I1 · 2019-10-07 · reverse mortgage, certain age requirements will apply. Chapter 613 of the Laws...

New York State Office for the Aging 2 Empire State Plaza, Albany, NY 12223-0001

11 To: [XI Area Agency on Aging Directors I PROGRAM INSTRUCTION

FYI: [x] Legal Assistance Providers [x] SOFA Advisory Committees [x] Commercial Banks of New York [x] Independent Banks of New York [x] County Bar Associations

I Date: October 7, 1994

I I

I1 I Response Due Date:

Number: 94-PI-39

11 Subject : Reverse Mortgage Legislation

11 Programs Affected:

Supersedes:

[I Title Ill-B I:] Title Ill-C-I [I Title Ill-C-2 [I Title Ill-D [I Title Ill-G [I CSE 11 SNAP 11 Energy [I ElSEP [ 1

I

Contact Person: John Phelan I Telephone: (518) 474-5796 -An Equal Opportunity Employer-

In 1993, the Governor approved legislation intended to make reverse mortgage loans more widely available to older homeowners in this State (Chapter 613 of the Laws of 1993). This law includes provisions for certain actions to be taken by both the area agencies on aging and the State Office for the Aging (SOFA) in connection with loans made under the statute.

The purpose of this Program Instruction is to inform the area agencies on aging of these new responsibilities relating to reverse mortgages made pursuant to the new statute and to provide guidance on how to implement their new role. You will need to be aware of these responsibilities and be prepared to respond to inquiries.

Regulations (effective, May 4, 1994) have been issued by the State Banking Department which are intended to implement Chapter 613 and regulate the marketing and sale of reverse mortgages.

Attached (as Attachment A) are copies of the law and the regulations.

2 BACKGROUND

Reverse mortgages are a type of home equity conversion plan. They are a means of using the equity a homeowner has built up in his/her home as a source of additional income. An authorized financial lending institution will make cash loans that will be charged against the home's value. Interest and fees are also charged on these loans. Generally, homeowners do not pay back these loans until they are no longer living in the house or have transferred the title to someone else. Depending on the type of reverse mortgage, certain age requirements will apply.

Chapter 613 of the Laws of 1993 is intended to make reverse mortgage loans more available to elderly homeowners in New York State. The new law allows only authorized lenders to make reverse mortgage loans, provides basic terms and conditions under which such loans must be made, and provides new and enhanced consumer protection.

The new law provides for two different categories of reverse mortgage loans: (1) loans authorized under 1280 of the Real Property Law are for applicants aged 60 years and older. These loans can apply to one-to-four family homes and condominiums. The home or condominium must be the principal residence of the mortgagor. Cooperatives are not applicable for these loans; and (2) loans authorized under 1280-a have similar requirements but are restricted to applicants 70 years of age and older who have incomes no higher than 80% of the median county income for all ages. There are more consumer protections attached to S280-a loans than to S280 loans.

APPLICABLE LAWS

The Real Property Law provides in §280(2) as follows:

"(f) in the event that an authorized lender or holder of the reverse mortgage loan intends to initiate foreclosure proceedings the mortgagor shall have the right to designate a third party who shall be notified. In the event that the mortgagor has not designated a third party to receive such notice of foreclosure, then the authorized lender or the holder of such mortgage shall notify the local or county office for the aging of its intent to commence foreclosure proceedings. Such entity shall take appropriate actions to protect the interests of the mortgagor;

(g) an authorized lender must deliver to the applicant, upon application, if available, a statement prepared by the local or county office for the aging on the advisability and availability of independent counseling and information services. Further, no reverse mortgage commitment shall be issued by an authorized lender until the applicant presents, in writing, a statement that the terms of the reverse mortgage loan have been explained by an attorney, a housing and urban development certified counselor or any other counseling services indicated on the statement supplied by the county or local office for the aging or a signed affidavit indicating that the applicant, although made aware of the importance of counseling and its local availability through the provision of such information by the authorized lender, chooses not to utilize any of the aforementioned available services. The form of such statement and affidavit shall be

developed by the New York State Off ice for the Aging; . . . (Emphasis added)

Similar language is used in 8280-a of the Real Property Law for mortgages authorized under that section.

The Banking Department Regulations, 3NYCRR, 879.5 (m), provides as follows:

(m) The lender shall also provide a copy of all foreclosure documents served on the mortgagor(s) to such third party designated in the security agreement simultaneously with service on the morgagor(s) or notify the local or county office for the aging of its intent to commence foreclosure proceedings if the mortgagor has not named a third party or if the third party can not be contacted."

AREA AGENCY ON AGING RESPONSIBILITIES:

Under the new law, area agencies on aging are responsible for the following :

I. To prepare a statement "on the advisability and availability of independent counseling and information services.I1

11. To supply to the lending institutions the counseling statement and affidavit referred to under the law i e . , the statements that the terms of the reverse mortgage have been explained to the applicant, and the affidavit that the applicant chooses not to seek counseling) . These documents have been prepared by SOFA (see Attachment B).

111. To act as a designated third party to receive notices of foreclosure issued by the authorized lender or holder of the reverse mortgage.

I. STATEMENT "ON THE ADVISABILITY AND AVAILABILITY OF INDEPENDENT COUNSELING AND INFORMATION SERVICESn

The law requires each area agency on aging to prepare a statement on the advisability and availability of independent counseling and information services. However, for the sake of convenience and uniformity, SOFA has drafted this statement for you. Since this responsibility under the Banking Law belongs to the area agencies, we strongly urge you to forward these statements to your county attorney for his or her legal review and approval before making them available to the lenders in your area.

Included in Attachment B is a statement of the advisability of receiving impartial reverse mortgage counseling and a list of questions to assist prospective borrowers in decisions about whether to utilize counseling services.

You are responsible for identifying and listing the counselors and attorneys available for reverse mortgage counseling in your area. A network of reverse mortgage counseling agencies trained and certified by the U. S. Department of Housing and Urban Development (HUD) exists across the State. These HUD counselors can be listed on your counselor availability form. If you identify other individual reverse mortgage

counselors or counseling agencies, you should ascertain that such person or agency has knowledge of reverse mortgage loans before listing them on the form. Also included in Attachment B is a form that the area agencies can use to complete a list of locally available counselors. Your list of counseling sources need not be limited to your county alone, but might also include counselors in adjoining counties.

+ HUD Counseling Agencies Attachment C contains the most recent listing of the HUD Counseling agencies located in New York. As you can see from the list, many counties do not have a HUD counseling agency located within their borders. If any one or more of those listed is within a reasonable traveling distance of your county, you should include them in your list even if there is another counselor in your county listed.

+ Attorneys Local bar associations are potential sources of local counseling services. Attachment D is a listing of local bar association presidents. We are sending each president a copy of this PI. We suggest that you contact your local bar association for confirmation that it is available to be used as a referral source.

+ Other Counselors Other local counseling sources may be found by contacting financial planners, mortgage counselors or their professional organizations, housing counseling agencies, chamber of commerce, etc., in your area for referral and assistance in identifying appropriate counselors.

11. COUNSELING STATEWENTS AND AFFIDAVIT

As required by the law, SOFA has prepared the following documents (see Attachment B) that must be signed by the borrowers before a reverse mortgage loan commitment or approval can be issued by the lending institution:

1. A Statement for reverse mortgage applicants who received counseling from a non-attorney counselor.

2. A Statement for reverse mortgage applicants who received counseling from an attorney.

3 . An Affidavit for reverse mortgage applicants who choose not to utilize any counselor or attorney.

111. DESIGNATED THIRD PARTY NOTIFICATION

The law provides that borrowers may designate a third party to receive notices from an authorized lender or holder of a reverse mortgage of its intent to commence foreclosure proceedings. Attachment B contains a Third Party Notification Form which can be used by a reverse mortgage applicant

to designate a person(s) to be notified in the event of a foreclosure.

If a third party is not designated, the notice will be sent to the local office for the aging. The new Banking Department regulations further provide that if a third party was designated but cannot be found, the area agency will also be notified. Upon receipt of such notification the area agency on aging must take appropriate action to protect the interests of the mortgagor (borrower).

The question of what is "appropriate action" as it relates to the area agency is not addressed further in either the law or the regulations. In the context of this law, SOFA takes the position that "appropriate actionw requires at a minimum the following steps:

1. If the area agency is familiar with the borrower (s) and knows of their whereabouts or how to contact them, the area agency should make every reasonable effort to inform the borrower(s) of the legal notice. If not, the area agency should notify the lending institution that the area agency has no information on the current whereabouts of the borrower.

2. If the area agency is able to contact the borrower(s) , the area agency should inform the borrower (s) of the foreclosure notice and advise the borrower(s) to contact his or her attorney. If the borrower(s) does not have an attorney, the area agency should facilitate a referral to the legal services provider or the local bar association, whichever is appropriate.

3. If the area agency locates the borrower(s) and has reason to believe that the borrower(s) may be incompetent, the area agency should refer the matter to the local DSS Protective Services for Adults program for appropriate action, and also notify the legal services provider, if available.

DISTRIBUTION OF DOCUMENTS BY AREA AGENCIES ON AGING

The law requires the lending institution to "deliver to the applicantw the above-described documents prepared by SOFA and the area agencies. Accordingly, the area agencies are responsible for supplying them to the participating lending institutions located within their respective areas.

Both the law and the regulations are silent on the delivery process between the area agency and the lending institutions. After consultation with the Director of State and Local Government Relations for the Community Bankers Association of New York State, it was agreed that upon request by a lender, the area agency shall send or deliver one original complete set of the notice and documents (all of Attachment B) to the lending institution, which shall be responsible for ensuring an adequate supply of the Attachment B packet for dissemination to reverse mortgage applicants and other prospective customers.

To facilitate distribution of these documents to lenders, especially in the larger metropolitan areas, CBA has also agreed to act as a supplier of documents for its member banks. The Office will attempt to seek similar

arrangements with the banking association for the commercial banks and the independent banks. Please remember that the statute places the responsibility to supply the documents on the area agencies.

For your convenience, SOFA will provide you with several copies of Attachment B, as well as a 3.5" computer disk containing the notice and documents in Wordperfect 5.1. This will enable you to (1) complete the list of counselors available in your area, and ( 2 ) at future dates, supply original printouts of Attachment B to the lending institutions in your area. The disk has been programmed to allow you to add or subtract names to the list of available counselors without having to retype the entire list. To maintain statewide uniformity of the entire Notice to Applicants, the disk has been programmed to not allow changes to the remainder of Attachment B.

SOFA will send a copy of this Program Instruction either directly or through their respective associations to the lending institutions offering reverse mortgages to inform them of the processes described herein.

COMPLAINTS

Pursuant to the Banking Department regulations, a lending institution must disclose to each reverse mortgage applicant its toll-free telephone number and the name of a person to whom applicants and borrowers can address questions, comments or complaints. If there is no toll-free number, the lender must state that it will accept collect calls.

In addition, written complaints can be sent to:

New York State Banking Department Mortgage Banking Division 2 Rector Street New York, New York 10006

7

ATTACHMENTS INCLUDED WITH THIS PROGRAM INSTRUCTION

Attachment A Chapter 613 of the laws of 1993 Banking Regulations, effective May 4, 1994

Attachment B Acknowledgement of Receipt

Notice to Applicants for reverse mortgages

Questions to assist applicants decide about counseling

Statement of the advisability of counseling

Form for a list of available counselors

A counseling statement

A counseling waiver affidavit

Third party foreclosure notification form

Attachment C* List of HUD certified reverse mortgage counseling agencies

Attachment D* List of local bar associations

*Only Area Agencies on Aging receive Attachments C & D

BANKING LAW--REAL PROPERTY LAW--TAX LAW--

SOCIAL SERVICES LAW--PUBLIC AUTHORITIES LAW--

INSURANCE LAW--REVERSE HORTGAGES

I AN ACT to amend the banking law, the real property law, the tax law, rht social services law, the public authorities law and the insurance law, in relation to reverse mortgages and repeaiing certain provisions of the real property law relating thereto

A p p r o v e d A u g u s t 4 , 199.3, effective as provided i n S 12.

