Arizona Enacts Legislation Regulating Reverse Mortgages

On April 23, Arizona Governor Jan Brewer signed into law H.B. 2242, a bill that imposes several substantive requirements on borrowers and loan originators of reverse mortgage loans. With respect to mortgage loan originators, the law sets out a number of requirements throughout the lending process. First, prior to accepting a borrower application, loan originators must (i) provide the borrower with a list containing several housing counseling agencies, and (ii) collect certification of counseling from the borrower. Next, at least 10 days prior to closing, loan originators must inform borrowers that their liability under a reverse mortgage is limited and explain to borrowers their rights, obligations, remedies with respect to (i) temporary absences from the home, (ii) the consequence of late payments and payment defaults, and (iii) all conditions requiring satisfaction of the reverse mortgage obligation. Finally, before closing, loan originators must disclose (i) all costs charged by the originator, specifying which charges are required and which charges are discretionary, (ii) all terms and provisions with respect to insurance, repairs, alterations, payment of taxes, default reserve, delinquency charges, foreclosure proceedings, anticipation of maturity and any additional and secondary liens, (iii) the projected total cost of the reverse mortgage based on the projected total future loan balance for at least two projected loan terms, and (iv) any interest rate or other fees that the originator will charge during the period between when the reverse mortgage is due and payable and when repayment is made in full. In addition, the law prohibits loan originators from assessing prepayment penalties and requiring borrowers to purchase life insurance (or similar product) as a condition for obtaining the reverse mortgage loan. Finally, the law requires borrowers to obtain counseling from a U.S. Department of Housing and Urban Development-approved housing counselor within six months of applying for a reverse mortgage.