N.Y. Comp. Codes R. & Regs. tit. 3 § 79.5

Current through Register Vol. 46, No. 45, November 2, 2024

Section 79.5 - Requirements for reverse mortgage loans

All reverse mortgage loans shall comply with the following requirements:

(a) The security instrument shall expressly and conspicuously bear a legend identifying the security as a "reverse mortgage;"

(b) The mortgagor may prepay any reverse mortgage loan without penalty at any time. The payment of any fees or charges, such as a termination fee, that otherwise would be due at maturity without prepayment shall not be deemed a penalty for these or any other purposes;

(c) Mortgagees shall be prohibited from using or attaching any property or asset of the mortgagor except the real property securing the reverse mortgage loan;

(d) In the event that a mortgagee fails to make payment of or remit to the mortgagor any monies required under any reverse mortgage loan within 15 calendar days of its due date, the mortgagee shall forfeit twice the interest that would have been earned on the outstanding loan principal for the entire period during which payments to the mortgagor were late, unless the mortgagee otherwise has the right to terminate the reverse mortgage loan pursuant the "Lender's Limited Waiver of the Right of Foreclosure" executed in accordance with section 79.7(d) of this Part and due notice has been provided to the mortgagor or authorized designee;

(e) No reverse mortgage loan commitment or approval shall be issued by a lender until the applicant presents a counseling acknowledgment (herein defined), provided in accordance with 79.9(a)(4) of this Part and including the name address telephone number and signature of the applicant and, if applicable, the non-mortgagor spouse and the housing counselor, as well as, the date of the counseling which must be no more than 6 months prior to the date of the signing of the commitment.

(1) A HUD Certificate of HECM Counseling may be substituted for the counseling acknowledgment for R PL 280 -b loans.

(2) All completed counseling acknowledgments and HUD Certificates of HECM Counseling shall be maintained by the mortgagee, for inspection by the superintendent, in an accurate, reproducible, and accessible format for the entire term of the reverse mortgage loan, and thereafter in accordance with applicable statutes;

(f) Interest shall only accrue from the time monies are actually advanced to or on behalf of the mortgagor. Accrued interest may be added to the loan principal;

(g) A reverse mortgage loan which provides for the purchase of an annuity shall comply with the following conditions as applicable:

(1) the company that issues the annuity must have a rating of excellent or superior from A.M. Best Company and must be licensed by the State of New York; and

(2) if a trustee holds the annuity in trust during the life of the mortgagor, then:

(i) the trustee must be a banking organization or a trust company which is incorporated, chartered, organized or licensed under the laws of this State or any other state or the United States;

(ii) pursuant to section 131(3) of the Banking Law, any out-of-state trustee must appoint the superintendent as agent for service of process for any matter arising from a reverse mortgage loan made to a New York resident;

(iii) the trust agreement must provide that it is governed by New York law;

(iv) payments derived from the annuity must be paid by the trustee directly to the mortgagor irrespective of whether the payment is made on behalf of the mortgagee; and

(v) the mortgagor must have a beneficial interest in the trust irrespective of whether the mortgagee also has a beneficial interest in the trust.

(h) Except for purchase money reverse mortgage loans, the issuance of a commitment is a prerequisite to the closing of any reverse mortgage loan and an applicant (or mortgagor) shall not be bound for 3 business days after acceptance, in writing, of such commitment during which time, such applicant (or mortgagor) reserves the right to cancel the commitment but may still be responsible for fees actually paid to third parties. An applicant may not waive the provisions of this subsection.

(i) A mortgagee may, at its option, for the period of time commencing at the end of the loan term, or 10 years after the reverse mortgage loan commences, whichever occurs first, and ending at such time as the reverse mortgage loan is paid in full, receive no more than 20 percent of the future appreciation of the property securing the loan, i.e., "shared appreciation," or charge a fixed rate of interest on the outstanding balance of monies advanced under the loan or any combination thereof. Such appreciation shall not be considered interest for purposes of any law regulating the maximum rate of interest which may be charged, taken or received, including pursuant to sections 190.40 and 190.42 of the Penal Law. Loans which contain "equity participation," may not provide for any other forms of equity sharing or shared appreciation.

(j) All mortgagor shall retain the right to lifetime possession of the real property that serves as security for a reverse mortgage loan, as long as there is no event that would allow the mortgagee to terminate the reverse mortgage loan pursuant to the "Lender's Limited Waiver of the Right of Foreclosure" executed in accordance with section 79.7(d) of this Part.

(k) The security agreement must include the following:

(1) a list of termination events;

(2) the mortgagee's obligation to notify the mortgagor or authorized designee, in writing, of any event that could lead to termination; and

(3) the name of a third-party, if any, chosen by the mortgagor as an authorized designee to whom the mortgagee is obligated to send written notice of any event that could lead to termination.