The People of the State of New York, represente3 in Senate and Assem- bly, do enact as follows:

s 1 Section 1. Section 6-h of the banking law, as added by chapter 789 of the laws of 1984, is amended to read a6 follows:

S 6-h. Reverse [mortgages] mortqaqe loans authorized. Notwithstanding any inconsistent provision of law, in addition to any other power expr- cised by it , every [banking organization and 1 icensed mortgage banker I authorized lender, as defined by section two hundred eiqhty or two hundred eighty-a of the real property lav, shall have the power to offer reverse [mortgages] mortgaqe loans (1) which conform to the provisions of Section two hundred eighty or two hundred eiqhty-a of the real property law and the [provisions of] rules and regulations promulgated by the banking board; or (2) which conform to the requirements of the federal housinq administration's home equitv conversion mortqaqe insurance demonstration program for as long as such proqram exists an provided for in section 17152-20 of title 12 of the United States Code.

EXPLANATION--Matter u n d e r l i n e d o r i n i t a l l c s i s , n e w ;

1993 SESSION LAWS ch 613

"Reverse mortaage" shall mean the mortgage, deed of trust or other S 1 security instrument relating to a Darticular reverse mortqaqe loan

- transact ion. S 2. Paragraph ( s ) of subdivision 1 of section 14 of the banking law, s 2

as added by chapter 789 of the laws of 1981, is amended to read as follows:

(5) TO permit [any banking organization or licensed mortgage banker] authorized lenders, as defined by section tvo hundred eighty or two hundred eiqhty-a of the real property law, to offer reverse [mortgages] . Irortqase loans which shall conform to the provisions of section two hundred eighty or two hundred eiqhty-a of the real property law.

S 3. Section 280 of the real property law is REPEALED and a new sac- S 3 tion 280 is added to read as follows:

S 280. Reverse mortqaqe loans for persons sixty years of age br older. 1. For Durpases of this section the followinq terms shall have the following meaninqs:

$ 8 ) Reverse mortgaqe loans. A loan which is secured bv a first sort- qree on real property improved by a one- to four-family residence or condominium that is the residencee:of the sortqagorfs) the ~ r o c ~ d s of which are advanced to the taortgagor(s) drrinq the term of the loan in m a 1 installments, in advances throuqh a line of credit or otherwise, in lump sums, Or throu~h a combination thereof. jb) Term reverse mortqaqe loan. Any reverse mortgage loan that has a

fired term to maturity. Jc) Tenure reverse mortgage losn. Any reverse.mortaage loan that does

not have a fixed term to maturity, but rather matures solely u W n COnt- inqent events, such as events includinq but not limited to death or the real Property securinq the loan no longer beinq the mortgagors' principal residence.

Jd) Authorized lender. Any bank, trust comciany, national banking association, savings bank, savinqs and loan association, federal savinss bank, federal savinqs and loan association, credit union, or federal credit union or any licensed mortgaqe banker approved for the makinq of reverse mortqaqe loans by the superintendent of banks or anv entity exempted from licensinq pursuant to section five hundred ninety of the bankinq law and approved for the makinq of reverse mortqaqe loans by the superintendent of banks.

s 3 (e) Mortgagor. A tenant in severalty who is sixty years of age Or 01- der, or if the real property is held by tenants by the entirety or by joint tenancy, the youngest of which is sixty years of age or older.

(f) Banking board. The board established pursuant to section thdrteen of the banking law. u) Superintendent of banks. The position established pursuant to

section twelve of the banking law as the head of the banking department and pursuant to section thirteen of the bankinglaw as the chairman and executive head of the bankinq board.

2. A reverse mortqaqe loan pursuant to this section shall be subject to the followinq:

la) the loan to value ratio shall be determined by the banking board; and -

jb) subject to such rules or requlations as the banking board shall adopt, any authorized lender or any successor or assign of such authorized lender vhich suspends, ceases or makes late Payments to a mortgaqor under a reverse mortqaqe loan shall be subject to forfeiture jas liquidated damages to such mortgagor and not as a penalty) of twice' the interest which would otherwise have been earned du'rind the period in which Payments were sus~ended, ceased or made iate, provided that said authorized lender or any successor or assign of such authorized lender shall have the riqht to make payments pursuant to said loan aqreement within fifteen days of each.payment date, without penalty; and

(c) the outstanding balance may be prepaid in full by the mortgagor without penalty at any time during the term and/cr tenure of the loan; and -

(dl an authorized lender is prohibited from usinq or attachinq any property or asset of the mortgagor except the real property securing the reverse mortqaqe loan in settlement of a reverse mortqaqe obligation; and -

l e ) the authorized lender must deliver to an applicant such disclo- s u r e ~ as may be required by the bankinq board which shall describe the relevant Portions of the reverse mortqaqe beinq ~ f f e r e d , and aha11 include but not.be limited to the following items:

(i) except. for a tenure reverse mortqage loan, a schedule of to and from the mortgagor and the total payments in dollars over the term of the reverse mortqaqe loan for both the mortqagor and mortgaqee dependinq on the type of reverse mortqage loan beinq offered;

jii) a statement prominently displayed advisinq applicants to consult with appropriate authorities regarding tax and estate planninq conse- guences of a'reverse mortqaqe;

jiii) where applicable a description of prepayment and reflnancinq 'features;

EXPLANAIJ'ION--Mat te r u n d e r l i n e d o r i n i t a l i c s is q e w ; -- &3


jiv) the interest rate and, except for a tenure reverse mortgage lo-, S 3 the total interest payable on the loan; J v ) a statement concerning the compliance of the lender with the

criteria established by the banking board that an authorized lender must meet before it may make reverse mortgage loans pursuant to this section; and -

(vi) a statement settinq forth those events which would terminate the reverse mortgage loan; and if) in the event that an authorized lender or holder of the reverse

mortqage loan intends to initiate foreclosure proceedings the mortqagor shall have the right to designate a third party who shall be notified. In the event that the mortgagor has not designated a third party to receive' such notice of foreclosure, then the authorized lender or the holder bf said reverse mortqaqe loan shall notify the local or county office for the aqinq of its intent to commence foreclosure proceedinqr. Such entity shall take appropriate action to protect the intereata of the mortsaqor; and Ip) an authorized lender must deliver to the applicant, upon applica-

tion, if available, a statement prepared by the local or county office for the aging on the advisability and availability of independent counseling and information services. Further, no reverse mortqase conmitment shall be issued by an authorized lender until the applicant presents, in writins, a statement that the terms of the reverse mortgage loan havq been explaintd by an attorney, a'housinq and urban develomnent certified counselor or any other counselinq service as indicated on the rtatement supplied by the county or local office for the aging or a oiqned affidavit indicatincr that the applicant, although made aware of the i-t- tance of counselinq and ita local availability throuqh the proviaion of such information by,the authorized lender, chooses not to utilize m y of fhe aforementioned available services. The form of such atat-nt m d affidavit shall be develo~ed by the New York state office for the aqinof and -

S 3 j b ) any such reverse morsgage shall expressly and conspicuously bear legend i d e f i t i f y i n g i t as such: and

J i ) subjecZ to such rules cr requldtions as t h e banking boa& may ado~t, a reverse mortqage loan shall be made a t e i t h e r a f i x e d or variable iate of interert.

3. A reverse mo'rtqaqe l e a n pursuant to this section may: la) provide that the noctgaqor's closinq costs, including but not l i r

ited to loan or commitment fees, if any,- insurance premiurm, houme remirs, legal f-sr the cost of annuities, the costs of third-mrtr couselinq, the costs of existinq mortgages or liens, and other apprp priate costs be included in the principal of the reverse mortqaqe 1-n and dimbursed out of the loan proceeds at closinq;

(b) provide for the uintenahce of an escrw account by the authortzmd lender for ur ses of ptaoatt9 mecurins the loan, or any 6-r feem and exmenses am u r k permitted by bankinq board reeulatloni Jc) provide that an authorized lender U V r consimtmt vitb t-ral

Jaum and rooulatioru, include a due-on-sale claume in itm reverse mrt- $8- its option exercise and enforce much c- -loan r.-8qrwwnt and at in -accordrace 'ri tb its terms.

4. Tbo badcinq beard mball ad-t thome rules or reeulatimm am it ma- aiderr amro~riate to -ern rwerse morta8Qe loanm w& mrmeunt to thim mmction. Wo revmrme mortcraee loan mhll be-ude unlems it aoaforu to the rhauiromentm oC this section i ~ d such rules and r m l a t i m as the banking bcutd - m 9 adopt exceut thome reverse mortgaae ladar ud. putmuant to mectfoa-tro bundred eiahty-a of this article. A severme rortqage loan k d e bt MV authorized lm06.rr*aational hnk$dQ q w c i r - ti=. federal uvines and loan ammocia'tioa Or fd8r.l credit d a o in esatermit~ with a~~iicabie f.6et.i laus rad r ~ ~ l a t t o a m ~ i t i a i ~ ~ remulat isq reverse Ibrta~ae - loans shall be deemed 'to coatom -to-' tho teuuirem8nta of thim section unless such reverse mrtqaqe loan dailm to conform to much rules and regulations as the bankinq board bar o*remmly declared to be neither preemted by, nor otherwise inconrimtent with much federal laws or resulations. Those rules or reuulationm mull include, but are not limited tor the form and contents of any dimclomure mtatement, with tho exception of the counmelinq statement proudrod b9 th. Hew York state office for the aqfnq pursuant to paragraph ( c r ) of mubdivioion tuo of this section, that authorized lenders rurt prdvide to lortqaqorm.

1993 SESSION LAWS

5. Notwithstanding any inconsistent provision of law, the priority of S 3 the lien of a reverse mortqaqe shall date from the recording of the reverse mortqaqe irrespective of the date of any advance of reverse w r t - qage loan proceeds.

6. Nothing in chis section shall be construed to limit, impair or otherwise affect the priority under applicable law of any &her lort- gage, deed of trust, encumbrance CK lien which was recorded or filed prior to the effective date of this section.

7. The sale or transfer of the real proaerty securing the reverse mortgaqe loan to a person other than an o r i g i ~ l rortqaqor or mort~aqors shall result in the termination of the ,108n. 8. In a term reverse mortgaqe loan, the real property securinm the

reverse mortgage loan may be reappraised by an independent appraiser at the end of the loan term. If the value of the real property has 8pprwi- ated, the term of the reverse mortgaqe may be extended or r8finandr however, the total reverse mortgage loan uount u y not 8xC-d .ucb amount or ratio as may be determined by the banking b z d . The r e f i a r ~ c inq of the reverse mortqage loan shall be provided by the original authorized lender or by any other authorized lender designated by the mortgaqee.

9. The principal, including any accrued but unpaid interest, of a reverse mortgage loan agreement entered into pursuant to this section may k insured by the rortqagor. If such insurance is purchased from or otherwise provided by any agency of the state of Uew Pork the mortgagor shall be granted the riqht, for a term reverse mortqaqe loan, to refi- nance or extend the reverse mortqage loan at the end of the term, subject to such rules or requlations as the bankinq board may adopt. The authorized lender shall have the option to choose between refinancing or extendinq the reverse mortqaqe loan. Subject to obtaininq an adequate increase in the insurance and subject to such rules and regulations as the banking board MY adopt, the total reverse mortgage loan amount shall not exceed such amount or loan to value ratio as may be determined by the banking board. The refinancing of the reverse mortqage loan shall be provided by the oriqinal authorized lender or by any other authorized lender deslqnated by the mortqaqee.

