Utah Enacts and Amends Reverse Mortgage Act
By Marlana Melendez, J.D.
The Legislature of the state of Utah recently enacted its Reverse Mortgage Act. This act enacts and amends provisions relating to Reverse Mortgages (RM). Some of the highlighted provisions define key terms, provide requirements for reverse mortgages including disclosures, addresses loan proceeds, priority, foreclosure, and lender default. Additionally, the act was amended to address the enforcement of these provisions.
The Act begins by defining key terms used in the statute. These key terms can be found in Part 1 of the Reverse Mortgage Act, known as “General Provisions.”
Borrower Requirements
To be eligible for a reverse mortgage, a borrower must:
• Be 62 years of age or older; and
• Occupy the dwelling that secures the reverse mortgage as a principal residence.
Borrower Disclosures
During the application process for a reverse mortgage, the lender must give the borrower the following written disclosures:
• Explanation of an adjustable interest rate feature of the reverse mortgage;
• A disclosure provided at least 10 days before closing that describes:
o That the prospective borrower’s (PB) liability under the RM is limited;
o The PB’s rights, obligations, and remedies that relate to absences, late payments, and payment default by the lender, and each condition that requires satisfaction of the RM; and
o The projected total cost of the RM to the PB based on the projected total future loan balance.
• An annual disclosure statement that summarizes:
o The total principle amount paid to the borrower under the RM;
o The total amount of deferred interest added to the principal; and
o The outstanding loan balance at the end of the preceding year; and
o If applicable, at least 25 days before the day on which the lender adjusts the interest rate on a RM, a disclosure that states:
The current index amount and the new interest rate.
Borrower’s Counseling
Before the PB signs a RM application, the PB must meet with an independent housing counselor. The PB and the Independent Counselor must discuss the financial impacts of a reverse mortgage, including:
• Options other than a reverse mortgage that are or may become available to the PB;
• Other home equity conversion options that are or may become available to the PB; and
• The financial implications of entering into a RM.
Additionally, the independent housing counselor must also give the PB a written disclosure that states a reverse mortgage may have tax consequences, affect the PB’s eligibility for assistance under certain state and federal programs, and impact the PB’s estate and heirs.
Costs and Repayment
A lender may collect charges and fees relating to the originations of RM. These fees include expenses that the lender incurs during origination, including fees for recording, credit report, survey, title examination, the lender’s title insurance, and an initial appraisal of the real property that secures the RM.
Disbursement
Relating to the disbursement of fees, the lender shall pay the loan proceeds of a RM under a term payment option, a tenure payment option, or a line of credit payment option. Under the term payment option or a tenure payment option, upon the borrower’s request the lender shall disburse a portion of the loan proceeds under a line of credit payment option. Similarly, the lender may pay the loan proceeds in a lump sum if the RM is a fixed interest rate loan.
Closing
After a PB accepts a lender’s written commitment in writing, the lender must wait 7 days after receipt of the written acceptance letter to proceed. Either party may not waive these statutory provisions.
Treatment of Loans Proceeds
In determination of a borrower’s eligibility and benefits for a means tested program of aid to individuals, the loan payment made to the borrower must be treated as proceeds from a loan, rather than income. In addition, the undisbursed funds under a RM must be treated as equity in the borrower’s home, rather than proceeds from a loan.
Priority
All amounts secured by a RM have the same lien priority as the first disbursement under the RM and includes any payment to the borrower form the loan proceeds, regardless of the purpose of the payment.
Foreclosure
Before a foreclosure proceeding can be made, a person initiating the foreclosure proceedings must give the borrower written notice that states the grounds for default and foreclosure. After giving the borrower notice, the borrower has at least 30 days, after the day on which the borrower received the notice, to cure the default.
Lender Default
A lender who fails to make an advance on a non- federally insured loan forfeits any right to repayment of the outstanding loan balance and voids the RM loan agreement.
The following provisions of the Reverse Mortgage Act have been amended. These provisions address prohibited conduct constituting a violation of the statute.
Prohibited Acts
Transacting a Mortgage Loan
Prohibited acts are separated into two parts: prohibited acts as a person transacting the business of residential mortgage loans and prohibited acts as a loan originator.
In part, a person transacting the business of residential mortgage loans may not engage in the following acts:
• Give or receive referral fees;
• Charge a fee in connection with a residential mortgage loan transactions that is excessive or without providing to the applicant a written statement signed by the application containing disclosures;
• Order a title insurance report or hold a title insurance policy unless the person provides to the title insurer a copy of a valid, current license;
• Engage in false or misleading advertising;
• Fail to account for money received in connection with a loan;
• Use money for a different purpose from the purpose for which the money is received; or
• Fail, within 90 days of borrower’s request, to give a copy of an appraisal ordered and used for transaction to the borrower;
• Recommend or encourage default, delinquency, or continuation of an existing default or delinquency, by an applicant on an existing indebtedness before the closing of a residential mortgage loan that will refinance all or part of the indebtedness;
• Pay or offer to pay an individual who does not hold a license for work that requires the individual to hold a license;
• Provide a title insurance product or service without proper approval, in the case of a dual licensed title licensee;
• Represent to the public that the person can or will perform any act of a mortgage loan originator if that person is not licensed;
• Engage in an act of loan modification assistance without being licensed or proper written agreement;
• Engage in foreclosure rescue that requires licensure as a real estate agent or real estate broker, without being licensed.
These prohibited acts also apply to persons who are certified education providers. The statute also provides instances where a lender manager engages in acts that are not considered violations. For example, a reasonable cancellation fee may be charged for work done originating a mortgage if the mortgage is not closed.
A person transacting the business of a loan originator in this state violates the statute by engaging in the following acts:
• Refusing to comply with a rule or order by the commissioner;
• Assisting another person to evade this statute;
• Making any type of false statements, representations, or documentation;
• Knowingly permitting false information to be submitted by a person in a transaction; or
• Failing to respond within the required time period to notices and requests.
Loan Originator
A person in the business of transacting residential mortgage loans as a loan originator may not also act in other capacities such as an escrow agent, real estate agent, general contractor, or title insurance agent. The loan originator must not engage in:
• False or misleading advertisements;
• Fail to account for money received in connection with a mortgage loan;
• Use money for a different purpose than the purpose for which the money is received;
• Retain money paid for services that are not performed;
• Fail to give a copy of an appraisal ordered and used for a residential mortgage loan to the borrower;
• Recommend or encourage default or delinquency by a mortgage applicant; or
• Pay or order to pay an individual to hold a license.
A person acting as a loan processor or underwriter may not represent to the public that they can or will perform any acts of a loan originator. Representation is defined as communicating through the use of business cards, stationary, brochures, signs, rate lists, or other promotional items.
Marlana Melendez, J.D. is Regulatory Compliance Consultant at Bankers Advisory. She is a graduate of University of South Florida, Tampa, and earned her Juris Doctor at New York School of Law. Marlana is admitted to the Bar in Massachusetts and New York. She can be reached at Marlana@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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