Reverse mortgage regulations will not be tightened anytime soon.
Available to people 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, reverse mortgages must be paid in full when the borrower moves or dies.
The loans can provide a safety net for many older Minnesotans hit hard by the economic downturn. However, advocates of tighter standards say some borrowers have become victims of unscrupulous lenders or financial counselors who target the product to people who don’t really need it or who have sold borrowers other financial products, such as annuities, paid from the loan proceeds. In some cases, closing costs have exceeded the amount of the loan, and interest rates may be considerably higher than other loans.
A bill sponsored by Rep. Jim Davnie (DFL-Mpls) and Sen. Tarryl Clark (DFL-St. Cloud) to tighten the rules was vetoed by Gov. Tim Pawlenty.
The governor’s veto message said he shares lawmakers’ goal of trying to protect borrowers from predatory lending practices, but thinks the legislation could have triggered unintended consequences and increased costs to consumers. He singled out a “suitability” requirement that would have required lenders to make a determination about whether a reverse mortgage is suitable for a particular borrower, as not being clearly defined.
“The suitability criteria in the bill should be clear and specific,” he wrote. “The standard set forth in this bill is vague and will spawn litigation.”
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