S 3 10. Any authorized lender offerinq reverse mortqaqe loans pursuant to this section shall also offer reverse mortgage loans pursuant to section two ,hundred eighty-a of this article. Subject to this section in the event that an authorized lender makes reverse mortqaqe loans under this section then that lender must make an equal n~mber of reverve mortgaqe loans pursuant to section two hundred eighty-a of this article. Such 1 w ~ shall be made to individuals who meet the requirements promulqated in section two hundred eighty-a of this article provided that such individual seekinq the loan would otherviseaualify and be apvroved for tbat loan. In the event that no or insufficient applications for reverse mortgaqe loans pursuant to section two hundred eightv-a of this article are made to a lender who has previously made reverse mortgage loans pursuant to this section then there shall be no requirement for that lender to make a reverse mortgaqe loan pursuant to section two hundred eighty-a of this article. It shall also not be a requirement that an authorized lender make any reverse wrtqaqe loan to any individual vho would not uualifv for such loan and/or vould not othervise be approved for such loan. -

11. Pothins contained in this section, section sixAh of the banking law or 8np other provision of law shall be construed to prohibit a banking organization or licensed mortgage banker from p'rovidinq reverse rartqaqes to h o m e m e r e in this state under the federal houeinq administration's home equity conversion mortqaqe insurance demonstration proqr am.

S 4 S 4 . The real property law is amended by adding a new section 280-a to read as follows:

280-a; Reverse mortgaqe loans for persons seventy years of aqe or 0ld.r. 1. For purposes of this section, the following terms shall have the follarinq meanings: Ja) P w e r r a mortgage loan. A loan which is secured by a first mortgage

on re.1 propcrty improved by a one to four-family residence or condominium t h t is She residence of the mortqaqor(s) the proceeds of which are advanced to the mortgaqor(sP during the term of the loan in equal installments, or in advances through a line of credit or otherwise, in lumv sums, or through a combinarion thereof. lbl Term reverse mortgage loan. A s used 17 rn:s seczion, any reverse

mortqaqe loan that has a fixed term for pa;rmor\.ts to tne aortqaqor(s).

EXPLANATION--Matter u n d e r i r n e d o r i n italics is new; I

# -7

(c) Tenure reverse mortqaqe loan. As used In this section, any reverse S 4 mortgage loan that does not have a fixed term for payments to the mortqagor(s).

Id) Authorized lender. Any bank, trust company, national bankinq association, savinqs bank, savings and loan association, federal savinqs bank, federal savings and loan association, credit union, or federal credit union or any licensed mortqaqe banker approved for the making of reverse mortqaqe loans by the superintendent of banks or any entity exempted from licensing pursuant to section five hundred- nine.ty of the bankinq law and approved for the making of reverse mortgage loans by the superintendent of banks.

je) Mortgaqor. A tenant in severalty who is seventy yedrs of aqe or older, or if the real property is held by tenants by the entirety or by joint tenancy, the younqest of which is seventy year8 of aqe or older and whose income does not exceed eighty percent of the median income of the county in which he or she resides. If) Bankinq board. The board established pursuant to section thirteen

of the banking law. jq) Superintendent of banks. The position established pursuant to sec-

tion twelve of the bankinq law as the head of the bankinq department and pursuant to section thirteen of the bankinq law as the chairman and executive head of the banking board.

2. A reverse mortgage loan pursuant to this section shall .be subject to the following:

(a) the mortqaqor shall be qranted lifetime possess~ion of the subject premises of the real property which is the security. for the reverse w r t s a q e loan, as lonq as such real property remdins fhe rort~agors' principal residence and subject to a limited waiver of the right of Zoreclosure as determined by the bankinq board; and

jb) the term of the reverne mortgage, except for p tenure reverse mortqaqe loan, shall be for a period of ten years or less; and

(c) the loan to value ratio shall be determined by the banking board: and -

jd) subject to such rules or regulations as the bankinq board shall adopt, for that period of time commencing at the end of the loan term or ten Years after the reverse mortgage loan commences, whichever occurs first, and endins at such time as the reverse mortqaqe loan is paid in full, the authorized lender, at its option, may receiveno more than twenty Dercent of the future appreciation of the property securing the reverse mortqaqe loan as full or partial consideration for the making of a reverse mortqase loan; provided, however, that such future apprecia-

\

matter i n b r a c k e t s [ ] is o l d l a w t o b e d e l e t e d .

S 4 tion shall be limited by such rules and regulations as the banking board may adopt or the authorized lender may charge a fixed rate of interes on the outstandinq balance of monies advanced under the reverse mortqaqe agreement or any combination thereof. Said reverse mortqage loan shall not come due and shall be extended until the voluntary relinquiqhrnent by the mortgagor; of possessory interest in such.rea1 property, the real pro-rty no lonqer being the mortgagors' principal residence, the death of the mortqaqors, or such other events as may be determined by the baking board, Any such appreciation shall not be ~ o ~ s i d e r e d interest for the purposes of any law regulatinq 'the maximum rate of interest which may be charqed, taken or received including sections 190.40 and 190.42 of the penal law; and

) the authorized lender shall maintain an escrow account for the purposes of paying real property taxes, insurance premiums of the property securing the reverse mortqage loan, or for the payment of any

other fees and expenses as may be permitted by bankina board requlation; and -

I f ) subject to such rules or requlations as the bankinq board may a d o ~ t , an authorized lender or any successor or assiqn of such authorized lender which may suspends, ceases or makes late payments to a mortqagor under a reverse mortgage loan shall be subject to forfeiture las liauidated damaqes to such mortqagor and not as a penalty) of twice the interest which would otherwise have been earned during the oeriod in which payments were suspended, ceased, or made late, provided that said authorized lender or-any successor or assign of such authorized lender shall have the right to make payments oursuant to said loan aqreement within fifteen days of each payment date without penalty: and

(q) an authorized lender must deliver to an applicant such disclosures as may be required by the banwinq board which shall describe the relevant portions of the reverse mbrtgaqe being offered, and shall include but not be limited to the following items:

I except for-a tenure reverse mortgage loan, a schedule of payments to and-from the mortaagor and the-total payments in dollars over the term of the feverse mortsaqe loan for both the mortgaqor and mortqaqeer dependinq on the tvpe of reverse mortqaqe loan being offeredi

jii) a statement prominently displayed advising applicants to consult with a~propriate authorities regardinq tax and estate planning conse- guences of a reverse mortqage;

jiii) where applicable a description of prepayment and refinancing

/

EXPLANATION--Matter u n d e r l i n e d o r i n i t a l i c s i s rlew; -9 -.

1993 SESSION LAWS

features; Jiv) to the extent determinable at or prior to the inception of the S 4

reverse mortqage'loan, the interest rate and, except for a tenure reverse mortgage loan, the total interest payable on the reverse mortgaqe loan ; _(v) a statement concerning the compliance of the lender with r;.d

criteria established by the banking board that an authorized lender must meet before i t may make reverse mortgaqe loans pursuant to this section; and -

(vi) a statement settinq forth those events which would terminate the reverse mortgaqe loan; and Jh) -the outstanding balance may be prepaid in full by the mortqaqor

without penalty at any time durinq the reverde mortqage loan term; ant3 l i ) an authorized lender is ~rosibited from using or attachins any

property or asset of the mortqaqor except the real property securing the reverse mortqaqe loan In se:tlement of a reverse mortqaqe obligation; and - If) an authorized lender must deliver to the'applicant upon applica-

tion, if available, a statement prepared by the local or county office for the aqing on the advisability and availability of independent counseling and information services. Further, no reverse mortqaqe commitment shall be issued by the authorized lender until the applicant presents, in writing, a statement that the terms of the reverse mortgage loan have been explained to them by an attorney, a housing and urban d e v e l o ~ n t certified counselor or any other counseltnq metvice as indicated on the statement s u ~ ~ l i e d by the county or-1-1 office for the aging or a siqned affidavit indicatinq'that the applicant, although made aware of the importance of counselinq and its local availability through the provision of such information by the authorized lender, chooses not to utilize anv of the aforementioned available services. The form of such statement and affidavit shall be developed by the New York state office for the aqing; and

S 4 Jk) a reverse mortqage pursuant to this section shall expressly and conspicuously bear a legend identifyinq i t as such; and

11) subject to such rules or regulations as the banking boar&may adopt, a reverse mortqage loan shall be made at either a fixed or variable rate of interest; and jm) in the event that an authorized lender or holder of the reverse

mortqage loan intends to initiate foreclosure proceedings the mortqagor shall have the right to designate a third party who shall be notified. In the event that the mortgagor has not desiqnated a third party to receive such notice of foreclosure, then the authorized lender or the holder of maid reverse mortqage loan shall notify the local or county office for the aging of its intent to commence foreclosure proceedings. Such entity shall take appro~riate action t o protect the interests of the mortgagor.

3. A reverse mortgaqe loan pursuant to thia section m y : la) provide that an authorized lender may, conriatent with federal

laws and regulations, include a due-on-sale clause in its reverse mortgage loan agreement and at its option exercise and enforce such clause in accordance with its terms;

(b) provide that the mortqagor's closing costs, including but not limited to loan or commitment fees if any, insurance premiums, house repairs, leqal fees, the costs of annuities, the coats of third party counseling, the costs of existing mortgages or liens, and other appropriate costs be included in the principal of the reverse mortqaqe loan and disbursed out of the loan proceeds at closinq.

4. The banking board shall adopt those rules or regulations as it con- siders appropriate to govern reverme mortgage loana made pursuant to this section. No reverse mortqage loanyshall be made unless it conforms to the requirements of this aection and such rules and requlations as the banking board may adcpt except those reverse mortqage loans made pursuant to section two hundred eighty of this article. A reverse mortgage loan made bv.any authorized lender, national bankinq association, federal savinqs and loan association or federal credit union in confor- mity with appli'cable federal laws and regulations specifically regulat-. ing reverse mortqage loans shall be deemed to conform to the requirements of this section unless such reverse mortgage loan fails to conform to such rules and regulations as the banking board has expressly declared to be neither preempted by, nor otherwise inconsistent with much federal laws or regulations. Those rules or requlationa shall include, but are not limited to:

EXPLANATION--Matter - u n d e r l i n e d o r i n italics i s new;


Ja) any limitations on the tatinq of a percentage of the future appre- S 4

ciation of the real property securinq the reverse mortgage loan as consideration for makinq the reverse mortqage loan;

Jb) the execution by an authorized lender of a limited waiver of the right of foreclosure;

( c ) with the exception of the counseling statement prepared by the Rcw York state office for the aging pursuant to paraqraph (j) of subdivision two of thin section, the form and contents of any disclosure.rtat~nt that authorized lenders must provide to mrtqaaora.

5. Notwithstanding any inconrirtent ~rovirion of law, the priority of the lien of a reverse mortqaqe ehall date from the recording of the moctgage irrespective of the date of any advance 02 reverse mortqage loan proceeds or the date by which an authorized lender shall be entitled to shared a~preciation or accrued but unpaid interest.

6. Nothinq in this section ahall be construed to limit, impair or otherwise affect t h e priority, under applicable law, of any other mortgage, deed of trust, encumbrance or lien which was recorded or filed prior to the effective date of this section.

