Reverse mortgage rules tightened

Though reverse mortgages can provide a safety net for many older Minnesotans hit hard by the economic downturn, they should be a “last resort” for most people, said Shirley Hunt Alexander, American Association of Retired Persons state advocacy chairwoman.

Seniors are increasingly using reverse mortgages “to pay for life necessities such as needed home repairs, health care or long-term care, and sometimes property tax,” Alexander said.

Reverse mortgages are available to people age 62 or older who borrow a lump sum or receive monthly payments or a line of credit against the value of their home while they continue to live there. The loans must be paid in full when the borrower moves or dies.

Rep. Jim Davnie (DFL-Mpls) sponsors HF528, which he calls a “proactive measure” to protect seniors from unscrupulous lenders or counselors who target the reverse mortgages to people who don’t really need them, or who try to sell borrowers other products simultaneously.

The bill calls for a 30-day waiting period during which a borrower could cancel a reverse mortgage, instead of the current three-day period, and would ban the lender from cross-selling other products such as long-term health care insurance or annuities funded by proceeds the reverse mortgage.

The 30-day period troubled opponents, who said it isn’t realistic.

“Reverse mortgages have made a huge difference in my clients’ lives,” said Beth Paterson, executive vice president of Prestige Mortgage, allowing them to retire, pay medical bills and even avoid foreclosure.

She called the 30-day period impossible because the entire time frame of a reverse mortgage transaction from inquiry to closing is usually about that long.

Paterson advocates “testing and licensing of anybody originating a reverse mortgage” to help prevent ill-advised transactions.

Approved March 13 by the House Labor and Consumer Protection Division and March 17 by the House Commerce and Labor Committee, it awaits action by the House Civil Justice Committee. Its companion, SF489, sponsored by Sen. Tarryl Clark (DFL-St. Cloud), awaits action by the Senate Judiciary Committee.