PROVIDENCE – A bill intended to protect homeowners applying for reverse mortgages has been passed by both chambers of the General Assembly and now goes before Gov. Donald L. Carcieri.
The Senate last week approved the House bill – 2008 H 7723a, sponsored by Rep. Richard W. Singleton, I-Cumberland – which had already passed the House. An identical Senate bill – 2008 S 2598, sponsored by Sen. David E. Bates, R-Barrington – had previously cleared both chambers.
A reverse mortgage is a type of loan that allows the homeowner to convert a portion of the equity in the home into cash. Unlike traditional home-equity loans or second mortgages, no repayment is required until the borrower no longer uses the home as their principle residence.
The new legislation is in response to a growing concern that some reverse-mortgage lenders are taking advantage of senior citizens.
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Lenders often solicit the elderly for the loans, because reverse mortgages allow seniors to take advantage of their home equity to pay for medical expenses, supplement Social Security or pension payments, and make home improvements.
“While many seniors seem to be pleased with their reverse loans, some end up suffering significant financial hardship as a result of the outrageously high costs that are associated with these loans,” Singleton said in a statement last month.
He cited an AARP study that found the costs of a $181,000 loan issued to a 74-year-old borrower can amount to $30,000 – before interest.
“This legislation protects our seniors by requiring them to be fully aware of the potential consequences of reverse mortgage loans,” Singleton said. “It’s important that we implement the necessary measures to ensure that elderly homeowners don’t lose everything they worked for their entire lives just because they were given misleading or confusing information.”
The new measure – supported by the R.I. Department of Elderly Affairs – mandates that any Rhode Island borrower applying for a reverse mortgage must first complete a counseling program conducted by an agency approved by the U.S. Department of Housing and Urban Development (HUD).
The legislation also requires that all reverse-mortgage loan officers making loans in the state must be registered or licensed in Rhode Island as mortgage loan originators. And it sets specific requirements for pre-closing disclosures, annual account statements and other statements and disclosures.
Additional news and information from the R.I. General Assembly is available at www.rilin.state.ri.us/News.