(l) Reverse mortgage loan applicants are required to wait 3 days after submitting an application before signing a commitment or in any way proceeding with a reverse mortgage loan. The 3-day period cannot be waived.

(m) Requirements Specific to R PL 280 and R PL 280 -a loans

(1) the maximum loan to value ratio for any loan at the time of loan closing shall not exceed 80 percent of the anticipated value of the property at anticipated loan maturity or at any time prior thereto. The loan to value ratio shall be calculated by dividing the numerator, as defined in paragraph (i) of this subdivision, by the denominator, as defined in paragraph (ii) of this subdivision.

(i) The numerator of the ratio shall include all principal, all accrued loan interest, all fees, costs and payments incurred in connection with the origination of the loan including but not limited to charges for the purchase of annuities, the payment of real estate taxes and insurance to the extent that a set aside account is established to fund real estate tax and insurance obligations or the lender has committed to advance funds to pay for such taxes and insurance on the property securing the reverse mortgage loan and any shared appreciation assuming:

(A)no prepayment of the reverse mortgage loan;

(B) any loan amounts, such as credit lines and set aside accounts, which may be drawn at the discretion of the mortgagor or by the mortgagee are drawn fully at the earliest opportunity;

(C) the historical interest rate if fixed or, if variable, the yearly average of the base index and margin chosen by the lender; and

(D)if applicable, a projected appreciation or depreciation rate for home prices which is determined by the same factor as is used in the denominator set forth in paragraph (2) of this subdivision.

(ii) The denominator of the ratio shall be determined by increasing or decreasing the appraised value of the real property (as determined at loan closing, or no earlier than 30 calendar days prior, by an independent certified or licensed appraiser as provided for in article 6-E of the Executive Law) by a factor that the creditor reasonably believes will be the average annual increase or decrease in the value of the real property securing the reverse mortgage loan from the loan closing until the anticipated loan maturity; provided, however, that this factor shall in no event exceed the average of the yearly changes in the Consumer Price Index for the geographic area closest to the real property for the eight years preceding the year in which the loan is made without the superintendent's prior written approval.

(iii) For a term reverse mortgage loan, the anticipated loan maturity shall be the date of maturity of the loan.

(iv) For a tenure reverse mortgage loan, the superintendent may, in his or her discretion, review and approve the data and assumptions used to establish the anticipated loan maturity for each reverse mortgage loan.

(2) As an alternative to subdivision (1) of this section, the parties may agree that the total obligation of the mortgagor to the mortgagee arising from the reverse mortgage loan shall be no greater than 80 percent of the future appraised value of the property at maturity, calculated in accordance with the standards set forth in subsection (1)(i) above. The 80 percent cap shall be exclusive of any actual losses incurred by the mortgagee as a direct result of a breach of a loan covenant by the mortgagor. The difference between the principal and accrued interest and 80 percent of the actual value of the property at maturity shall be known as "equity participation."

(3) At the end of the term for all R PL 280 and R PL 280 -a term loans, the mortgagor may request that the real property securing the loan be reappraised to increase the payments made to the mortgagor or to extend the loan term. Except for term loans insured by any agency of the State of New York, such reappraisal may be performed at the mortgagee's sole discretion. In all cases, the mortgagee may require the mortgagor to pay the cost of such reappraisal in advance. In the event the value of the property has increased, the mortgagee may increase the loan payments or extend the loan term (and, for term loans insured by any agency of the State of New York, must increase the loan payment(s) or extend the loan term), subject to the following:

(i) The loan-to-value ratio limitations, as determined pursuant to this Part as of the date on which the increase or extension would begin, shall not be exceeded.

(ii) Any existing insurance coverage shall be increased to insure the additional amounts to be due.

(iii)The mortgagor shall execute all documents reasonably requested by the mortgagee and pay all reasonable fees and costs associated with the increase in payments or the extension of the loan term provided that such fees and costs have been previously disclosed in writing to the mortgagor.

(4) A lender must, in accordance with the financial assessment form provided by the Department, review all applicants for financial fitness as it relates to the payment of an applicant's property charges. In the event that the results of the financial assessment require a set aside account to be established, such account may bear interest at a rate that is different from the interest rate on other advances made pursuant to the terms of the reverse mortgage loan. A mortgagee may only charge interest on advances actually made from the set aside account and not on the entire balance in the set aside account.

N.Y. Comp. Codes R. & Regs. Tit. 3 § 79.5

Adopted New York State Register July 29, 2020/Volume XLII, Issue 30, eff. 7/29/2020