7. The sale or transfer of the real estate securing the reverse mortgage loan to a Person other thAn an original mortqagor or mortqaqors Shall result in the-termination of the reverse mortqage loan.

l t he reverse ~ortgaqe UP be rea~vraised by an independent a~oraiser at the m d of the loan term. If the value of the property has avvreciated, the term of the reverse mrtsaae UP be extended or refinanced; however the total reverse 'mrtoaqe loan amount UP not exceed such amount or loan to value ratio as may be determined by the bankina board. The refinancing Of the reverse mortaaqe loan shall be provided by the oriqinal authorized lender or by any other authorized lender desiqnated by the mor taaqee .

9 . The princiml, includinq .nu accrued but unpaid interest; of a reverse rortoa~e loan asre8nnt entered into pursuant to this section runt be Insured by the mottolaor. If such insurance is purcbamed from or otheruime ~rovided by 8hv 80.nc~ of the -ate of NQU fork, the rortoauor shall be ~r8nt.d the right, for a term reverme mortaaqe lour, to refi- nance or extend the reverse mortoaue loan at the end of the term, subject to such zules and regulations as the banking board mar adopt. The authorized lender shall have the o~tion to choose between refinancinq or extending the reverme mrtaaqe loan. Subject to obtaininq an adeauate increase in the insurmce and mubject to ruch rules and requlati,ons as the bankinq board u v adout; the total reverse mortcrase loan amount shall not exceed such amount or ratio as may be determined by the banking board. The refinancinq of the reverse mortqaqe loan shall be prwided by the original authorized lender or by .nv other authorized lender dtmiqnated liv the mrtqagee.

\

matter i n brackets [ ] i s old law to b e deleted.

3 5 f 5. Subdivision 1 of section 281 of the real property law, as amended by chapter 420 of the laws of 1985, is amended to read is follows: 1. For the purposes of this saction, a .credit line mortgage"

shall mean any mortgage or deCd of trust, other than a mortgage or dbed of trust made pursuant to a building loan contract is defined in subdivision thirteen of section two of the lien 1 which states .that 'it secures indebtedness under a note, credit agreement or other financing agreement that reflects the fact that tbe parties reasonably contemplate entering into a series of advances, or advances, payrents and read- vances, rad that limits the aggregate amount at any time outstanding to a m a x i m uount specified in such mortgage or deed of trust. lor uur- poses of this .section, 'credit line mortqaqe' shall include a reverse mottgaae loan as defined in sections two hundred eiqhty and two hundred eighty-a of this article. /bl Payments made by an authorized lender -pursuant to any credit line

reverse mrtqaqe u d e in accordance vith section tuo hundred eighty-a of this article durina any one year shall be limited to such amount or ratio as u v be.determined by the bankina board. In the- event that 8

borrower does not t ~ k e payment under such credit line durina the course of 8ny year then that borrower shall have the abilitv to increase the yearly mvments by that amount available but not borrowed during previous years.

S 6 S 6. Section 252-a of the tax lav, as added by chapter 1009 of the laws of 1973, is amended to read as follows:

S 252-a. Other exemptions. (Mortgage] 1. Mortqaqes of real property given to secure Ian obligation] obliqations incurred and given pursuant to the provisions of section six-a of the banking law shall be exempt from any tax or fee imposed by this article. 2. Reverse mortgaqes conforminq to the provisions of section two hun-

dred eighty or two hundred eiqhtv-a of the re.al property' law securing obliqations of mortgagors or exempted therefrom pursuant to subdivision four of section two hundred eighty or subdivision four of section two hundred eiqhkv-a of the real Property law shall be exempt from any tax or fee imposed bP this article. In each case where an exemption is claimed under this subdivision, the lender shall provide documentation in a format approved by the commissioner of taxation and finance to enable recording officers to affirmatively determine when a mortgage beinq

EXPLANATION--Matter u n d e r l i n e d o r i n italics i s n e y ;

1993 S b a ~ l b N LAWS Ch 01,

presented for recordinq is a reverse mortgaqe conforming to such provi- s 6 sions of the real property law and entitled to an exemption under this subdivision. Where such documentation is not furnished, the maximum principal debt or obliqation which shall be the measure of the tax imposed by and pursuant to the authority of this article in the case of a reverse mortqaoe shall be the proceeds of the loan which the authorized lender is obliqated to lend the borrower at the execution of such mortgage o? at any time thereafter but determined without reqard to any continqency relating to the addition of any unpaid interest to principal or relating to any percentaqe of the future appreciation of the property securinq the loan as consideration or additional consideration for the making of the loan. Provided, however, if subsequent to the recording of such mortgaqe, the proceeds which the authorized lender is obliqated to lend the borrower are increased at any time, such new or further indebtedness or obliqation ehall be the mCasure of the tax at such time unless at that time an exemption is applicable under the first.sentence of this subdivision or otherwise. S 7. Subdivision 2 of section 253-b.of the tax law, as addea by chap- S 7

ter 924 of &bg laws of 1985, is amended to read as follows: 2. For the purposes of this section, a "credit line mortgage" shall

mean any mortgage or deed of trust, other than a mortgage or deed of trust made pursuant to a building loan contract as defined in subdivision thirteen of section two of the lien law, which states that it recures indebtedness under a note,-credit agreement or other financing agreement that.reflects the fact that the parties reaomably contemplate entering into .a series - of advances, or advances, paymenti and read- vances, and that limits the aggregate amount at any time outstanding to a maximum imount specified in such mortgage or deed of trust. For the purpose of this section, "credit line mortqaqe* shall not include a reverse mortqaqe as defined it~sections two hundred eighty and two hundred eighty-a of the real proverty law.

S 8. The social services law is amended by adding a new section 131-x S 8 to read as foilows:

S 11-x. Reverse mortgage loans. Notwithstanding any other incon- ristent provisions of law and to the extent permissible under federal law, regulation or waiver, the ~roceeds of a reverse mrtaaee loan made in conformitv with the recruirerents of section two hundrod eighty or two hundred eishty-a of the real provertv law or extm~ted thetofrom pursuant to subdivision four of section two hundred eighty or subdivirion~four of section two hundred eighty-a of the real property law half not be considered as income or resources of the mortqasor for any ~urvose under any law relatins to food stamps, public assistance, veteran assistance, home relief, low-income home enerqv assistance, federal sup~luental security income benefits and/or additional state payments, medical ar- sistance, any prescription drug plan or other payments, allowancesL

matter in brackets [ ] i s o l d l a w t o be d e l e t e d .

s 8 benefits or services available purruant to this chapter; provided, however, that for applicants or for recipients of home relief, any such reverse mortqaqe loan proceedr shall be disreqarded as income and/or resources only in the event that, and for so lonq as, federal laws. and regulations exempt loan proceeds in the determination of eli.qibilit< for both the aid to families with dependent children and Bupplemental security income programs.

S 9 S 9. Section 2426 of the public authorities lar is amended by adding a new subdivision 16 to read a8 follows:

16. Reverse mortqaqe. A reverse mortqaqe loan pursuant to section two hundred eiqhty or two hundred eiqhty-a of the real- property law shall mean a loan vhich is secured by-a first mortqaqe on real property improved by a one to four-family residence- or condominium that is the residence of the mortsaqor, the proceeds of which are advanced to the mortqaqor during the loan term in equal installments, in advancer throuqh a line of credit or otherwise, in lump sums, or throuqh a c w - bination thereof. A reverse mortqaqe may be structured to provide for the addition of accrued but unpaid interest to principal. Such reverse mortqaqe loan may provide for an initial lump-sum adva~ce wherein the mortqaqor MY receive an amount necessary to pay closing costs, including but not limited to loan or cornitment fees, if any, insurance premiums, the cost of house repairs, legal fees, the cost of annuities, the costs of third party counseling, the amount necessary to pay off exiot- ins mortqaqes or liens, and other ap~ropriate costs.

S 10 S 10. Section 2428 of the public authorities law is amended by adding a new subdbision 3-b to read as f0110~8:

3-b. Notuithstmdinq 'any other ~rovision of law to the contrary, when such insurance is not available throuah the ~rivate market the agency may insure reverse mortgage loans which-meet the follouinq conditions:

la) the authorized lender remires primary mortqaqe insurance on the real property and the applicant is unable to Procure such mortqaqe insurance in the private market; jb) the reverse nortqage loan is issued pursuant to section two hun-

dred eishty or two hundred eiqhty-a of the real property law; jc) the reverse mortuaqe loan amount shall not exceed the loan to

value ratio as may be determined by the bankinq board; and .(dl the real property which is the security for such reverse rortgaqe

loan meets such other rduuirements as the aqencv may from time to time establish.

EX.PLANATION--Fat t e r u n d e r l i n e d o r i n i t a l i c s is new; '

1993 SESSION LAWS ch 6 1 3

S 11. The opening paragraph of paragraph 1 of subsection (c) of sec- S 11 tion 6501 of the insurance law is amended to read as follous: an amortized instrument of indebtedness evidencing a loan secured by a

first lien on real estate which at the time the loan is made is not less than eighty percent but not more than ninety-five percent of the fair market value of the real estate except, however, for reverse mortgage loans made pursuant to sections two hundred eiqhty and two hundred eishty-a of the real property law; pravided that:

S 12. This act shall take effoct on the one hundred twentieth day af- S 12 ter it shall have become a law except that any rules and regulations necessary for the timely' implementation of thir act on its effective date shall be promulgated on or betore such date.

The next l e g i s l a t i v e chapter begins on the following pag.e.

STATE OF YE\.\' I'ORK BASKISG DEPART.MEXT

2 RECTOR STREET S E W YORK. SI' 10006

DERRICK D. CEPHAS SUPERINTENDENT OF BANKS

April 28, 1994

TO THE INDIVIDUAL OR INSTITUTION ADDRESSED:

RE: Adoption of New General Regulations of the Banking Board Part 79 - (Reverse Mortaaae Loans) . At its April 7, 1994 meeting, the Banking Board adopted new

General Regulation Part 79. It becomes effective on May 4, 1994.

In the summer of 1993, the New York State ~egislature adopted Chapter 613 of the Laws of 1993 regarding reverse mortgage loans. This Chapter is codified in inter alia Sections 280 and 280-a of the Real Property Law and Section 6-h of the Banking Law. The legislation requires the Banking Board to adopt implementing regulations.

A draft proposed regulation was issued for pre-SAPA comment in November 1993 and then, with revisions, for public comment by the Banking Board at its December 1993 meeting. In addition, the revised proposal was the subject of a conference hosted by the Banking Department on January 10, 1994. As a result of the many substantive comments received by the Banking Department, a second revised proposed regulation was published in the State Register on March 2, 1994. The thirty day comment period has expired and no further substantive changes to the proposed regulation were necessary, although some minor clarifying and housekeeping changes have been made as a result of the most recent comments received.

The following is a section by section analysis of Part 79.

Section 79.1 is the exclusive regulatory authority for authorized lenders to make or participate in reverse mortgage loans and, in connection therewith, to compound interest. In addition, this section clarifies that loans that conform to HUD8s home equity conversion mortgage program (commonly referred to as nHUD-HECM") are not subject to Part 79 or any other state mortgage regulation.

Section 79.2 of the regulation repeats the definitions set forth in the statute. In part, the definitions identify the two' types of reverse mortgage loans that lenders may originate pursuant

to the statute, namely a "280 loant1 and a "280-a loanm. The most significant differences between these loans is that a 280 loan may be made to a person who is sixty years or older, the terms of which are largely left to the parties, A 280-a loan may be made to a person who is seventy years or older and who has an income no greater than 80 percent of the median county income. A 280-a loan grants lifetime possession to the borrower and is subject to more statutory restrictions than the 280 loan. Either type of loan may be structured as a term or tenure loan (a tenure loan does not have a stated term).

Section 79.3 of the regulation sets forth the financial requirements that mortgage bankers and certain other entities (not including banks, trust companies, national banking associations, savings banks, savings and loan associations, credit unions, federal savings banks, federal credit unions, and federal savings and loan associations) must meet in order to offer reverse mortgage loans as well as the information which must be included in a letter application to the Deputy Superintendent for Mortgage Banking.

