FHA Advises Reverse Lenders to...?

FHA lenders in Massachusetts have a new set of rules governing the writing of reverse mortgages.  As of right now, however, there is no clear information as to whether the law is actually in effect.  First a summary of the law, and then an explanation as to why it might not matter for a long time.

In July the Massachusetts Legislature passed An Act Relative to Mortgage Foreclosures which requires in-person counseling from an approved housing counselor for anyone receiving a reverse mortgage loan in the state.  Reverse mortgages are FHA loans available to homeowners over the age of 62 which allow them to draw down the equity in their home either in monthly installments or a lump sum with no payment required as long as the senior is living in the house.  While the loans can be a boon to persons struggling financially to stay in their homes there are ramifications for estate planning and for family members who may be living in the house but not on the deed.

The Act's in-person counseling requirement applies to applicants for a reverse mortgage who, at the time of application, have a gross income of less than 50 percent of the area median income and possess assets excluding the primary residences valued at less than $200,000.

Under the Act, the terms of a reverse mortgage executed with a mortgagor who did not receive the appropriate counseling are unenforceable and additional regulations from the Massachusetts Division of Banks make issuing a loan without providing the counseling grounds for termination of a lender's reverse mortgage program approval and may also trigger fines and administrative penalties.

Now for the confusing part. The bill, with an effective date of August 1, 2012 was passed on July 26 and sent to Governor Deval Patrick for signature.  However, the legislature passed a second bill on that same date which changed the effective date of the first bill to August 1, 2014.  Absent a signature or a veto from Patrick, both bills automatically become law in ten days.

Now we will just let FHA explain what is going on.

"As of late afternoon July 31, 2012, the Governor had not signed the Bill. As a result, effective August 1, 2012, reverse mortgage lenders must comply with the Act's in-person counseling requirements until the Governor signs the Bill. As drafted, the Bill delaying the Act's in-person counseling requirements becomes effective immediately once the Bill becomes law. However, the provision delaying the effective date of the Act's in-person counseling requirement is not retroactive and will not apply during the period from August 1, 2012 until the bill is enacted."

FHA advises reverse mortgage lenders and counselors to be prepared to comply with the counseling requirements as of August 1 in the event the governor signs the bill.  If he takes no action for ten days after receiving the bill, "the in-person counseling requirement will apply on August 1, 2012 and be effective until August 6, 2012 then delayed until August 1, 2014.

Got that?

However, FHA does assure lenders that seniors who received counseling on or before July 31 and were issued a counseling certificate will not require re-counseling in the event the Governor does not sign the Bill into law on July 31, 2012.

Anyone reading this will be forgiven if they are now reciting under their breath an old Abbott and Costello routine that once applied only to baseball.