The Arizona State Capitol Building
A new bill that just passed the House Banking and Insurance Committee in Arizona will seek to grant protections to reverse mortgages carried out by proprietary lenders. While many federal regulations are already in place to protect senior citizens applying for reverse mortgages, these regulations do not automatically apply to proprietary lenders, who are not insured or regulated by the federal government. While the federal cap on reverse mortgages is $625,000, a proprietary reverse mortgage may allow a homeowner to get more money for their home (though often with higher fees). Although loans regulated by the federal government account for 90% of all loans, the proprietary market is growing rapidly, especially as the economy gets worse and the interest in reverse mortgages rises. As a result, it makes sense that states would choose to extend the federal regulations to all reverse mortgages in the state.
The decision is even more sensible in Arizona, where “uninsured” reverse mortgages are still available in some areas. An uninsured reverse mortgage generally only provides monthly advances and must be repaid in full on a specific date. Since uninsured reverse mortgages do not offer the protection of reverse mortgages (i.e. you can lose your home), it is perhaps even more important for the state to ensure that lendees know what they are getting themselves into.
While there are counterarguments to many of the protections offered by the federal government, for example mandatory counseling by an impartial third party and written disclosure of all the terms and details of the mortgage, these protections help to inform the lendee of the terms of their mortgage. They therefore are basic, helpful requirements, especially in the unregulated world of proprietary loans.
As we have discussed, mortgage fraud is on the rise. Proprietary reverse mortgages are especially subject to fraud on the part of the lender, due to the fact that they are not regulated or insured by the federal government (if at all). If Arizona passes this bill, it will hopefully be a strong step towards protecting lendees from predators who may not have their best interests are heart. The bill will also help ensure that reverse mortgages are safely available to all those who qualify.