These requirements include an irrevocable standby letter of credit in an amount of at least three million dollars from an unaffiliated entity and a minimum capital of ten million dollars. For those lenders seeking to rely on the capital of a parent, the lender must furnish the Department with a certified financial statement of the parent showing a net worth of at least $100,000,000.00 and a binding written commitment fromthe parent to the lender to make a minimum of $10,000,000.00 available to the lender as a capital contribution, Certain other exceptions to the financial requirements are set forth in the regulation.

Section 79.4 of the regulation sets forth procedures that apply to both the 280 and the 280-a loans. Such procedures mandate that lenders provide a toll-free number, maintain books and records for a three year period and appoint the Superintendent as agent for service of process for out-of-state lenders.

Section 79.5 of the regulation sets forth certain requirements for both types of loans, These include the following:

- The maximum loan to value ratio for any loan shall not exceed eighty percent of the anticipated value of the property. Lenders may use any factor to determine the annual average increase or decrease in the value of the real property provided that the factor does not exceed the average of the yearly changes in the Consumer Price Index for Shelter for either the Buffalo Area or the New York-NorthernNewJersey-Long 1sland-~onnecticut Area for' the eight years preceding the year in which the loan is made.

- Alternatively, the parties may agree that the total compensation to the lender shall be no greater than eighty percent of the actual value of the property at maturity, excluding any actual costs incurred by the lender as a direct result of a breach of contract by the borrower.

- Reverse mortgage loans may be prepaid at any time without penalty.

- Lenders are prohibited from using or attaching any property or asset of the mortgagor except the real property to satisfy the mortgage loan.

- Lenders that fail to make or remit payments to mortgagor(s) within fifteen days of the due date shall forfeit twice the interest that would have been earned on the outstanding loan principal for the entire period during which a payment was not made.

- Lenders must deliver statements prepared by the local or county office of the aging, where available, to all applicants.

Sections 79.6 and 79.7 of the regulation list additional requirements for each type of loan.

Section 79.8 of the regulation sets forth the obligations of the mortgagor(s) to maintain the property and the circumstances under which the lender may arrange for repairs and obtain compensation.

Section 79.9 of the regulation sets forth the termination events for both types of loans. These include sale, death, ceasing to use the property as a principal residence, failure to pay taxes or insurance, bankruptcy, failure to maintain the structural integrity of the property and, with regard to a 280 term loan, the expiration of the term.

Section 79.10 of the regulation identifies the fees, costs and payments that are permitted in connection with reverse mortgage loans. The only fee that is permitted prior to closing is an application fee.

Section 79.11 of the regulation sets forth the disclosures that are required for both types of loans.

Section 79.12 of the regulation repeats the statutory' requirement that lenders shall make at least as many 280-a loans as 280 loans provided that there are sufficient applications by

/

creditworthy individuals and that mortgage insurance is available either through the private market or through any agency of the state of New York.

Section 79.13 of the regulation describes the disciplinary action that may be initiated by the Superintendent against any lender that engages in a pattern of conduct that demonstrates the lender's incompetence or untrustworthiness. Disciplinary action includes revocation of a lender's license, charter or approval to make reverse mortgage loans and/or imposition of a fine(s).

Section 79.14 of the regulation sets forth the right of 'the mortgagor(s) to choose a property insurer subject to the lender's consent. If the mortgagor(s) fails to pay the real estate taxes or any required insurance in a timely manner, then the lender may do so and recoup any monies advanced on behalf of the mortgagor(s).

Section 79.15 of the regulation limits a state-chartered banking organization's overall investment in reverse mortgage loans to ten percent of the organization's capital, undivided profits and surplus.

It should be noted that the regulation grants permission to charge a mortgage brokerage fee of up to three percent. In setting the cap, the staff sought to balance the development of a diverse reverse mortgage loan applicant pool while at the same time assuring that the cap would be low enough to discourage anti- consumer practices.

Given that reverse mortgage loans are a new product in New York State, the Banking Department intends to monitor the development of the reverse mortgage loan industry in general and the imposition of fees in particular.

The Notice of Proposed Rule Making appeared in the December 22, 1993 issue of the State Resister. The Notice of Adoption will appear in the May 4, 1994 issue of the State Resister.

~homai L. lark, ~ r . Deputy Superintendent of Banks Secretary of the Banking Board

A NEW PART 79

IS ADDED TO READ AS F0LIX)WS:

REVERSE MORTGAGE LOANS

(Statutory authority: Banking Law Section 6-h, Real Property Law

Sections 280, 280-a)

79.1 Authorization to make reverse mortgage loans

79.2 Definitions 79.3 Approval for mortgage.

bankers and other entities to make reverse mortgage loans

79.4 Procedures 79.5 Requirements for 280

and 280-a loans 79.6 Additional features

of 280 loans 79.7 Additional features

of 280-a loans

79.8 Maintenance of real property securing the reverse mortgage loan

79.9 Termination of 280 and 280-a loans

79.10 Permitted fees, costs and payments

79.11 Required disclosures for 280 and 280-a loans

79.12 Availability of 280 and 280-a loans

79.13 ~dministrative penalties 79.14 Special provisions

regarding payment of real estate taxes and insurance

79.15 Aggregate loan limits for certain lenders

Section 79.1 Authorisation to make roverso mortgage loans.

(a) Notwithstanding any provisions of law or regulation to the contrary, Section 6-h of the Banking Law, Sections 280 and 280- a of the Real Property Law and this Part constitute the exclusive authority for lenders, as that term is defined in Section 79.2 of this Part, to make or participate in reverse mortgage loans and, in connection therewith, to compound interest. General Regulations of the Banking Board Parts 38, 39, 80 and 82 shall not apply to the origination of or participation in reverse mortgage loans.

(b) Neither this Part nor Parts 38, 39, 80 or 82 shall apply to any loan which conforms to the requirements of the Demonstration Program of Insurance of Home Equity Conversion Mortgages for Elderly Homeowners, also known as the llHUD/HECMn reverse mortgage loan program, 12 USC g 17152-20.

Section 79.2 Definitions. For purposes of this Part:

(a) The terms nauthorized lender" or nlenderw shall mean any bank, trust company, national banking association, savings bank, savings and loan association, federal savings bank, federal savings and loan association, credit union, federal credit union, and any licensed mortgage-banker and any other entity approved by the Superintendent for the making of reverse mortgage loans pursuant to Section 79.3 of this Part.

(b) A "280 loann shall be a loan made under section 280 of the Real Property Law.

(c) A 11280-aw loan shall be a loan made under Shction 280-a of the Real Property Law.

(d) The term "reverse mortgage loann shall mean a 280 or 280- a loan which is secured by a first mortgage on real property improved by a one- to-four family residence or condominium that is the residence of the mortgagor(s), the proceeds of which are advanced to the mortgagor(s) during the life of the loan in equal installments, in advances through a line of credit or otherwise, in lump sums, or through a combination thereof. A reverse mortgage loan may be for a fixed to maturity or be a "tenuren loan as those terms are defined in Sections 280 and 280-a of the Real Property Law. A reverse mortgage loan may provide for the purchase of an annuity by the mortgagor(s) or the lender. A reverse mortgage loan may not be secured by certificates of stock or other evidence of ownership interests in and proprietary leases from corporations or partnerships formed for the purpose of cooperative ownership of real property.

(e) The term nmortgagoru in a 280 loan shall refer to a tenant who is sixty (60) years of age or older, or if the real property is held by tenants by the entirety or by joint tenancy, the youngest of whom is sixty (60) years of age or older.

(f) The term "mortgagorn in a 280-a loan shall refer to a tenant who is seventy (70) years of age or older, or if the real property is held by tenants by the entirety or by joint tenancy, the youngest of whom is seventy (70) years of age or older and whose income does not exceed eighty percent of the median income of the county in which he or she resides.

Section 79.3 Approval for mortgage baakers and other entities to make reverse mortgage loans.

(a) For purposes of this Part, in addition to any other requirements of New York law, licensed mortgage bankers, insurance companies, insured branches of foreign banks, nationally based not-. for-profit organizations and consolidated subsidiaries, as that term is defined in Part 39.2(c) of the General Regulations of the

2 I

Banking Board, of any of the following: insurance companies, banking organizations as that term is defined in section 2 of the Banking Law, foreign banking corporations licensed by the Superintendent or the Comptroller of the Currency to transact business in this state, national banks, federal savings banks, federal savings and loan associations, federal credit unions, or of any bank, trust company, savings bank, savings and loan association, or credit union organized under the laws of any other state must comply with the following requirements before offering reverse mortgage loans:

(1) In addition to the financial responsibility requirements set forth in Section 410.1 of the Superintendent's Regulations, the entities identified in subdivision (a) of this Section shall

' maintain an irrevocable standby letter of credit from a federally or state regulated financial institution in favor of the Superintendent in an amount necessary to fund all reverse mortgage loan requirements anticipated over the next twelve months for loans then on the lender's books and those expected to be made over the next twelve months or three million. .dollars ($3,000,000.00) , whichever is greater. The initial tenn of the letter of credit shall be at least two years.

(2) The financial institution that provides the letter of credit as required in paragraph (1) above may not be affiliated with the lender.

(3) A lender with a rating of either 4A1 or 5Al from Dun 61 Bradstreet Credit Services for three consecutive years is exempt from the requirements set forth in paragraph (1) of subdivision (a) of this section.

(b The lender shall maintain a minimum capital of ten million dollars ($10,000,000.00) .

(C) A lender may rely on the capital of its parent to satisfy the requirements of subdivision (b) above provided that for any year in which a lender seeks to so rely, it shall provide to the Banking Department a certified financial statement of the parent showing a net worth of at least $100,000,000.00 as of the close of its most recent fiscal year and a binding written commitment from the parent to the lender to make a minimum of $10,000,000.00 available to the lender as a capital contribution in connection with its reverse mortgage lending program.

(d) Subdivisions (.a) and (b)-of.this section shall not apply to a lender that:

(1) only originates reverse mortgage loans the proceeds of which are fully disbursed at the loan closing; or

( 2 ) only originates reverse mortgage loans that are sold into

the secondary market to an investor with either a 4A1 or 5A1 rating from Dun & Bradstreet Credit Services. Lenders that make such sales shall be required to obtain a written commitment to purchase such loans from the investor prior to closing and shall arrange for the delivery of such loans to the investor within ten days of the loan closing; or

(3) only originates reverse mortgage loans which are structured to provide for the purchase of an annuity with payments made to the mortgagor(s) where:

(i) the payments are funded solely by the annuity;

(ii) the payments commence no more than thirty days after the " loan closing; and

(iii) the reverse mortgage loan principal is comprised only of the cost of the annuity or the payments made to the mortgagor(s) that are funded by the annuity and any financed fees, costs and payments permitted pursuant to Section 79.10 of this Part.

(e) In addition to the financial requirements set forth above, lenders that seek to originate reverse mortgage loans shall apply by letter application to the Deputy Superintendent of Mortgage Banking for authorization to make such loans. In the absemce of an adverse notice to the lender by the Banking Department within sixty days of receipt by the Banking Department of a letter application and accompanying documents deemed to be complete by the Banking Department, the lender may commence originating reverse mortgage loans.

