New law hurts reverse mortgage loans

OLYMPIA – Whoops.

A law unanimously approved by state lawmakers this spring is having some unintended consequences: It’s making it harder for people to find reverse mortgage loans.

“I think there was a total misunderstanding,” said state Sen. Bob McCaslin, R-Spokane Valley. It was never lawmakers’ intent, he said, to make it harder for senior citizens and others to get such loans.

Reverse-mortgage loans are still available, regulators and brokers say. Scott Jarvis, director of the state Department of Financial Institutions, said that only one company has told the regulatory agency that it’s getting out of the reverse mortgage lending business because of the new law. The law took effect last week.

“I’m optimistic that the degree of impact is not as strong as initially feared,” Jarvis said.

The law has prompted much discussion on mortgage-broker Web sites and at industry meetings in recent weeks.

“It eliminates a number of lenders that we would have used to place loans with,” said Bryan Bledsoe, with Allied Home Mortgage Capital Corp. in Spokane Valley. “Right now, I’m not sure what I can do. I may have to refer them somewhere else.”

Some firms are scrambling to shift such loans to banks, he said, which are not affected by the changes.

Reverse-mortgage loans typically consist of regular payments to the homeowner. They gradually convert the equity in the home to cash. The debt is paid off when the homeowner moves, sells or dies.

Senate Bill 6471 was aimed at a licensing loophole that allowed many mortgage lenders statewide to skirt any government oversight. No one testified against the bill during hearings this winter. It was one of several mortgage reform bills passed by lawmakers worried about the mortgage woes and their affect on the economy.

“There were literally hundreds of companies that were making loans that nobody was looking at – neither the state nor federal government,” said Jarvis.

But in tightening the rules and putting more lenders under the state’s Consumer Loan Act, McCaslin and other critics say, the new law is essentially barring many from offering reverse-mortgage loans. Worried that the changes will squeeze legitimate lenders out of business, McCaslin says lawmaker should immediately modify the law when the next legislative session begins in January.

“We created this mess,” McCaslin said, “and now we owe it to our seniors to make sure we fix it.”

Jarvis said his office is working with brokers and others to try to smooth out any problems. Gov. Chris Gregoire has talked to him about the issue, he said, and said she thinks a fairly-priced, properly-marketed reverse mortgage option should be available to consumers.

“There may be a few companies” affected, particularly by a change in how interest must be calculated, Jarvis said.

“We need to sort through this a bit more,” he said. “We’re optimistic that there’s still going to be quite a bit of (loan) product out there to sell.”

Overall, he said, the bill was a good idea, bringing badly-needed oversight for hundreds of lenders. He said his agency is committed to ironing out any kinks in the law.

“I don’t want seniors to think they can’t find this product,” Jarvis said of reverse mortgages. “It’s out there.”