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  • NJ A4753
  • Establishes pre-loan counseling requirements and borrower right of rescission for reverse mortgage loans.
In Committee
Crossed OverPassedSignedDead/Failed/Vetoed
2016-2017 Regular Session
This bill establishes pre-loan counseling requirements and a borrower right of rescission in regard to reverse mortgages. A reverse mortgage is a home loan that allows a homeowner to convert a portion of the equity in their home into cash. Under New Jersey law, borrowers of reverse mortgages must be at least 60 years of age or older. The provisions of this bill are designed to inform and educate borrowers about the benefits and consequences of reverse mortgages before a loan is closed, and prevent lenders from misleading borrowers or misrepresenting the reverse mortgage process. Under the bill, a borrower is defined as any individual inquiring about or applying for a reverse mortgage loan, whether or not the loan is granted, and any individual who has obtained a reverse mortgage loan. Under this bill, prior to accepting a final and complete application for a reverse mortgage loan or assessing any fees, a lender must complete certain responsibilities. First, the lender must provide the borrower with a written checklist advising the borrower to discuss the following issues with a reverse mortgage counselor: (1) how unexpected medical or other events that cause the borrower to move out of the borrower's home earlier than anticipated will impact the total annual cost of the reverse mortgage loan; (2) the extent to which the borrower's financial needs would be better met by options other than a reverse mortgage loan, including less costly home equity lines of credit, property tax deferral programs, or governmental aid programs; (3) whether the borrower intends to use the proceeds of the reverse mortgage loan to purchase an annuity or other financial or insurance product and the consequences of doing so; (4) the effect of repayment of the reverse mortgage loan on other residents of the home securing the reverse mortgage loan after all borrowers have died or permanently left the home; (5) the borrower's ability to finance routine or catastrophic home repairs, especially if maintenance is a factor that may determine when the reverse mortgage loan becomes payable; (6) the impact that the reverse mortgage loan may have on the borrower's tax obligations and eligibility for government assistance programs, and the effect that losing equity in the home securing the reverse mortgage loan will have on the borrower's estate and heirs; and (7) the ability of the borrower to finance alternative living accommodations, such as assisted living or long-term care, after the borrower's equity is depleted. Second, the lender must provide to the borrower the names and contact information for at least five counseling agencies domiciled in New Jersey that are approved by the United States Department of Housing and Urban Development to engage in reverse mortgage counseling. Under the bill, the counseling agencies must not receive any compensation, either directly or indirectly, from the lender or from any other person or entity involved in originating or servicing the reverse mortgage or the sale of annuities, investments, long-term care insurance, or any other type of financial or insurance product. In addition, the counseling agencies must neither make loans nor refer borrowers to any person or entity that makes loans. Furthermore, the lender must not pay any counselling service fees to a counseling agency without first informing the borrower in writing that this may create a conflict of interest. And finally, the lender must receive a certification from the borrower or the borrower's authorized representative attesting that the borrower has received in-person counseling on reverse mortgage loans from a counseling agency as described in the bill. The counseling session must include a discussion of the issues listed on the written checklist that is required under this bill to be provided by the lender to the borrower. Under the bill, a certification is only valid if dated at least three business days prior to the close of a reverse mortgage loan and expires 180 business days from the date it was signed by the counselor and borrower. In addition to these responsibilities imposed upon lenders, this bill establishes certain enforcement mechanisms. For example, a reverse mortgage executed with a borrower who has not received pre-loan counseling as outlined in the bill will render the terms of the reverse mortgage void and unenforceable. Also, a failure by a lender to comply with any of the bill's pre-loan counseling requirements may result in a $1,000 civil penalty payable to the borrower. This bill also provides reverse mortgage loan borrowers with a seven day right of rescission after the borrower's acceptance, in writing, of the lender's written commitment to make the reverse mortgage loan. During this time period, the borrower cannot be required to close or proceed with the loan, which allows the borrower more time to deliberately consider the loan contract. The lender must provide the borrower with a written notice regarding the borrower's seven-day right of rescission.
2nd Reading in the Assembly, Financial Institutions and Insurance
Reported out of Assembly Comm. with Amendments, 2nd Reading  (on 11/30/2017)
Date Chamber Action Description
11/30/2017 A Reported out of Assembly Comm. with Amendments, 2nd Reading
11/30/2017 Assembly Financial Institutions and Insurance Hearing (19:00 11/30/2017 The committee will also consider A-5198 (pending intro and refer)
3/20/2017 A Introduced, Referred to Assembly Financial Institutions and Insurance Committee
Date Motion Yea Nay Other
Detail 11/30/2017 Assembly Financial Institutions and Insurance Committee: Reported with Amendments 9 1 3