) The remaining amount available to the mortgagor in reverse mortgage loans wherein

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proceeds have been reserved to be disbursed in one or more lump sum amounts; and

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     (8) All other information as shall be required to be disclosed by the director of the

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department of business regulation.

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     34-25.1-12. Non-binding on the applicant. -- An applicant for a reverse mortgage loan

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shall not be bound for at least three (3) business days after all of the following shall have

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occurred: (1) The applicant's execution and delivery to the mortgagee of a fully completed

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application for the reverse mortgage loan; (2) The applicant's delivery to the mortgagee of the

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requisite fully completed and executed certificate in proper form evidencing the applicant's

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completion of the counseling required pursuant to section 37-25.1-9 (as to any reverse mortgage

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loan that is exempt, pursuant to subsection 34-25.1-9(g), from the requirements of subsections 34-

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25.1-9(b), (c) and (e), such certificate must meet the requirements of 12 USC section 1715z-20

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and the federal regulations promulgated with respect thereto); and (3) The applicant's receipt, in

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writing, of all of the information required to be disclosed pursuant to section 37-25.1-10. No

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reverse mortgage loan shall be closed prior to the expiration of this three (3) business day period,

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and this three (3) business day period shall be in addition to any right of rescission the mortgagors

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may have following the closing of the loan. In addition, no costs in connection with the

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application and processing of a proposed reverse mortgage loan shall be imposed upon any

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applicant for a reverse mortgage until the events described in subsections 34-25.1-12 (1) and (2)

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have occurred. Each mortgagee shall inform each applicant in writing of the applicant's rights

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pursuant to section 34-25.1-12 simultaneously with providing the application to the applicant for

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completion.

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     34-25.1-13. Attorneys-in-fact -- Guardians. -- All mortgagees shall require any person

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who executes reverse mortgage loan documents as attorney-in-fact for another to deliver at the

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closing a written, notarized certification as to all of the following: (1) That the power of attorney

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is then in full force and effect and has not been revoked or otherwise terminated; and (2) That the

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attorney-in-fact acknowledges his or her fiduciary obligations to the principal pursuant to the

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power of attorney with respect to the reverse mortgage loan.

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     34-25.1-14. Regulations. -- The director of the department of business regulation shall

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have the authority to promulgate such regulations as shall be reasonably necessary to carry out

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sections 34-25.1-10 through 34-25.1-16. The director of the department of business regulation

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shall also have the authority to promulgate regulations pursuant to section 34-25.1-7 with respect

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to unfair and deceptive trade practices. The director of the department of elderly affairs shall have

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the authority to promulgate such regulations as shall be reasonably necessary to carry out section

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34-25.1-9.

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     34-25.1-15. Effect on Lien Priority – Property held in name or trust. – (a) It is the

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intention of chapter 34-25.1 that the cash advances made under a reverse mortgage shall be made

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by the lender to the mortgagor. In the event that legal title to the property encumbered by a

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reverse mortgage is held in trust:

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     (1) The reverse mortgage proceeds may be received by the occupant of the property

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provided that the occupant is a beneficiary of the trust;

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     (2) References in subdivision 34-25.1-7(a)(5) to the mortgagor shall be deemed to refer to

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the occupant of the property provided that the occupant is a beneficiary of the trust;

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     (3) References in subdivision 34-25.1-7(s)(6) to absences from the home shall be deemed

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to refer to the occupant of the property provided that the occupant is a beneficiary of the trust.

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     34-25.1-16. Liberal construction. -- This chapter shall be construed liberally in aid of its

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purpose of ensuring that reverse mortgage borrowers fully understand the ramifications of

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entering into a reverse mortgage transaction.

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     SECTION 3. This act shall take effect on January 1, 2009.

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LC02092/SUB A

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO PROPERTY-- REVERSE MORTGAGES

***

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     This act would create new requirements and guidelines in the application process for

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mortgagors offering reverse loan mortgages, including counseling provisions, disclosures

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requirements to the prospective mortgagee, and guidelines for legal action in the event of a

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default on the reverse loan mortgage.

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     This act shall take effect on January 1, 2009.

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LC02092/SUB A

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