HB 1196
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
First Reader
House Bill 1196 (Delegate Adams)
Economic Matters
Commercial Law - Credit Regulation - Reverse Mortgage Loans Act - Revisions
This bill restructures and expands the Reverse Mortgage Loans Act (RMLA). Among other
things, the bill requires a reverse mortgage borrower to be at least 60 years old and to
occupy (as a principal residence) the dwelling that secures the reverse mortgage loan. The
bill also modifies lending requirements for reverse mortgages (e.g., by specifying
additional disclosures and notifications that must be provided to the borrower, requiring
the lender to assess a borrower’s ability to repay, specifying permissible fees that may be
charged by a lender, and other related provisions). The definition of “reverse mortgage
loan” is expanded to clarify the conditions under which the loan must be repaid.
Fiscal Summary
State Effect: The bill’s imposition of existing penalty provisions does not have a material
impact on State finances or operations. The Office of the Attorney General, Consumer
Protection Division, and the Office of the Commissioner of Financial Regulation can
handle the bill’s requirements with existing resources.
Local Effect: The bill’s imposition of existing penalty provisions does not have a material
impact on local government finances or operations.
Small Business Effect: Potential meaningful.
Analysis
Bill Summary:
Definition of Reverse Mortgage
The expanded definition specifies that a reverse mortgage requires no payment of principal
or interest until:
the last surviving borrower dies;
the borrower’s principal residence is sold or otherwise transferred;
the dwelling that secures the loan is no longer the borrower’s principal residence;
the borrower fails to occupy the dwelling within or during specified timeframes; or
the borrower defaults under the terms of the loan.
For the purpose of determining a borrower’s eligibility and benefits for a State
means-tested program, as defined by the bill, payments from a reverse mortgage are treated
as proceeds from a loan and not as income. Similarly, undisbursed funds are treated as
equity and not as proceeds from a loan.
Disclosure Requirements
The bill establishes several new disclosure and notification requirements for reverse
mortgage lenders. For example, at the time the lender or arranger of financing provides an
application for a reverse mortgage loan to a prospective borrower, the lender (or arranger
of financing) must provide a disclosure that explains any adjustable interest rate feature of
the loan, including (1) the circumstances under which the interest rate may increase; (2) any
limitations on the amount that the interest rate may increase; and (3) the effect of an
increase in the interest rate. The lender or arranger of financing must also provide specified
contact information for at least five counseling agencies. Additional disclosures, generally
related to the borrower’s liability under the reverse mortgage, are required (1) at least
10 days before the closing day for the reverse mortgage and (2) annually during the term
of the reverse mortgage.
Before signing a reverse mortgage loan application, the prospective borrower must meet
with a counseling agency and discuss each item in a checklist required under current law.
The counseling agency must provide additional disclosures related to the tax and
inheritance implications of a reverse mortgage.
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After accepting, in writing, a lender’s written commitment to make a reverse mortgage
loan, the borrower may not be bound to the loan for at least seven days. A borrower may
not waive this provision.
A lender who fails to make loan advances as required in the loan documents, and fails to
cure an actual default after notice as specified in those loan documents, forfeits to the
borrower three times the amount wrongfully withheld, plus interest at the legal rate.
Permissible Fees
A lender (or an arranger) of financing is authorized to collect the actual expenses that the
lender (or arranger of financing) incurs in originating and closing the reverse mortgage
loan, including (1) a fee for the arranger of financing if the arranger of financing and the
lender do not share any pecuniary interest and (2) the actual amount that the lender paid
for specified items.
Ability to Repay
Before loan approval, the lender must assess the financial capacity of the borrower to
comply with the terms of the reverse mortgage loan and evaluate whether the loan is a
sustainable solution for the borrower. The financial assessment must consider certain
factors (such as the borrower’s credit history). In addition, the financial assessment must
meet specified federal requirements (or lender or investor financial assessment
requirements that are reasonably similar to the federal requirements).
Initiation of Foreclosure Proceedings
In the event of a loan default, the bill also specifies certain procedures that must be followed
before foreclosure proceedings can be initiated. Specifically, before a person initiates
foreclosure proceedings on a reverse mortgage loan, the person must (1) send the borrower
written notice that states the grounds for default and foreclosure and (2) provide the
borrower at least 30 days to cure the borrower’s default.
Reverse Mortgage Lien
The bill establishes that a reverse mortgage constitutes a lien against the subject property
to the extent of all advances made under the loan documents (regardless of the purpose of
the advance). The lien (and all interest accrued on advances) must have priority over any
lien filed or recorded after recordation of a reverse mortgage.
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Invalidation of Lien
An arrangement, transfer, or lien subject to the bill’s requirements may not be invalidated
solely because of the failure of a lender comply with a provision of RMLA. However, this
requirement does not preclude the application of any other civil remedies provided by law.
