2008 -- S 2598

=======

LC02030

=======

STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2008

____________

A N A C T

RELATING TO PROPERTY-- REVERSE MORTGAGES

     Introduced By: Senators Bates, Walaska, Breene, and Paiva-Weed

     Date Introduced: February 26, 2008

     Referred To: Senate Corporations

It is enacted by the General Assembly as follows:

1-1

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

1-2

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

1-3

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

1-4

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

1-5

the following requirements:

1-6

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

1-7

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

1-8

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

1-9

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

1-10

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

1-11

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

1-12

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

1-13

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

1-14

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

1-15

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

1-16

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

1-17

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

1-18

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

1-19

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

2-1

      (2) Prepayment, in whole or in part, shall be permitted without penalty at any time

2-2

during the term of the reverse mortgage loan. For the purposes of this section, penalty does not

2-3

include any fees, payments, or other charges that would have otherwise been due upon the reverse

2-4

mortgage being due and payable.

2-5

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

2-6

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

2-7

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

2-8

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

2-9

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

2-10

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

2-11

one of the following events:

2-12

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

2-13

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

2-14

in subdivision (6).

2-15

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

2-16

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

2-17

residence of at least one other mortgagor.

2-18

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

2-19

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

2-20

lender's security.

2-21

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

2-22

conditions:

2-23

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

2-24

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

2-25

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

2-26

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

2-27

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

2-28

the lender, as specified in the loan documents.

2-29

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

2-30

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

2-31

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

2-32

due and payable as provided in the loan agreement.

2-33

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

2-34

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

3-1

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

3-2

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

3-3

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

3-4

arranging a reverse mortgage loan shall not:

3-5

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

3-6

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

3-7

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

3-8

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

3-9

mortgage agreement.

3-10

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

3-11

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

3-12

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

3-13

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

3-14

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

3-15

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

3-16

shall be reasonably related to the services to be performed;

3-17

     (ii) a loan origination fee;

3-18

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

3-19

provided;

3-20

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

3-21

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

3-22

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

3-23

not included in the title examination;

3-24

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

3-25

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

3-26

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

3-27

of such loan;

3-28

     (x) The cost of a credit report;

3-29

     (xi) The cost of a flood zone search;

3-30

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

3-31

but not subsequent to the loan closing;

3-32

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

3-33

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

3-34

escrow;

4-1

     (xiv) The cost of purchasing mortgage insurance;

4-2

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

4-3

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

4-4

department of business regulation.

4-5

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

4-6

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

4-7

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

4-8

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

4-9

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

4-10

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

4-11

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

4-12

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

4-13

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

4-14

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

4-15

Part 206).

4-16

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

4-17

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

4-18

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

4-19

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

4-20

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

4-21

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

4-22

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

4-23

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

4-24

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

4-25

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

4-26

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

4-27

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

4-28

such mortgages comply with the requirements of this chapter.

4-29

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

4-30

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

4-31

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

4-32

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

4-33

comply with the requirements of this chapter.

4-34

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

5-1

hereby amended by adding thereto the following sections:

5-2

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

5-3

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

5-4

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

5-5

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

5-6

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

5-7

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

5-8

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

5-9

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

5-10

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

5-11

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

5-12

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

5-13

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

5-14

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

5-15

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

5-16

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

5-17

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

5-18

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

5-19

of subsection 34-25.1-9(a).

5-20

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

5-21

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

5-22

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

5-23

be permitted by counseling agencies that are authorized to conduct telephone counseling. (2) The

5-24

reverse mortgage loan shall close within one hundred eighty (180) days after the prospective

5-25

mortgagor(s) sign(s) the counseling certificate. If the reverse mortgage loan does not close within

5-26

such one hundred eighty (180) day period, the parties shall be required to again comply with the

5-27

counseling requirements of this section. (3) Mortgagees shall provide prospective mortgagors

5-28

with the name of at least three (3) independent, authorized counseling agency in the state. The

5-29

mortgagee shall not recommend a counseling agency that is an affiliate of the mortgagee.

5-30

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

5-31

be responsible for the cost of the counseling. In the event that 12 USC section 1715z-20 or the

5-32

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

5-33

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

5-34

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

6-1

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

6-2

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

6-3

prospective mortgagor(s):

6-4

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

6-5

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

6-6

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

6-7

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

6-8

and property tax deferral;

6-9

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

6-10

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

6-11

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

6-12

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

6-13

public benefits of the mortgagor(s);

6-14

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

6-15

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

6-16

promulgated pursuant thereto; and

6-17

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

6-18

department of elderly affairs.

6-19

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

6-20

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

6-21

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

6-22

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

6-23

limitation 24 CFR Part 206).

6-24

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

6-25

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

6-26

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

6-27

person with, and shall provide in writing all of the following information to, each prospective

6-28

reverse mortgage mortgagor:

6-29

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

6-30

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

6-31

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

6-32

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

6-33

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

6-34

department of business regulation.

7-1

     34-25.1-11. Annual account statements and other required disclosures. --

7-2

     (a) At the closing of the reverse mortgage loan, the mortgagee shall provide to the

7-3

mortgagor(s) contact information for the mortgagee's (or its assignee's or servicing agent's, as the

7-4

case may be) employee(s) or agent(s) who have been designated specifically to respond to

7-5

inquires concerning reverse mortgage loans. This information shall be provided by the mortgagee

7-6

(or its assignee or servicing agent, as the case may be) to mortgagor(s) at least annually, and

7-7

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

7-8

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

7-9

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

7-10

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

7-11

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

7-12

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

7-13

     (2) Disbursements to the mortgagor;

7-14

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

7-15

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

7-16

assessments paid by the mortgagee;

7-17

     (5) Payments made to the mortgagee;

7-18

     (6) The total mortgage balance owed to date;

7-19

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

7-20

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

7-21

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

7-22

department of business regulation.

7-23

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

7-24

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

7-25

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

7-26

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

7-27

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

7-28

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

7-29

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

7-30

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

7-31

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

7-32

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

7-33

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

7-34

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

8-1

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

8-2

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

8-3

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

8-4

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

8-5

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

8-6

completion.

8-7

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

8-8

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

8-9

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

8-10

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

8-11

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

8-12

power of attorney with respect to the reverse mortgage loan.

8-13

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

8-14

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

8-15

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

8-16

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

8-17

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

8-18

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

8-19

34-25.1-9.

8-20

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

8-21

Notwithstanding anything contained in chapter 34-25.1 to the contrary, the lien priority pursuant

8-22

to section 34-25.1-3 of a reverse mortgage loan shall not be affected by a lender's failure to

8-23

comply with section 34-25.1-7 and/or any of sections 34-25.1-9 through 34-25.1-13.

8-24

     (b) It is the intention of chapter 34-25.1 that the cash advances made under a reverse

8-25

mortgage shall be made by the lender to the mortgagor. In the event that legal title to the

8-26

property encumbered by a reverse mortgage is held in trust:

8-27

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

8-28

provided that the occupant is a beneficiary of the trust;

8-29

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

8-30

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

8-31

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

8-32

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

8-33

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

8-34

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

9-1

entering into a reverse mortgage transaction.

9-2

     SECTION 3. This act shall take effect on July 1, 2008.

=======

LC02030

========

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO PROPERTY-- REVERSE MORTGAGES

***

10-1

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

10-2

mortgagors offering reverse loan mortgages, including counseling provisions, disclosures

10-3

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

10-4

default on the reverse loan mortgage.

10-5

     This act shall take effect on July 1, 2008.

=======

LC02030

=======