This letter application shall contain the following information and documents as applicable:

(1) the name, address, telephone number, and principal place of business of the lender;

(2) the name of an executive officer responsible for the lender's reverse mortgage loan program;

(3) the basis for any exemptions from the financial requirements set forth in subdivisions (a) and (b) above and documentation to support such exemptions;

(4) if no exemption is claimed from subdivision (a), a copy of the standby letter-of credit;

(5) if no exemption is claimed from subdivision (b), an audited financial statement for the fiscal year most recently ending ;

(6) a copy of the report issued by A.M. Best Company;

(7) the designation by any out of state lender of the Superintendent as agent for service of process for any matter arising from a reverse mortgage loan made to a New York resident;

(8) a copy of any trust agreement entered into between the lender and a trustee pursuant to subdivision (0) of Section 79.5;

(9) the name, address, telephone number, and principal place of business of-any trustee and a designation by any out of state trustee of the Superintendent as agent for service of process for any matter arising from a reverse mortgage loan made to a New York resident ;

(10) a copy of the Lender's Limited Waiver of the Right of Foreclosure; and 1

(11) such other information and documents as shall be requested by the Superintendent.

Sect ion 79.4. Procedures.

(a) All lenders must provide a toll-free telephone number and the name of a person to whom applicants and mortgagors may address questions, comments or complaints. If there is no toll free telephone number, then the lender shall accept collect calls.

(b) All lenders shall maintain their books and records relating to the making of reverse mortgage loans for a three-year period in a manner permitting inspection by the Superintendent. The Superintendent is authorized to inspect such books and records upon reasonable notice. Landers shall bear all costs and expenses relating to such inspection.

(c) In the case of an out-of-state lender, the entity shall designate the Superintendent as - agent . for service of process in connection with any reverse mortgage loan transaction.

(d) All lenders shall, upon request, furnish copies of its mortgage loan forms and other documents to the Banking Department for review.

(e) No lender shall accept telephone applications, provided, however, that this shall not limit a lender's ability to solicit and accept inquiries about its products from potential borrowers.

(f) No lender shall request or accept a confession of judgment from an applicant or mortgagor(s).

Sect ion 79.5 Requirements for 280 and 2800. loans. All 280 and 280-a loans shall comply with.the following requirements:

(a) The security instrument shall expressly and conspicuously

bear a legend identifying the security as a reverse mortgage.

(b) All lenders must comply with all applicable federal laws and regulations, including but not limited to the applicable sections of the Truth in ending Act, the Equal Credit Opportunity Act and the Real Estate Settlement Procedures Act.

(c) Prior to the closing of a reverse mortgage loan, the only charge a lender may collect from an applicant(s) is an application fee which must be designated as such and which may not be a percentage of the principal amount of the loan or amount financed. The fee shall be reasonably related to the services to be performed.

(d) The max& loan to value ratio for any loan projected at the time of loan closing shall not exceed eighty percent (802) of the anticipated value of the property at anticipated loan maturity or at any time prior thereto. The loan to value ratio shall be calculated by dividing the numerator, as defined in (1) below, by the denominator, as defined in (2) below. ,

(1) The numerator of the ratio shall include all principal, all accrued loan interest, all fees, costs and payments incurred in connection with the origination of the loan including but not limited to charges for the purchase of annuities, the payment of real estate taxes and insurance to the extent that an escrow account is established to fund real estate tax and insurance obligations or the lender has committed to advance funds to pay for such taxes and insurance on the property securing the reverse mortgage and any shared appreciation assuming (a) no early prepayment of the reverse mortgage loan, (b) any loan amounts, such as credit lines and reserve accounts, which may be drawn at the discretion of the mortgagor(s) or by the lender are drawn fully at the earliest opportunity, (c) the current interest rate if fixed or, if variable, the yearly -.average-of - the- base index and margin chosen by the lender for the eight year period preceding the loan closing and (d) if applicable, a projected appreciation or depreciation rate for home prices which is determined by the same factor as is used in the denominator set forth in paragraph (2) of subdivision (d) of this section.

(2) The denominator of the ratio shall be determined by increasing or decreasing the appraised value of the real property (as determined at loan closing by an independent certified or licensed appraiser as provided for in Section 6-E of the Executive Law) by a factor that the creditor reasonably believes will be the average annual increase or decrease in the value of the real property securing the reverse mortgage loan from the loan closing until the anticipated loan maturity; provided, however, that this factor shall in no event exceed the average of the yearly changes, in the Consumer Price Index for Shelter for either the Buffalo Area or New York-Northern New Jersey-Long Island-Connecticut Area for

the eight years preceding the year in which the loan is made. In determining which of the two Areas to use, the lender shall use either the Area in which the real property is located or the Area which is closest to the real property.'

( 3 ) For a term loan, the anticipated loan maturity shall be the date of matarzty of the. loan.

(4) Fora tenure loan, the superintendent may, in his or her discretion, review and approve the data and assumptions used to establish the anticipated loan maturity for. each reverse mortgage loan.

(e) As an alternative to subdivision (d) above, the parties may agree that the total obligation of the mortgagor(s) to the lender arising from the reverse mortgage loan shall be no greater than eighty percent (80%) of the actual value of the property at maturity or the amount of the original loan principal at loan closing whichever is greater. The eighty percent (80%) cap shall be exclusive of any actual losses incurred by the lender as a direct result of a breach of a loan covenant by the mortgagor(s). The difference between the principal and accrued interest and eighty percent (80%) of the actual value of the property at maturity shall be known as "equity participationM.

(f) The mortgagor(s) may prepay any loan without penalty at any time. The payment of any fees or charges, such as a termination fee, that otherwise would be due at maturity without prepayment shall not be deemed a penalty for these or any other purposes.

(g) All lenders shall be prohibited from using or attaching any property or asset of the mortgagor except the real property securing the reverse mortgage loan in satisfaction of a reverse mortgage obligation.

(h) In the event that a lender fails to make or remit to the mortgagor(s) any payment required under any loan within fifteen (15) days of its due date, the lender shall forfeit twice the interest that would have been earned on the outstanding loan principal for the entire period during which payments were suspended, ceased or made late.

(i) All lenders must deliver to all applicants a statement, if available, prepared by the local or county office for the aging on the advisability and availability of-independent counseling and

h his information is published by the United States Department of Labor from material compiled by the New York State Department of Labor, Division of Research and Statistics.

information services. In addition, no reverse mortgage loan commitment or approval shall be issued by a lender until the applicant presents a written statement that the terms of the reverse mortgage loan have been explained by an attorney, a housing and urban development certified counselor or any other counseling service as indicated on the statement supplied by the county or local office for the aging or a signed affidavit indicating that the applicant, although made aware of the importance of counseling and its local availability through the provision of such information by the lender, chooses not to utilize any of the aforementioned available services.

(j) At the end of the term for all 280 and 280-a term loans, the mortgagor(s) may request that the real property securing the loan be reappraised to increase the payments" made to the mortgagor(s) or to extend the loan term. Except for term loans insured by any agency of the State of New York, such reappraisal may be performed at the lender's sole discretion. In all cases, the lender may require the mortgagor(s) to pay the cost of such reappraisal in advance. In the event the value of the property has increased, the lender may increase the loan payments or extend the loan term (and, for term loans insured by any agency of the State of New York, must increase the loan payment(s) or extend the loan term) , subject to the following:

(1) The loan-to-value ratio limitations, as determined pursuant to this Part as of the date on which the increase or extension would begin, shall not be exceeded.

(2) Any existing insurance coverage shall be increased to insure the additional amounts to be due.

(3) The mortgagor(s) shall execute all documents reasonably requested by the lender and pay all reasonable fees and costs associated with the increase. in- payments-or. the extension of the loan term provided that such fees and costs have been previously disclosed in writing to the plortgagor(s).

(k) The lender and the mortgagor(s) may agree to establish a reserve account which may be drawn upon by the mortgagor(s) or the mortgagee to maintain the structural integrity of the real property subject to Section 79.8, to pay real estate taxes or the premium on any required insurance subject to Section 79.14 or for any personal expenses of the mortgagor(s). The reserve account may bear interest at a rate that is different from the interest rate on other advances made pursuant to the terms of the reverse mortgage. A lender may only charge interest on advances actually made from the reserve account and not on the entire balance in the reserve account.

(1) The security agreement must include the following:

(1) a list of termination events; and

(2) the lender's obligation to notify the mortgagor(s) in writing of any event that could lead to termination pursuant to Sections 79.9(4) and 79.9(6) of this Part; and

(3) the name of a third-party, if any, chosen by the mortgagor(s) to whom the lender is obligated to send written notice of any event that could lead to termination pursuant to Sections 79.9(4) and 79.9(6).

(m) The lender shall also provide a copy of all foreclosure J documents served on the mortgagor(s) to such third party designated

in the qecurity agreement simultaneously with service on the mortgagor(s) or notify the local or county office for the aging of its intent to connnence foreclosure proceedings if the mortgagor has not named a third-party or if the third party can not be contacted.

(n) Interest shall only accrue from the time monies are advanced to or on behalf of the mortgagor(s). Accrued interest may be added to the loan principal.

(0) A reverse mortgage loan which provides for the purchase of an annuity shall comply with the following conditions.. -as applicable:

(1) the company that issues the annuity must have a rating of excellent or superior from A.M. Best Company and must be licensed by the State of New York; and

(2) if a trustee holds the annuity in trust during the life of the mortgagor(s), then

(i) the .trustee must be a banking organization or an insurance company which is incorporated, chartered; organized or licensed under the laws of this state or any other state or the United States;

(ii) any out of state trustee. must appoint the Superintendent as agent for service of process for any matter arising from a reverse mortgage loan made to a New York resident;

(iii) the trust agreement must provide that it is governed by New York law;

(iv) payments- derived from the annuity must be paid by the trustee or the insurance company directly to the mortgagor(s) irrespective of whether the payment is made on behalf of the lender or investor; and

(v) 'the mortgagor(s) must have a beneficial interest in the. '

trust irrespective of whether the lender or investor also has a

beneficial interest in the trust.

section 79.6 Additional features of 280 loans.

(a) The lender mair maintain an escrow account for purposes of paying real estate taxes and insurance on the real property securing the loan.

(b) The.- security agreement may provide that the lender receive a percentage of the future appreciation of the real property securing the loan, i. e., '"shared appreciationN, in addition to or in lieu of fixed or variable rate interest. Such appreciation shall not be considered interest for purposes of any .law regulating the maximum rate of interest which may be charged, taken or received, including pursuant to sections 190.40 and 190.42 of the Penal Law. Loans which contain "equity participationn as provided for in Section 79.5(e) of this Part may not provide for any other forms of equity sharing or shared appreciation.

(c) The lender may require the mortgagor(s) to obtain mortgage insurance for the principal and any accrued but unpaid interest which insurance shall run to the mortgagee as beneficiary.

Section 79.7 Additional features of 280-a loans.

(a) The lender shall maintain an escrow account for purposes of paying real estate taxes and insurance on the real property securing the loan during the time period during which payments are made to the mortgagor(s).

(b) All mortgagor(s) shall retain the right to lifetime possession of the real property which serves as security for the loan, as long as such real property remains the mortgagor(s), principal residence and subject to section 79.9 of this Part.

(c) A lender may, at its option, for the period of time commencing at the end of the loan term, or ten years after the reverse mortgage loan commences, whichever occurs first, and ending at such time as the reverse mortgage loan is paid in full, receive no more than twenty percent of the future appreciation of the property securing the loan, i.e., "shared appreciationM, or charge a fixed rate of interest on the outstanding balance of monies advanced under the loan or any combination thereof. Such appreciation shall not be considered interest for purposes of any law regulating the maximum rate of interest which may be charged, taken or received, including pursuant to Sections 190.40 and 190.42 of the Penal Law. Loans which contain "equity participationw as provided for in section 79.5 (e) of this Part may not provide for any other forms of equity sharing or shared appreciation..

