Reverse Mortgage Loan Blog

The governor also vetoed SF 489 last week, a bill that was backed by Attorney General Lori Swanson and designed to prevent reverse mortgage lenders from taking advantage of senior citizens.

A reverse mortgage, also known as a “lifetime mortgage,” is used to release the home equity in property as one lump sum or multiple payments. The homeowner’s obligation to repay the loan is deferred until the owner – who must be at least 62 to take out such a mortgage – dies, the home is sold or the owner leaves.

In a reverse mortgage, the homeowner makes no payments, and all interest is added to the lien on the property. If the owner receives monthly payments or a bulk payment of the available equity, the debt on the property increases each month.

SF 489, also introduced by Clark, would have required seniors seeking a reverse mortgage to get independent counseling on the risks and benefits of the loan. Additionally, lenders would have to have “reasonable grounds” for believing that the reverse mortgage is good for the borrower, and seniors would be allowed to rescind a reverse mortgage agreement within 30 days of signing it.

“The intention of this bill is to protect borrowers from predatory lending practices, and I share that goal,” Pawlenty wrote in his veto message. “However, this legislation may trigger unintended consequences and increase costs to consumers.”

The governor said it is important that reverse mortgages continue to be available in the state, though they are “not right for everyone.”

“This legislation could have the unintended consequence of causing mortgage bankers to refrain from offering reverse mortgage loans to consumers,” he wrote.

Beth Paterson, executive vice president of Prestige Mortgage Reverse Mortgages SIDAC, hailed Pawlenty’s veto, saying the legislation would have done “just the opposite of protecting seniors.”

“As an industry, we are relieved (that) Gov. Pawlenty vetoed the bill,” she said. “We were afraid that reverse mortgages may not have been available to Minnesota seniors” under the legislation.

“At a minimum, if lenders didn’t pull from the state, reverse mortgages would have been more costly to seniors, limited their options and choices as well as taken away their rights to make their own decisions. Additionally, it would have negatively impacted seniors and the financial planners and attorneys helping them plan their estates and retirement.”

In his veto message, Pawlenty encouraged the authors to develop legislation “that protects consumers from predatory lending practices but does not limit the availability of this type of product in Minnesota.”

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