A law in New York requiring lenders in the area to notify the Department of Financial Services (DFS) and state mortgage loans of an impending foreclosure against reverse mortgage borrowers was signed by Governor Andrew Cuomo, who approved the measure after both in law establish houses of the state parliament last summer.
The bill, known as A5627 in the State House and S4408 in the State Senate, aims to further regulate home equity loans issued in New York under the Federal Housing Administration (FHA) and U.S. Department-sponsored Home Equity Conversion Mortgage (HECM) and urban development (HUD).
Intent of the new law
“Lenders are now required to notify the Department of Financial Services when they initiate foreclosure proceedings against a borrower, and must also provide the department with evidence that HUD has given prior approval to expedite the loan, proof of late payment and notice to the Borrower and all other information required by the department, ”says Section 1 of the draft law.
It also requests the New York DFS to send a foreclosure notice directly to the borrower while providing resources that the borrower can use to assist them during the foreclosure process.
“This bill is designed to help more seniors avoid foreclosure and stay in their homes,” New York State Senator Andrew Goundares, sponsor of the Senate version of the bill, said in an email to RMD after it was passed this summer .
The bill also requires lenders operating within the state to perform loss mitigation as defined by the DFS prior to foreclosure, and “prevents lenders from prepaying mortgage insurance or tax liabilities,” the bill says.
These new requirements will be conditions that must be met prior to initiating a foreclosure action on a HECM loan and can be enforced by “providing triple damages and legal fees to prevailing plaintiffs,” the bill states.
RMD reached out to reverse mortgage service providers for comment on this new law, but representatives from each company declined, citing a need to further assess the potential impact of this development on their businesses.
New York’s recent history of reverse mortgages
Between late 2019 and mid-2020, New York law related to reverse mortgages changed rapidly. Last December, Cuomo signed far-reaching bill targeting so-called “fraudulent practices” urging reverse mortgage lenders to provide additional consumer protection material while placing additional restrictions on lenders on paying insurance premiums and property taxes.
The passage of this bill and ongoing compliance issues temporarily paused the reverse mortgage business in the New York area as lenders worried about how best to understand the impact the new regulations would have on business. A month later, the origins were largely resumed in New York.
Governor Cuomo, former HUD secretary
As governor, Cuomo is likely more familiar with the HECM program than many of his counterparts in other states, having served as HUD secretary during President Bill Clinton’s second term from 1997 to 2001.
In 2000, then-FHA Commissioner William Apgar for the Senate Subcommittee on Housing and Transportation described the success of the HECM program at the time and described how Clinton’s HUD, under Cuomo’s leadership, prepared a number of “enhancements” to the program. including an increase in the issuing fee to encourage more lenders to enter the room.
Read the text of the recently signed bill in the New York State Senate.