FHA Advises Reverse Lenders to…?
FHA lenders in Massachusetts have a newrnset of rules governing the writing of reverse mortgages. As of right now, however, there is no clearrninformation as to whether the law is actually in effect. First a summary of the law, and then anrnexplanation as to why it might not matter for a long time.</p
In July the Massachusetts Legislaturernpassed An Act Relative to MortgagernForeclosures which requires in-person counseling from an approved housingrncounselor for anyone receiving a reverse mortgage loan in the state. Reverse mortgages are FHA loans available tornhomeowners over the age of 62 which allow them to draw down the equity in theirrnhome either in monthly installments or a lump sum with no payment required asrnlong as the senior is living in the house. rnWhile the loans can be a boon to persons struggling financially to stay inrntheir homes there are ramifications for estate planning and for family membersrnwho may be living in the house but not on the deed.</p
The Act’s in-person counseling requirement</bapplies to applicants for a reverse mortgage who, at the time of application,rnhave a gross income of less than 50 percent of the area median income and possessrnassets excluding the primary residences valued at less than $200,000.</p
Under the Act, the terms of a reversernmortgage executed with a mortgagor who did not receive the appropriaterncounseling are unenforceable and additional regulations from the MassachusettsrnDivision of Banks make issuing a loan without providing the counseling groundsrnfor termination of a lender’s reverse mortgage program approval and may alsorntrigger fines and administrative penalties.</p
Now for the confusing part. The bill,rnwith an effective date of August 1, 2012 was passed on July 26 and sent tornGovernor Deval Patrick for signature. However, the legislature passed a second billrnon that same date which changed the effective date of the first bill to Augustrn1, 2014. Absent a signature or a veto fromrnPatrick, both bills automatically become law in ten days.</p
Now we will just let FHA explain what isrngoing on.</p
“As of late afternoon July 31,rn2012, the Governor had not signed the Bill. As a result, effective August 1, 2012,rnreverse mortgage lenders must comply with the Act’s in-person counselingrnrequirements until the Governor signs the Bill. As drafted, the Bill delayingrnthe Act’s in-person counseling requirements becomes effective immediately oncernthe Bill becomes law. However, the provision delaying the effective date of thernAct’s in-person counseling requirement is not retroactive and will not applyrnduring the period from August 1, 2012 until the bill is enacted.”</p
FHA advises reverse mortgagernlenders and counselors to be prepared to comply with the counselingrnrequirements as of August 1 in the event the governor signs the bill. If he takes no action for ten days afterrnreceiving the bill, “the in-person counseling requirement will apply on August 1, 2012 and berneffective until August 6, 2012 then delayed until August 1, 2014.</p
However, FHA does assure lendersrnthat seniors who received counseling on or before July 31 and were issued arncounseling certificate will not require re-counseling in the event the Governorrndoes not sign the Bill into law on July 31, 2012.</p
Anyone reading this will bernforgiven if they are now reciting under their breath an old Abbott and Costello routine thatrnonce applied only to baseball.
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