Current Law: A “reverse mortgage loan” is a nonrecourse loan that is secured by the
borrower’s principal dwelling; provides the borrower with purchase money proceeds, a
lump sum payment, periodic cash advances, a line of credit, or any combination of those
payments based on the equity in or value of the borrower’s principal dwelling; and requires
no payment of principal or interest until the full loan comes due and payable.
A lender that offers or makes a reverse mortgage loan secured by a dwelling in the State
must conform to federal regulations governing federally insured Home Equity Conversion
Mortgages (HECM loans) (HECM loans are federally insured reverse mortgages). RMLA
applies to proprietary loans, which are not subject to federal regulation, as well as to
federally insured HECM loans. However, a proprietary reverse mortgage loan is not subject
to specified federal regulations that:
limit origination fees;
impose maximum claim amounts or other loan limit restrictions; or
require specified insurance for the loan.
The bill repeals the provisions related to the applicability of federal regulations, but
incorporates many of the federal regulatory provisions within RMLA.
Sales of Financial and Insurance Products – Prohibitions
A lender is prohibited from requiring a borrower to purchase an annuity, a long-term care
policy, or other financial or insurance product as a condition of receiving a reverse
mortgage loan. A lender is also prohibited from referring a borrower to any person for the
purchase of an annuity or any other financial product before the later of the closing of the
reverse mortgage loan or the expiration of the borrower’s right to rescind the loan
agreement. However, a lender is not prohibited from offering to a borrower, or referring a
borrower to a person for the purchase of, title insurance, hazard, flood, or other peril
insurance, or other similar products that are customary under a reverse mortgage loan.
Required Disclosures and Counseling
At the time a lender receives an application for a reverse mortgage loan, the lender must
provide the prospective borrower with a checklist advising the borrower to discuss certain
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issues that may affect a borrower’s ability to manage a reverse mortgage loan with a
housing counselor.
Penalties
With respect to a federally insured HECM loan, if the lender violates any provision of
RMLA, the lender is subject to the penalties applicable under federal law. With respect to
a proprietary loan, if the lender violates RMLA’s provisions, the lender is subject to the
enforcement and penalty provisions of the Maryland Consumer Protection Act, excluding
that Act’s criminal penalty provisions.
Maryland Consumer Protection Act
An unfair, abusive, or deceptive trade practice under the Maryland Consumer Protection
Act (MCPA) includes, among other acts, any false, falsely disparaging, or misleading oral
or written statement, visual description, or other representation of any kind which has the
capacity, tendency, or effect of deceiving or misleading consumers. The prohibition against
engaging in any unfair, abusive, or deceptive trade practice encompasses the offer for or
actual sale, lease, rental, loan, or bailment of any consumer goods, consumer realty, or
consumer services; the extension of consumer credit; the collection of consumer debt; or
the offer for or actual purchase of consumer goods or consumer realty from a consumer by
a merchant whose business includes paying off consumer debt in connection with the
purchase of any consumer goods or consumer realty from a consumer.
The Consumer Protection Division is responsible for enforcing MCPA and investigating
the complaints of aggrieved consumers. The division may attempt to conciliate the matter,
issue a cease and desist order, or file a civil action in court. A merchant who violates MCPA
is subject to a fine of up to $10,000 for each violation and up to $25,000 for each repetition
of the same violation. In addition to any civil penalties that may be imposed, unless
otherwise specified, any person who violates MCPA is guilty of a misdemeanor and, on
conviction, is subject to a fine of up to $1,000 and/or imprisonment for up to one year.
Small Business Effect: Any small business reverse mortgage lenders in the State are
affected by the bill, which makes significant changes to the State’s reverse mortgage
lending standards and requirements. However, the Department of Legislative Services
advises there is insufficient data to determine exactly how many small business lenders in
the State may be affected by the bill’s changes and how significantly the bill may affect
the operations of such businesses.
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Additional Information
Prior Introductions: None.
Designated Cross File: SB 457 (Senator Feldman) - Finance.
Information Source(s): Judiciary (Administrative Office of the Courts); Maryland
Department of Labor; Department of Legislative Services
Fiscal Note History: First Reader - February 15, 2021
an/mcr
Analysis by: Eric F. Pierce Direct Inquiries to:
(410) 946-5510
(301) 970-5510
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Statutes affected: Text - First - Commercial Law - Credit Regulation - Reverse Mortgage Loans Act - Revisions: 12-1201 Commercial Law, 12-1202 Commercial Law, 12-1203 Commercial Law, 1-715 Commercial Law, 1-715 Commercial Law, 1-715 Commercial Law, 12-1204 Commercial Law, 1-715 Commercial Law, 12-1205 Commercial Law, 12-1206 Commercial Law, 1-715 Commercial Law, 12-1207 Commercial Law, 12-1208 Commercial Law, 12-1209 Commercial Law, 12-1210 Commercial Law, 12-1211 Commercial Law, 12-1212 Commercial Law, 12-1213 Commercial Law, 12-1214 Commercial Law, 12-1215 Commercial Law, 12-1216 Commercial Law, 1-715 Commercial Law, 12-1217 Commercial Law