Reverse Mortgage Loan Blog

Arizona consumers could get their first state-level protections when they get a reverse mortgage.

Without dissent, the House Banking and Insurance Committee has agreed to set up some new regulations on those who offer the mortgages, most often sold to aging homeowners who are seeking to pull some equity out of their properties.

The measure most notably includes some mandatory disclosures and counseling.

That committee approval is significant: A similar measure last year, also sponsored by Rep. Bill Konopnicki, R-Safford, stalled when some of his Republican colleagues balked at what they saw was an effort by the government to protect people from themselves.

Several lawmakers expressed similar sentiments this session. But they have agreed to go along, at least in part because the measure, HB 2513, is not opposed by the Arizona Bankers Association.

Generally speaking, a reverse mortgage is very similar to a home equity line of credit. The main difference, however, is that most reverse mortgages do not require repayment until the homeowner moves out.

“This is a bill that is timely and important,” Konopnicki said. “As we see people lose equity in 401(k)s and IRAs, people are going to be looking for a way to retire and expand their opportunities.”

There already are federal regulations governing reverse mortgages, which Robert Zumoff, an assistant state attorney general said make up 90 percent of the market.

But Zumoff said “proprietary” lending is not covered by federal law. And he said this sector of the industry is expected to grow rapidly.

Konopnicki said the legislation is designed less to be regulatory than it is to provide information “so people know when they make the decision to do a reverse mortgage they know exactly what it is. What am I getting, how long will it last, what are my obligations, what are the obligations of the funder.”

For example, the legislation says reverse mortgages can be either on a fixed or variable interest rate or even based on sharing any appreciated value of the property.

But there would have to be written disclosure of all the terms. That includes how the money will be given out, ranging from providing an available line of credit to giving the homeowner monthly payments.

And reverse mortgages can be paid off at any time without prepayment penalty.

What is causing some concern is a requirement that an “independent third party” provide counseling. Rep. Carl Seel, R-Phoenix, questioned whether this would provide an unnecessary hurdle – and whether there are enough people who would qualify in Arizona to serve.

But Ruben Alonzo, a lobbyist for the Attorney General’s Office said that’s already required under federal law for federally insured mortgages.

And Konopnicki said the requirement underscores the goal of disclosure, making sure that borrowers understand the terms of the loan “so that when you sign, that you would know exactly what it is.”

Wendy Briggs, lobbyist for the Arizona Bankers Association, said there is a possibility that the requirements in the bill, particularly for counseling, could be an additional burden.

Briggs said, though, bankers are willing to live with that requirement if it is similar to what is in federal law. And she said her organization will work with Konopnicki to fix any problems with the bill.

Seel ultimately agreed to support the bill.

But he said he want assurances there would be no “undue burdens on private industry which by definition would impair their ability to serve the public.”

Rep. Nancy McLain, R-Bullhead City, who chairs the committee, said she will go along, too.

But McLain said she questions whether this legislation is going too far to protect people from their own decisions.

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