Sen. Leroy Comrie (D) introduced the bill, S2559, on Jan. 21. It seeks to establish a state-level “information summary” for the Federal Housing Administration (FHA)-backed Home Equity Conversion Mortgage (HECM) program.
It would “provide notice of mortgagor’s right and responsibilities under reverse mortgage loans issued under the [HECM] program of the federal Department of Housing and Urban Development (HUD),” and it would require every “authorized lender” in the state to provide copies of these summaries no less than five days before the closing of a HECM loan.
The bill would also establish “a private right of action for violations of such provisions,” according to the bill’s summary.
Previous versions of the bill were introduced in four prior legislative sessions between 2017 and 2024. The current version has been referred to the state Senate’s standing committee on aging.
In the bill’s text, the HECM program is castigated as confusing and full of opaque terminology, which can allegedly cause instability for consumers who seek out such products.
“Reverse mortgages are complicated and expensive financial products,” the bill states in its “justification” section. “Many seniors do not understand how they work or what their true long-term costs are. Exacerbating this problem are unscrupulous lenders who market reverse mortgages as public services or government-sponsored products.”
Citing an increase in reverse mortgage defaults from 2016, the bill says that such an uptick was caused by “inadequate regulation of this industry.” The led more seniors to fall into foreclosure and lose “not only their homes, but also their most significant financial assets.”
It goes on to claim that reverse mortgage foreclosures have taken place against borrowers “for making payments mere cents short of their tax or mortgage insurance bills.” It added that lenders “eager to tap the equity in these homes are sometimes aggressive to foreclose and see a return on their investment.”
This necessitates “comprehensive information about these products” for older clients, which can illuminate a HECM loan’s “true long-term costs, conditions that will result in a default, methods to reduce their tax liability, available services to help them in the event of a default and/or foreclosure, etc.”
The bill does not mention or address reverse mortgage regulations handed down by HUD or FHA since 2016. The bill does mention certain HECM requirements that exist — like the requirement that a borrower undergo counseling from a HUD-approved provider — but it contends that lender-provided informational resources for borrowers are currently insufficient.
“[T]he information summary sheet [would become] an essential component of future reverse mortgages, and requires that the senior sign the sheet confirming receipt and that the originator maintain a copy,” the bill stated. “The section will be enforceable via treble damages and attorney’s fees for prevailing plaintiffs.”
The HECM program has seen a myriad of additional regulations and safeguards introduced over the past several years. These include several reductions to principal limit factors (PLFs), which are designed to reduce risk and losses to the program. PLFs were reduced in 2009, 2010, 2013 and 2017.
FHA handed down a financial assessment requirement in 2014. Provisions designed to allow for more non-borrowing spouses to remain in the property after the death or displacement of the borrowing spouse were implemented in 2015. And a property assessment requirement that sometimes results in the need for a second property appraisal was issued in 2018.
HUD issued a report in late 2023 that assessed the impacts of these policies on the HECM program, finding that most of them had their intended effects.
RMD reached out to Comrie’s office for more information about what led to his decision to introduce the bill but did not receive an immediate reply. An alert sent last week to members of the National Reverse Mortgage Lenders Association (NRMLA) said the trade group and its outside general counsel will review the bill and weigh in once that review is complete, alongside a separate bill recently introduced in Hawaii.
New York state has passed at least two consequential reverse mortgage laws in recent years. In 2019, then-Gov. Andrew Cuomo signed a law that took aim at what supporters called “deceptive practices.” It requires reverse mortgage lenders to provide supplemental consumer protection materials while imposing additional restrictions on lenders related to payments of insurance premiums and property taxes.
Two years later, Gov. Kathy Hochul signed a bill which had a previous version vetoed by Cuomo. This allowed New York residents who are at least 70 years old to take out a reverse mortgage on a co-operative living space, but it is limited to proprietary loans only since FHA does not allow for HECM loans on co-ops.
