On March 5, 2020, the New York Department of Financial Services (the Department) adopted emergency regulations, which went into effect immediately, implementing Assembly Bill 5626’s reverse mortgage requirements. WBK previously wrote about Assembly Bill 5626 here. Comments on the emergency regulations may be submitted to the Department by or before May 5, 2020.
The regulations apply to FHA-insured home equity conversion mortgage (HECM) loans made under section 280-b of the New York Real Property Law (NYRPL) and proprietary reverse mortgage loans made under sections 280 and 280-a of the NYRPL.
Some of the key changes made by the emergency regulations include the following:
- Persons licensed to make mortgage loans under the New York Banking Law (NYBL), and exempt organizations, must apply and be granted authority to make reverse mortgage loans, including HECMs, by the Department.
- The regulations describe what must be included in the application for authority to make reverse mortgage loans (Application).
- Any person who was licensed to make mortgage loans under the NYBL, or was an exempt organization, and made HECM loans in New York as of March 5, 2020, must submit an Application by June 5, 2020. However, all such persons may continue to make HECM loans in New York until the earlier of: (i) the date they receive notice that their Application was denied; or (ii) April 5, 2021 or June 5, 2021 (depending on whether the applicant was an exempt organization).
- Reverse mortgage loan documents must include certain specific provisions (e.g., the security instrument must include the name of a third-party, if any, chosen by the borrower as an authorized designee).
- Advertisements may not contain false or misleading statements, and those referencing material terms must include certain disclosures.
- Except for purchase money reverse mortgage loans, the issuance of a commitment is a prerequisite to the closing of any reverse mortgage and the borrower will not be bound for 3 business days after acceptance, in writing, of such commitment during which time, such borrower reserves the right to cancel the commitment but may still be responsible for fees actually paid to third parties.
- The regulations specify the events that may terminate a reverse mortgage loan, which must be listed in the Lender’s Limited Waiver of the Right to Foreclosure disclosure that must be provided to borrowers.
- If the borrower fails to timely maintain the structural integrity of the property securing the reverse mortgage, the lender, after providing notice and receiving consent to enter the property, may arrange for such repair and pay for it by: (i) deducting amounts from a set aside account; (ii) withholding from one or more monthly payments otherwise due to the borrower no more than 25% of each such monthly payment, until the repairs are paid for; or (iii) adding the amount to the loan principal.
- The regulations specify the fees/costs that can be charged with a reverse mortgage loan and clarify the default notice and foreclosure requirements provided in Assembly Bill 5626.
- Numerous new disclosures are now required to be given to borrowers.
- For example, upon accepting an application or charging any authorized fee, each borrower must be given a counseling packet that includes: (i) a counseling statement; (ii) a notice regarding the cooling-off period; (iii) a counseling checklist; (iv) a counseling affidavit; and (v) various additional disclosures specified in the regulations. Lenders must also provide a notice of the borrower’s right to cancel disclosure prior to executing a commitment.
- Pursuant to the regulations, HECMs are also no longer excluded from the disclosure requirements provided in Part 38 of the General Regulations of the Superintendent.
- For proprietary reverse mortgage loans made under sections 280 and 280-a of the NYRPL, a lender must, in accordance with the financial assessment form provided by the Department, review all applicants for financial fitness as it relates to the payment of an applicant’s property charges.
- The regulations also list various prohibited acts in connection with a reverse mortgage loan (e.g., a lender or broker may not accept telephone applications or make a reverse mortgage loan to a borrower who has not been provided a counseling affidavit prior to counseling).