(d) The mortgagor (s) shall maintain mortgage insurance for the principal and any accrued but unpaid interest which insurance

shall name the mortgagee as beneficiary. This requirement shall not apply to any loan which is sold into the secondary market provided that the lender shall obtain a written commitment to purchase such loan from the investor prior to the loan closing and shall arrange for the delivery of the loan to the investor within ten days of the loan closing.

(e) Prior to offering reverse mortgage loans, all lenders must prepare a form entitled "Lender's Limited Waiver of the Right of Forecl~sure~~ for review and approval by the Superintendent to ensure m a t this document sets forth the termination events, as applicable, pursuant to Section 7 9 i 9 of this Part. This document shall be executed by the lender in connection with the closing of every 280-a loan. The lender shall furnish a copy of the executed form to every mortgagor(s) at closing and shall keep the original form on file for the life of the loan.

Section 79.8 Maintenance of real property securing reverse mortgage loans.

(a) Mortgagor(s) shall be required to maintain the structural integrity of the real property securing the reverse mortgage loan in the same condition as the property is in at the time of closing or after repairs have been made for which funds have been disbursed or set aside at closing for later disbursement. For purposes of this section, repairs necessary to maintain the structural integrity shall be limited to repairing structural problems threatening the continued viability of the structure as a residential unit and those matters which, without repair, will threaten to materially damage the property or its market value.

(b) If the mortgagor(s) fails to make a repair required to maintain the structural integrity of the real property in a timely manner, the lender may arrange for such repair and pay for it in the following ways:

(1) by deducting necessary amounts from a reserve fund;

(2 by withholding from one or more monthly payments otherwise due to the mortgagor(s) no more than 25% of each such monthly payment; or

(3) by adding the amount to the loan principal. If a reserve fund has been established, then, to the extent

possible, the lender must deduct the cost of the repair from such fund before choosing option (2) or (3) above. If a reserve fund has not been established, then the lender may choose whether to proceed according to option (2) or (3) or a combination thereof.

(c) Prior to making or charging the mortgagor(s) for a repair, necessary to maintain the structural integrity of the real property, the lender shall notify the mortgagor(s) of the problem

and, and unless a threat of imminent danger to life or property exists, provide the mortgagor(s) ninety days to make the repairs. If the repairs are not completed by the mortgagor(s) in a satisfactory manner prior to the end of the appropriate period, the lender may take such steps as it views reasonably necessary to maintain the structural integrity of the real property and charge the mortgagor(s) for all reasonable expenses.. If an imminent danger to life or property exists, the lender may proceed to remedy the structural integrity of the real property on as little as forty-eight hours notice to the mortgagor(s).

(d) The lender shall have the right to inspect the real property securing the loan on seventy-two (72) hours notice but not more often than is reasonably necessary to assure the continued structural integrity of the real property.

Section 79.9 Tannination of 280 and 280-a lours.

(a) 280 and 280-a loans may be terminated by the lender solely in the event of any of the following:

(1) the sale, comreyance, transfer or assignment of any part of the real property securing the loan or any--of the mortgagor's rights in the real property, whether voluntarily or involuntarily, or by operation of law;

(2) the mortgagor(s) , death, or if there is more - than one mortgagor, then the death of the last living mortgagor;

(3) the mortgagor(s) ceases to use the real property as his or her principal place of residence defined as living and sleeping quarters for 90 consecutive days in any 365 day period without notifying the lender and making arrangements satisfactory to the lender for the maintenance of the real property and the anticipated return of the mortgagor (-s)-.

The lender's consent to the arrangements made pursuant to this paragraph shall not be unreasonably withheld;

(4) the mortgagor(s) ceases to use the real property as his or her principal place of residence defined as living and sleeping quarters in excess of 180 days in any 365 day period;

(5) the mortgagor(s) fails to pay real estate taxes or maintain all insurance required pursuant to the security agreement.

(i) If the mortgagor(s) fails to pay taxes or maintain all required insurance, then the lender must within ten business days of learning of such event, give written notice of such failure to the mortgagor(s) and the third-party, if any, designated by the, mortgagor(s) to receive notice of any event that could lead to termination. If the mortgagor(s) has not named a third-party or if

the third-party can not be contacted, then the lender shall give written notice of such failure to the local or county office for the aging. The lender must give the mortgagor(s) thirty (30) calendar days to cure such failure. In addition, the notice to the mortgagor(s) and the third party must advise the mortgagor(s) of his or her right to cure.

(ii) The failure to pay taxes or maintain all required insurance shall not be construed to be a terqination event unless the lender has complied with the provisions set forth in subparagraph (i) above.

(6) the mortgagor(s) (i) filing a voluntary petition in bankruptcy or effecting a plan or other arrangement with "creditors under court supervision, (ii) having an involuntary petition in bankruptcy filed against the mortgagor that is not discharged within 90 days after it is filed, or (iii) applying for or permitting the appointment of a receiver, trustee or custodian for the real property securing the loan which is not discharged within 90 days after the date of appointment; provided, however, that the appointment of a conservator, guardian, committee or other fiduciary of the person to act on the mortgagor(s) behalf in connection with a determination by a court that the mortgagor(s) is incompetent will not terminate the loan.

( 7 ) the mortgagor(s) fails to maintain the structural integrity of the real property, as that term is defined in Section 79.8 of this Part.

(b) For a 280 loan, if applicable, the expiration of the term may also terminate the reverse mortgage loan.

(c) The mortgagor(s) or his or her estate shall notify the lender, in writing, immediately upon the occurrence of any event listed in subdivision (a) of this Section.

Section 79.10 Permitted fees, costs and payments.

(a) Other than principal, interest, shared appreciation and equity participation, lenders may charge, in connection with the origination of reverse mortgage loans, the following fees, costs and payments, as applicable, at closing, and none other, provided that the lender has disclosed them pursuant to Section 79.11 of this Part and provided further that the costs or payments are actually paid by the lender to a third-party provider:

(1) an application fee, which may be collected prior to closing, as limited by the provisions of Section 79.5(c) of this Part ;

(2) a loan origination fee;

(3) the cost of document preparation which is reasonably related to the services provided;

(4) the cost of appraising or surveying the property;

(5) the cost of a title examination, an abstract of title or title insurance;

(6) the cost of a tax search for tax liens existing at the time of closing if such search is not included in the title examination;

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

(8) the cost of recording the reverse mortgage loan;

(9) the cost of actual attorney's fees charged to the lender in connection with the closing of such loan;

the cost credit report ;

(11) the cost of a flood zone search;

(12) the cost of an inspection to be paid in connection with the origination of the loan but not subsequent to the loan closing;

(13) the payment to purchase an annuity;

(14) the payment for any repairs contracted for at or before the loan closing irrespective of whether such repairs are completed at time of closing and/or whether the funds are held in escrow;

(15) a one-time payment for a tax reporting service;

(16) the cost of purchasing mortgage insurance;

(17) the payment of real estate taxes and property insurance; and

(18) the cost of mortgage'brokerage services, not to exceed three points based on the value of the real property securing the reverse mortgage loan at the time of loan closing, as such service is defined in Part 38 of the General Regulations of the Banking Board and which service is rendered by an entity authorized by Article 12-D of the Banking Law.

(b) During the life of the loan, lenders may charge the following fees or require the mortgagor(s) to incur the following costs or payments:

(1) the cost of purchasing additional mortgage insurance;

14 I

margin chosen by the lender for the eight year period preceding the loan closing and assuming the maturity of the loan at expiration of the term. For tenure reverse mortgage loans, the same disclosures shall be made, except that maturity shall be assumed at the actuarial life expectancy of the mortgagor, or, if there is more than one mortgago~, the younger of the mortgagors.

(13) If the lender is an entity identified in section 79.3 of this Part, the following notice, or a notice to like effect:

THE LENDER MAKING THIS REVERSE MORTGAGE LOANS IS IN COMPLIANCE WITH THE CRITERIA ESTABLISHED BY THE NEW YORK SUPERINTENDENT OF BANKS FOR THE MAKING OF SUCH IBANS.

(14) If applicable, the availability of an annuity, whether an annuity will be required, and if there is an annuity, then when the annuity payments will commence, who will own the annuity and the affiliation, if any, between the lender and the company from which the annuity is purchased.

(15) Whether an escrow account will be established, for what purposes and when the account will be terminated.

(16) Whether a reserve fund will be established and for what purposes.

(17) Whether and what type(s) of insurance will be required and the cost of any premiums.

(18) Whether the mortgage broker or any entity acting in a mortgage brokerage capacity, as a general business practice, utilizes the services of two or fewer lenders, and if so, the name(s) of the lender (s) .

(19) If applicable, that the loan provides for the lender to receive "equity participationM, the maximum total percentage obligation of the mortgagor(s) to the lender arising from the reverse mortgage loan, the minimum amount due at closing, if any, and what is included and what is excluded from these amounts. In addition, the lender shall provide both a narrative explanation and an example demonstrating equity participation.

(20) Such additional information as the lender believes appropriate, as long as such information is complete, accurate and not misleading.

(b) Items (1) through (3) must be furnished to the mortgag- or(s) on a separate sheet. Items (4) through (6) must be furnished to the mortgagor(s) on a separate sheet and in bold type. (c) Prior to an applicant's receiving counseling pursuant to Section 79.5(i) of this Part, if available, the lender shall

17 I

furnish for term loans, a schedule of estimated payments to the mortgagor(s) and the total payment in dollars over the term of the loan. For tenure loans, a schedule of estimated payments to the mortgagor(s) shall be furnished. The lender shall label such schedules as "estimates". - If counseling is not available, the lender shall make the foregoing disclosure prior to or simultaneously with the approval of the application.

(d) Six months prior to the end of a term loan, the lender 'shall disclose, in writing, if applicable, (1) that the mortgag- o r ( ~ ) will be responsible to make real estate tax and insurance payments and (2) that the mortgagor(s) will have to vacate his or her home upon the expiration of the term and the exact date that such move-out is required.

Omction 79.12 Availability of 280 md 280-a loans.

(a) Commencing January 1, 1995, a lender shall make at least as many 280-a loans as it makes 280 loans per calendar year. However, a lender need not do so to the extent that it determines that there are no or insufficient applications for 280-a loans, the individuals who apply for 280-a loans do not qualify for such loans, or mortgage insurance for the principal and any accrued but unpaid interest for 280-a loans is not available for the type of reverse mortgage loan made by the lender through the private market or any agency of the State of New York. Such determination shall be subject to review by the Superintendent at his or her discretion.

(b) A lender shall:

(1) advertise its 280-a loan programs to the same extent as it advertises its 280 loan programs in all the counties in which the lender makes 280 loans; and

(2) ensure that all advertising materials, including brochures, for any reverse mortgage loans designed specifically for New York residents mention both the lender's 280-a and 280 loans and prominently display or state the lender's name; and

(3) make its promotional materials on its 280-a loans available to the local and county offices for the aging and the New York State Off ice for the Aging, to the extent reasonably requested by them, in all counties in which the lender makes 280 loans; and

(4) require its loan officers to inform applicants for 280 loans of the lender's 280-a loan programs.

(c) All lenders shall maintain copies of all advertising and promotional materials for all reverse mortgage loans for a period of three years commencing from the first date that the material was' used to solicit reverse mortgage loans.

18 I

(d) All lenders must maintain an application log for all applications. In addition, the lender must maintain rejected mortgage application files.for a minimum of three years.

(e) Any lender may, at its option, offer only one reverse mortgage loan program provided such program meets the requirements of a 280-a loan.

(f) Loans made pursuant to 12 USC 5 17152-20 do not fulfill the requirement that a lender shall make at least as many 280-a loans as it makes 280 loans unless the loan would otherwise qualify in all respects as a 280-a loan.

Section 79.13 ~dministrative penalties.

