Minnesota’s legislators and attorney general, concerned about disreputable mortgage brokers and lenders taking advantage of seniors, have introduced a bill that would allow borrowers to rescind a reverse mortgage for up to 30 days.
The legislation, introduced in both the state House of Representatives and Senate yesterday, states that borrowers would be able to rescind a reverse mortgage for up to 30 days after “execution,” a term that suggests rescission could occur after a loan has been made. Once seniors notify the lender that they want out of the loan, they have 15 days to return any money received, according to the legislation, and any mortgage filed in connection with the loan would be null and void upon rescission.
During a press conference yesterday, Minnesota Attorney General Lori Swanson told reporters that the bill was aimed at preventing another subprime crisis in the reverse mortgage industry, according to an account in the St. Paul Pioneer Press.
“Some brokers and lenders who contributed to the mortgage meltdown are now sliding over into the reverse mortgage business, and we need to make sure that history does not repeat itself with imprudent reverse mortgage loans made to seniors,” Swanson said during the press conference.
Beyond the controversial 30-day rescission period, Minnesota’s proposal would make buyers of reverse mortgages responsible for the actions of the originator. The bill also includes a broad suitability requirement, which would require lenders to reasonably believe that reverse mortgages were suitable for borrowers. In addition to requiring independent counseling, the bill would limit the sales of financial products in conjunction with a reverse mortgage.