The Louisiana legislature recently amended the education requirements under the Louisiana S.A.F.E. Residential Mortgage Lending Act and passed legislation governing reverse mortgages. If you have any questions concerning this memorandum, please contact Laura LaRaia.
LOUISIANA HOUSE BILL 335 (effective August 15, 2010)
The pre-licensing education requirement is now 20 hours (previously 24 hours) and the continuing education requirement is now 8 hours (previously 10 hours).
LOUISIANA HOUSE BILL 1468 (effective August 15, 2010)
Definitions
“Conventional reverse mortgage loan” means a reverse mortgage loan other than a program reverse mortgage loan.
“Program reverse mortgage loan” means a reverse mortgage loan offered under or intended to be insured by the Federal Housing Administration (“FHA”) and regulations and guidance issued by the Secretary of the Department of Housing and Urban Development (“HUD”) or the Commissioner of the FHA.
“Reverse mortgage loan” means a non-recourse loan secured by immovable property that meets all of the following criteria:
- The loan provides purchase money proceeds for the acquisition by a borrower of a domicile to be inhabited by the borrower as his or her principal domicile or cash advances to a borrower based on the equity or value in a borrower’s inhabited principal domicile.
- The loan requires no payment of principal or interest until the entire loan becomes due and payable.
Requirements
A reverse mortgage loan must comply with all of the following requirements:
- Prepayment, in whole or in part, will be permitted without penalty at any time during the term of the reverse mortgage loan. “Penalty” will not include any fees, payments or other charges that would have otherwise been due upon the reverse mortgage being due and payable.
- A reverse mortgage loan may provide for a fixed or adjustable interest rate or combination thereof, including compound interest and may also provide for interest that is contingent on the value of the property upon execution of the loan or at maturity, or on changes in value between closing and maturity.
- A reverse mortgage loan may include costs and fees that are charged by the reverse mortgage lender, or the reverse mortgage lender’s designee, originator or servicer, including costs and fees charged upon execution of the loan, on a periodic basis, or upon maturity.
- If a reverse mortgage loan provides for periodic advances to a borrower, such advances will not be reduced in an amount or number based on any adjustment in the interest rate.
A reverse mortgage loan may become due and payable upon one of the following occurrences:
- The property securing the loan is sold or title to the home is otherwise transferred.
- Any fixed maturity date agreed to by the lender and borrower occurs.
- An event of default specified in the loan document occurs.
Repayment of the reverse mortgage loan will be subject to the following conditions:
- Temporary absences from the home not exceeding 60 consecutive days will not cause the mortgage to become due and payable.
- Extended absences from the home exceeding 60 consecutive days, but less than one year, will not cause the mortgage to become due and payable if the borrower has taken prior action which secures and protects the home in a manner satisfactory to the lender, as specified in the loan documents.
- A reverse mortgage lender will prominently disclose in the loan agreement any interest rate or other fees to be charged during the period that commences on the date that the reverse mortgage loan becomes due and payable, and that ends when repayment in full is made.
- The first page of any mortgage securing a reverse mortgage loan will contain the following statement in 10-point bold face type: “This mortgage secures a reverse mortgage loan.”
A reverse mortgage lender must not:
- Enter into any agreement that would obligate the borrower to purchase an annuity, an investment, or long-term care insurance before the closing of the reverse mortgage or before the expiration of the borrower’s right to rescind the reverse mortgage agreement, if a rescission period applies.
- Refer the borrower to anyone for the purchase of an annuity before the closing of the reverse mortgage or before the expiration of the borrower’s right to rescind the reverse mortgage agreement, if a rescission period applies.
This does not prevent a lender from offering or referring borrowers for title insurance, hazard, flood or other peril insurance, or other similar products that are customary and normal to reverse mortgage loans.
Counseling
Prior to accepting a final and complete application for a conventional reverse mortgage loan or assessing any fees, a reverse mortgage lender must provide the prospective borrower with a list of at least 5 non-profit counseling agencies that have been approved by HUD for counseling and that offer counseling to Louisiana residents. The counseling agencies must meet the standards and requirements established by HUD for reverse mortgage counseling.
In connection with a conventional reverse mortgage loan, a mortgage lender must not pay any counseling service fees without first informing the prospective borrower in writing that this may create a conflict of interest. A reverse mortgage lender must disclose to the prospective borrower in writing any other payment arrangements or business affiliations between the lender and a counseling agency.
A reverse mortgage lender cannot accept a final and complete application for a conventional reverse mortgage loan from a prospective applicant or assess any fees upon a prospective applicant without first receiving a certification from the applicant that the applicant has received counseling from an agency described above. The certification must be signed by the borrower and the agency counselor and must include the date of the counseling and a name, address and telephone number of both the borrower and the counselor. An electronic facsimile copy of the housing certificate satisfies these requirements.
Commitment and Cooling Off Period
In connection with a conventional reverse mortgage loan, at least 7 calendar days prior to closing a reverse mortgage loan, a reverse mortgage lender must provide the borrower with a loan term sheet or commitment letter outlining the proposed terms of the loan and informing the borrower that the borrower is not obligated to proceed with the loan transaction.
Duties to Elders
In addition to any other obligation under law, any reverse mortgage lender who offers, sells or arranges the sale of a reverse mortgage loan to an elder (60 years of age and older) must provide the elder with a notice that the elder should discuss the items below with a loan counselor:
- How unexpected medical or other events causing the borrower to move out of the borrower’s home earlier than anticipated will impact the total annual cost of the reverse mortgage loan.
- The extent to which 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.
- 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.
- The effect of repayment of the reverse mortgage loan on other residents of the domicile that is securing the reverse mortgage loan after all borrowers are deceased or permanently abandon the domicile.
- The borrower’s ability to finance routine or catastrophic home repairs, especially if the maintenance is a factor that may determine when the reverse mortgage loan becomes due and payable.
- 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 domicile securing the reverse mortgage loan will have on the borrower’s estate and heirs.
- The ability of the borrower to refinance alternative living accommodations, such as assisted living or long-term care, after the borrower’s equity is depleted.