(a) Any lender may be subject to disciplinary action as may be determined to be appropriate by the Superintendent for engaging in a pattern of conduct that demonstrates the lender8s incompetence or untrustworthiness. Such conduct includes but is not limited to a pattern of unjustified late payments, the failure to provide proper disclosures, the receipt of unauthorized fees, the failure to maintain the required line of credit, any violation of the procedures set forth above and the failure to perform all required duties in an honest, fair and reasonable manner.

(b) Prior to revoking a lender's license, charter or approval to make reverse mortsase loans pursuant to Section 79.3 of this - - Part or imposing any fine, thh Superintendent shall hold an administrative hearing in accordance with Supenrisory Policy and Procedure G 111 of this Title.

-

Section 79 .14 Special provisions regarding payment of real es tate taxes and insurance.

(a) Mortgagor (s) shall' have the right to choose- a. property insurer(s) subject to the lender8s consent which shall not be unreasonably withheld. If the mortgagor(s) fails to choose a property insurer(s) in a timely manner or if the insurer(s) is not acceptable to the lender, then the lender may insure the property with a carrier(s) of its choice.

(b) If there is no escrow account, then the lender may advance the funds necessary to pay for such coverage or to pay real estate taxes and to reimburse itself in the following ways:

(1) by deducting necessary amounts from a resenre fund;

( 2 ) by withholding from one or more monthly payments otherwise due to the mortgagor(s) no more than 25% of each such monthly payment; or

(3) by adding the amount to the loan principal. If a reserve fund has been established, then, to the extent

possible, the lender must reimburse itself from such fund before choosing option (2) or (3) above. If a reserve fund has not been established, then the lender may choose whether to proceed according to option (2) or (3) or a combination thereof.

79.15 Aggragate loan limits for cartain landars.

(a) No state-chartered bank, trust company, savings bank, savings and loan association, insured branch of a foreign bank or credit union shall retain as an asset reverse mortgage loans in an aggregate amount exceeding ten percent of the institution's capital, undivided profits and surplus.

(b) For purposes of complying with this Section, the amount of each reverse mortgage loan shall be deemed to be the uninsured loan balance at anticipated loan maturity.

ACKNOWLEDGEMENT OF RECEIPT

I hereby acknowledge the receipt of the following attached packet of materials, which consists of:

1. Notice to applicants

2. Two-page document on counseling

3. List of counselors in my area

4. Counseling statement

5. Counseling waiver affidavit

6. Third-party designation form

Date Srgnature

Print Name

Lender:

- New York State Office for the Aging

NOTICE TO APPLICANTS For Reverse Mortgage Loans

Made Under New York State Laws

WHAT ARE Reverse mortgages are a type of home equity conversion plan. REVERSE They are a means of using the equity you have built up in your

MORTGAGES? home as a source of additional income. A financial lending institution will make cash loans to you that will be charged against your home's value. Interest and fees are also charged on these loans. Generally, you do not pay back these loans until you are no longer living in your house or have transferred the title to your house. Depending on the type of reverse mortgage, certain age requirements will apply.

NEW YORK In 1993, a law was passed (Chap. 61 3 of the Laws of 1993) that STATE'S NEW makes reverse mortgage loans more widely available to elderly

LAW -- homeowners in New York State. The new law allows only authorized financial lending institutions to make reverse mortgage loans, provides basic terms and conditions under which such loans must be made, and provides new and enhanced consumer protection.

INFORMATION The law requires that, at the time of application, the financial y o u MUST lending institution offering reverse mortgages under the new law

RECEIVE BEFORE must deliver to you a statement on the advisability and A MORTGAGE availability of reverse mortgage counseling services and agencies.

The law also requires that no reverse mortgage commitment or CAN BE MADE -- approval can be issued by a lender until you have signed either:

+ A statement indicating that the terms of the reverse mortgage loan have been explained to you by a U.S. Department of Housing and Urban Development certified counselor, an attorney or any other reverse mortgage counseling service; or An affidavit that you chose not to use counseling services.

These documents are included with this NOTICE.

ALSO PROVIDED WITH THIS NOTICE -- + A l ist of questions to help applicants make decisions about receiving counseling. + A l ist of locally available counselors.

New York State Office for the Aging

REVERSE MORTGAGE COUNSELING

A REVERSE Reverse mortgages are a means of using the equity you have built up in your MORTGAGE IS home as a source of additional income. A financial lending institution will

A COMPLEX lend money to you that will be charged against your homeG value. lnterest FINANCIAL and fees are also charged on these loans.

TRANSACTION

REVERSE For most people, their home is their single most important investment.

MORTGAGE According to the American Association of Retired Persons: "Decisions about

COUNSELORS the use of home equity are among the most important you will ever make."

PROVIDE You will need answers to many questions before you decide if a reverse

INFORMATION mortgage is for you. Reverse mortgage counselors provide information about

AND reverse mortgage loans and can answer your questions. Consider these

ASSISTANCE P uestions-- they may help you decide whether you need additional ~nformation from an impartial counselor:

Which types of reverse mortgages are available in my community? Not all types of reverse mortgages will be offered in each community. Each lending institution can offer a variety of reverse mortgage plans.

Which is better - a fixed rate or an adjustable rate of interest? lnterest on reverse mortgage loans i s compounded over the life of the loan and paid to the lending institution when the reverse mortgage loan principal becomes due.

Are there additional costs and fees associated with a reverse mortgage? Besides interest on the loan, there are many other costs associated with taking out a reverse mortgage, such as loan origination fees, mortgage brokerage service fees, application fees, insurance premiums, closing costs, or termination fees. Some are payable when the loan is initially closed and others may be added to the loan principal to be paid when the entire loan is due.

I s a reverse mortgage the best way to meet my need for additional money? 'there are services and benefits other than reverse mortgages that are available for senior citizens, including housing, social services, health and financial options.

Which type of reverse mortgage is best for me and my spouse? There are different types of reverse mortgages, including .those insured by the U.S. Department of Housing and Urban Development. The specific benefits and risks to a borrower will differ from one type to another.

Can a reverse mortgage be extended when the original term expires? I s purchasing an annuity as part of a reverse mortgage a good option for me?

Buying an ar~nuity may or may not be part of a lender's reverse mortgage plan.

New York State Office for the Aglng 2

How does a reverse mortgage loan get repaid? What will happen to my home when the loan balance is due to be paid?

Will I lose my home if I take an extended vacation, or are temporarily absent from my home due to illness, or don't live there for a period of months?

Reverse mortgage contracts can allow a lender to declare the mortgage to be due and payable immediately if a borrower is absent for a specified period of time or i f a borrower fails to take certain actions to protect the property (e.g., pay taxes, maintain the property).

How will a reverse mortgage affect my eligibility for public assistance programs such as Medicaid, Veterans Benefits, or Food Stamps?

REVERSE MORTGAGE COUNSELORS CAN HELP --

There are community-based agencies that have been certified by the U.S. Department of Housing and Urban Development as reverse mortgage counselors. These counselors are available to explain to you about the different types of reverse mortgage loans, about the benefits and risks for your specific situation, and about other assistance programs that are available to you as alternatives to reverse mortgage loans. Services from these reverse mortgage counselors are generally free of charge.

Other entities or individuals provide reverse mortgage counseling for a fee. These include attorneys, financial advisers, and accountants who have had extensive experience in analyzing reverse mortgage instruments. You should also consult your tax, legal or financial advisers, or other appropriate authorities regarding tax and estate planning consequences of a reverse mortgage loan and the effect of these loans on entitlement programs.

REMEMBER- Under the Federal Truth-in-Lending Act, a borrower has the right to cancel any credit transaction that involves a security interest in his or her residence within three days of enacting such a transaction.

COMPLAINTS- A lending institution is required to disclose to each reverse mortgage applicant its toll-free telephone number and the name of a person to whom applicants and borrowers can address questions, comments or complaints. If there i s no toll-free number, the lender must state that it will accept collect calls. In addition, written complaints can be sent to NYS Banking Department, Mortgage Banking Division, 2 Rector St., New York, NY 10006.


REVERSE MORTGAGE COUNSELORS IN YOUR AREA Below are the names and addresses of counseling services located in your locality:

A ency Name A 8 dress

Contact Person Phone

A ency Name A % dress




A ency Name A % dress




LOCAL OFFICE FOR THE AGING Address

Contact Person Phone:

Provision of this list is not an endorsement or promotion of any of the listed counseling services.


WAIVER OF COUNSELING AFFIDAVIT

COUNTY OF ) ss.:

STATE OF NEW YORK )

I (we) , being duly sworn, depose and

say that:

+ I am a resident of county.

+ I own the premises located at

+ On (date), I inquired about or applied for a reverse mortgage loan with

referred to as the "lender."

+ On (date), I was given a packet of information by the lender which

contained the following documents:

4 Notice to applicants;

4 Two-page document on counseling;

4 List of counselors in my area;

4 Statement to be signed by applicant(s) that I have obtained counseling;

4 Affidavit to be signed by applicant(s) that I have chosen not to obtain counseling;

4 Third-party designation form.

+ I have read the materials described above thoroughly and completely, including the statement that advises me of the importance of obtaining independent counseling and information on reverse mortgages before entering into a reverse mortgage loan.

+ Although I have been made aware of the importance of counseling and of its local availability through the the information contained in this packet, I have chosen to not consult with an

attorney or utilize any of the available counseling services.

Applicant Signature

- -

Applicant Signature

Sworn to before me

this day of , 199 - Notary Public


COUNSELING STATEMENT

I (we) state as follows:

+ I reside in county.

+ I own the premises located at

+ On (date) , I inquired about or applied for a reverse mortgage loan with , referred to as the "lender."

+ On (date), I was given a packet of information by the lender which contained the following documents:

+ Notice to applicants; Two-page document on counseling;

+ List of counselors in my area; Statement to be signed by applicant(s) that I have obtained

counseling; + Affidavit to be signed by applicant(s) that I have chosen not to obtain

counseling; + Third-party designation form

+ I have read these documents thoroughly and completely, including the statement that advises me of the irr~portance of obtaining independent counseling and information on reverse mortgages before entering into a reverse mortgage loan.

D On or about (date), 1 obtained independent counseling on reverse mortgage loans from (attorney), who fully and completely explained the terms of the reverse mortgage loan to me.

D On or about (date), I obtained independent counseling on reverse mortgage loans from (counselor), who explained the benefits, costs, terms and other features of different types of reverse mortgage loans to me.

Date:

Applicant Signature


Applicant Signature

THIRD-PARTY NOTIFICATION

The New York State Reverse Mortgage Law allows you to designate a third party to receive legal notices relating to foreclosure proceedings issued by a lending institution. In other words, if the lender starts a foreclosure proceeding against you (the borrower), the lender must send or serve you with certain legal documents. If you make a third-party designation, the lender must also send the same or similar documents to the person you designate.

If you decide to make a designation, consider the following:

+ Does this person have regular contact with me? Will this person know my whereabouts or travel plans? + Is this person available to assume the responsibilities of a third-party designee? + Is this person reliable and capable of handling these responsibilities? + Has this person agreed to be my third-party designee?

You can revoke a designation or change your designee at any time. If you make a designation, forward a copy of the designation to the person you designate.

0 I (we) hereby designate the following person to act as m third-party desi nee pursuant to State Reverse Mortgage Law, as amendedY [Real Property aw, s.280(2)(0; s.280-a(2)(m)] :

k

Name of Designee:

Address:

Telephone Number:

a I (we) choose not to make a third-party designation at this time.

Date Signature of borrower

New York State Office for the Aging 7

I1 · 2019-10-07 · reverse mortgage, certain age requirements will apply. Chapter 613 of the Laws...

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Transcript of I1 · 2019-10-07 · reverse mortgage, certain age requirements will apply. Chapter 613 of the Laws...