Annuities To Reverse Mortgage Borrowers Out Under FHA Reform
July 28th, 2008
- Origination Caps in Final FHA Reform Package
- The Madoff Affair & Reverse Mortgages
- Reverse Mortgage Fee Limitation Lost In New FHA Reform Bill
- Investing Reverse Mortgage Money in Annuities Can Be Risky
- New Origination Fee Proposed In Senate FHA Reform Measure
The final version of H.R. 3221: The Housing and Economic Recovery Act of 2008, has some real teeth when it comes to selling annuities and other insurance products to reverse mortgage borrowers.
Buried in the 636-page bill is the language below. In basic terms, it says that mortgage lenders are welcome to sell reverse mortgages but they cannot be paid for the sale of insurance products or annuities.
Some seniors have obtained reverse mortgages for the purpose of buying annuities from the same folks who sold them the reverse mortgage — only to discover that the rate of return on the annuity is less than the cost of the reverse mortgage and to also discover that the annuity has a huge prepayment penalty.
This is one the Congress got right. In particular, congratulations and a thank you to Sen. Claire McCaskill (D-MO. She led the effort to block annuity sales to seniors who want reverse mortgages, and in doing so she has helped homeowners nationwide. You can imagine that there are a bunch of people in the insurance industry who are fairly peeved with Sen. McCaskill for having the gall to seek fairness for seniors.
Language from the final FHA bill is below:
(n) Requirements on Mortgage Originators-
(1) IN GENERAL- The mortgagee and any other party that participates in the origination of a mortgage to be insured under this section shall–
(A) not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity; or
(B) demonstrate to the Secretary that the mortgagee or other party maintains, or will maintain, firewalls and other safeguards designed to ensure that–
(i) individuals participating in the origination of the mortgage shall have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product; and
(ii) the mortgagor shall not be required, directly or indirectly, as a condition of obtaining a mortgage under this section, to purchase any other financial or insurance product.
(2) APPROVAL OF OTHER PARTIES- All parties that participate in the origination of a mortgage to be insured under this section shall be approved by the Secretary.
(o) Prohibition Against Requirements To Purchase Additional Products- The mortgagee or any other party shall not be required by the mortgagor or any other party to purchase an insurance, annuity, or other additional product as a requirement or condition of eligibility for insurance under subsection (c).
SEC. 2122. HOME EQUITY CONVERSION MORTGAGES.
(a) In General- Section 255 of the National Housing Act (12 U.S.C. 1715z-20) is amended–(1) in subsection (b)(2), insert `real estate,’ after `mortgagor’,';
(2) by amending subsection (d)(1) to read as follows:
(1) have been originated by a mortgagee approved by the Secretary;’;
(3) by amending subsection (d)(2)(B) to read as follows:
(B) has received adequate counseling, as provided in subsection (f), by an independent third party that is not, either directly or indirectly, associated with or compensated by a party involved in–
(i) originating or servicing the mortgage;
(ii) funding the loan underlying the mortgage; or
(iii) the sale of annuities, investments, long-term care insurance, or any other type of financial or insurance product;