Reverse Mortgage Loan Blog

An effort to enact Arizona’s first-ever regulation of reverse mortgages has stalled amid industry opposition.

Rep. Bill Konopnicki, a Safford Republican sponsoring the reverse-mortgage legislation, said the state’s aging boomer population is resulting in more people reaching the age at which they might want to use the equity in their homes for living expenses.

Konopnicki, who chairs the House Committee on Financial Institutions and Insurance, said there are serious pitfalls for those who go unaware into what can be complex financial deals. At the very least, Konopnicki wants better disclosure of the terms of these deals which he said can leave homeowners with far less than they anticipated.

But HB 2506 has stalled, and not only because of concerns by lobbyists for the banking and mortgage industry. It also has drawn fire from some lawmakers who question level of protection the state should provide to keep people from making bad financial decisions.

Reverse mortgages generally are available to those at least age 62 who want to convert the equity they have in their homes to cash without selling.

Instead of the homeowner making monthly payments to the mortgage company, the homeowner can get monthly payments or a lump sum, with the lender eventually acquiring the house.

There also are options that allow the homeowner to set up the reverse mortgage as a line of credit, drawing against it only when needed.

State Rep. Konopnicki said the heart of HB 2506 is information. “I just want to be sure they (homeowners) know exactly what they’re getting, how long it will last and what the total consequences are,” he said.

Konopnicki said there hasn’t been a big problem with reverse mortgages in Arizona - yet. “But we’ve had a few instances where people have outlived their reverse mortgage,” he said. While they are allowed to continue to live in their homes, “they lose that income they were counting on.”

HB 2506 not only contains requirements for disclosures of all terms, including interest rates and fees, it also specifically bans what has sometimes become a practice in which a lender also requires a homeowner to buy an annuity as part of the deal.

Federally insured loans already are subject to many of these regulations. But those offered in the private market, which does not have the same restrictions on the size of loans, do not.

Assistant Attorney General David Gass said reverse-mortgage problems are popping up across the nation.
In one case, a 67-year-old widow signed a reverse mortgage and, at the same time, transferred $125,000 in assets into a fixed-term investment that would provide her no payments until she turned 100.

On top of that, the mortgage company required her immediately to make $5,000 in improvements.

Another case involves a divorced woman who signed a mortgage she thought would give her $200,000. But she ended up with $33,000, with the balance in fees and a long-term investment that would not pay off for a period of time.

“That’s what happens with these type of agreements,” he said. “They’re very complicated.” But Gass, although saying he has heard of similar problems in Arizona, could cite no specifics.

Some legislators were unimpressed. Rep. Eddie Farns-worth, R-Gilbert, said people should be responsible for understanding the provisions of documents they sign.

“Shame on them,” he said.

“I’m all for protecting where we really need to protect against bad people,” he said. “But it is tiresome to have be told time and again we have to protect people against themselves, even when they have the wherewithal to go out and get advice.”

Terry Turk, president of Sun America Mortgage Co. in Mesa, said there is nothing wrong with protecting consumers.

Nor does he have a specific problem with Arizona’s adopting statutes to regulate the private reverse mortgages that are not subject to federal restrictions, such as the mandate for counseling.

But Turk, who also represents the National Reverse Mortgage Lenders Association, said there is no reason those should differ from the federal rules.

Turk acknowledged, though, there is at least one area in which he does not want the state to follow federal rules. That is in the area of prepayment penalties, something not allowed for federally insured mortgages.

He said there are times where a borrower might want a loan with zero up-front costs. Turk said lenders are willing to absorb those costs - but only if they are assured that the mortgage will be in existence for at least two years.

He and Gass did agree, though, on the anti-bundling provision, which bars a lender from putting a borrower into some sort of investment as part of the reverse mortgage deal.

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