Pennsylvania state official takes aim at reverse mortgage counseling in newly proposed bill designed to reduce ‘gotchas’ of engaging with reverse mortgage products by limiting counseling process to face-to-face sessions to face only in the state. That’s according to documents released by the office of sponsor representative Morgan Cephas (D) and a letter she wrote to the state legislature.
Currently, the only state in the country that requires face-to-face counseling sessions for reverse mortgages is Massachusetts, a territory that has been beleaguered by issues after that requirement clashed with health guidelines and security tactics. attenuation of viruses arising from coronavirus COVID-19. pandemic from March 2020.
Although Representative Cephas’ proposed legislation in Pennsylvania allows for certain exceptions that are not codified in Massachusetts law, the reverse mortgage industry is still seeking to engage with her office to determine how industry participants and l trade association might be able to support his efforts.
Reverse Mortgage Advice Bill proposal
In a memorandum to all members of the Pennsylvania House of Representatives on Jan. 19, Cephas describes the economic hardships facing seniors across the state as a potential catalyst for more of them explore reverse mortgage options, and why a new counseling requirement should be sought by lawmakers.
“Today, many Pennsylvanians are facing economic hardship. In response, some of our seniors have decided to take out reverse mortgages, which allow them to borrow against the equity in their homes in exchange for a lump sum, fixed monthly payment, or line of credit,” the Cephas rep wrote in the letter. “While this may help seniors access their assets without selling their homes, many may end up paying more than before, and some may even lose their homes.”
Indicating that many older people may not be aware of how a reverse mortgage could impact their financial situation, Cephas’ proposal is designed to increase clarity while also allowing for other forms of advice. if an in-person meeting cannot proceed.
“Pennsylvania seniors should be made aware of the potential downsides before taking out a reverse mortgage,” she writes. “That’s why I’m introducing a bill that would require in-person counseling with a licensed financial adviser before starting a reverse mortgage. If the meeting cannot take place in person, the potential borrower could also meet with an advisor by telephone or videoconference.
Her letter ends with a request for the co-sponsors to join her in introducing a bill to the chamber. As a bill has not yet been presented, it is not yet made public.
The Cephas office also released a Press release to inform the public of its efforts regarding a possible Reverse Mortgage Advice Bill, again outlining the need to clarify for older people the ways in which a reverse mortgage could impact their financial situation and of accommodation.
“Reverse mortgages can help some seniors overcome financial hardship,” Cephas said. “But for some seniors and their families, reverse mortgages can be confusing financial tools that are expensive, even costing their homes. These contracts can be difficult to manage, especially for our most vulnerable populations. Understanding how a reverse mortgage works is essential, which is why I will be introducing legislation to ensure seniors are educated about reverse mortgages before they get one.
Cephas ends its public announcement by reiterating the need for seniors to fully understand reverse mortgages.
“I want older people in my district and across the Commonwealth to get the support they need as they make life-changing decisions,” Cephas said in its announcement. “This legislation will help ensure they receive the support they deserve.”
RMD contacted the office of the Cephas representative but had no response at press time.
Reverse Mortgage Industry Response
When reached for comment, National Reverse Mortgage Lenders Association (NRMLA) President Steve Irwin described for RMD that the trade association is aware of the effort and will seek to engage directly with the representative. Cephas.
“I know State Rep. Morgan Cephas is preparing a bill to introduce. While Rep. Cephas indicates that the bill would require face-to-face counseling, she also indicates that there would be exceptions to the requirement,” Irwin said. “The NRMLA is preparing contacts with the sponsor of the bill to seek clarification and find ways to support this bill.”
Support would of course depend on the wording of the bill as it goes to the legislature, Irwin said, in which case it will go through the committee review process.
“The NRMLA will coordinate with our National and Local Matters Committee once we can determine the legislative intent and actual content of the bill.”
RMD contacted reverse mortgage professionals active in Pennsylvania, who warned of the potential effects such a bill could have on business in the state. Some have expressed concern about the potential duplication of problems in Massachusetts, including Steve Broaddus, country manager of the reverse mortgage team at First Alliance Home Mortgage in Richboro, Penn.
“Some of the potential issues that come to mind here locally would include a lack of advisers,” Broaddus told RMD. “This would be a reality not only in populated areas where demand would be higher, creating an appointment backlog, but even worse in some of the rural parts of the states where housing counselors may not even exist locally.”
A concern about advisor availability was also shared by Jason Eichmiller, reverse mortgage professional at Key Home Lending in Ambler, Penn.
“Much of Pennsylvania is extremely rural,” he said. “It wouldn’t be a stretch for some Pennsylvania residents in the Poconos or the central part of the state to have to travel for hours to meet with a counselor.”
Counseling Requirements, Problems in Massachusetts
Reverse mortgage counseling is a requirement for any borrower entering into a home equity conversion mortgage (HECM) transaction, as dictated by the US Department of Housing and Urban Development (HUD). Counseling must be carried out by an independent third party and must be followed by all borrowers, co-borrowers, non-borrowing spouses, custodians, guardians and proxies for any borrower unable to attend a counseling session alone.
The industry has also largely replicated this requirement for its exclusive offerings designed to serve higher value homes. Rep. Cephas does not mention existing counseling requirements in her letter to the legislature or in her press release about her current legislative effort.
In Massachusetts – the only state currently requiring face-to-face advice on reverse mortgages – business there was effectively suspended in March 2020 when physical distancing and other virus mitigation measures clashed. with the requirement of face-to-face counselling. There was no codified alternative for scenarios in which a face-to-face session could not take place. An emergency bill passed by the legislature restored operations until June 2021, when a further extension was put in place until December 2021.
That extension has since expired, again hampering the ability to do business in the state while industry players await further legislative action on the issue, which has seen COVID-19 cases rise dramatically over the past the wave caused by the more virulent Omicron variant of the virus.