New York State issues notice to reverse mortgage lenders seeking cooperative business
The New York Department of Financial Services (NYDFS) has sent a letter to any state entity that intends to create reverse mortgages on cooperative apartments, which only recently became viable due to the recent passage and codification of a bill specifically allowing such loans in New York.
Since Home Equity Conversion Mortgage (HECM) program rules require “real estate,” only proprietary products can be used for co-ops.
The letter is intended to set NYDFS’ expectations for any businesses considering engaging in such activities, since the new legal provision that allows reverse mortgages on co-op living spaces is set to go into effect May 30.
The letter describes a “pre-existing comprehensive regulatory framework that addresses the marketing, origination and servicing of reverse mortgages in New York,” and that existing law establishes requirements for the marketing, origination, servicing and servicing of reverse mortgages in New York. termination of reverse mortgages in the state. Separate regulations focus more specifically on reverse mortgage marketing requirements, which apply to cooperative loans, except in certain areas.
“The Department is of the view that most of the current requirements for [current regulations] apply to Coop Reverse Mortgages with equal force,” the letter read. “However, certain provisions of this regulation, due to the different nature of the collateral securing the loan, do not apply to Coop reverse mortgages or conflict with the provisions of [the new law].”
NYDFS, meanwhile, will consider any new additions to the current law to accommodate the new ability to create reverse mortgages on co-op units, the letter says. Meanwhile, those preparing to offer such loans on co-ops are required to follow all applicable regulations that govern the practices of marketing, origination, management and termination of reverse mortgages in New York.
If there is an inconsistency between how the new laws and previous laws operate with respect to cooperative lending, the provisions of the new law will prevail in some of those circumstances, the letter says.
“Title 3 of the Code of Rules and Regulations of New York, Part 79 (“3 NYCRR 79”), establishes various requirements relating to the marketing, origination, management and termination of reverse mortgages in New York “, the letter describes the current laws. “In addition, Title 3 of the New York Code of Rules and Regulations, Part 38 (“3 NYCRR 38″) deals with matters involving, among other things, undertakings and advertising for mortgages generally.”
How Current Laws Apply to Co-op Reverse Mortgages
For purposes of Section 3 NYCRR 79 relating to origination, management and termination, the word “reverse cooperative apartment unit loan” will be added to the existing framework to reflect the type of cooperative ownership in existing state reverse mortgage law. A few other specific conditions are also applied retroactively to cooperative loans.
“To comply with the requirements of [the new law], a “housing counselor,” as defined in 3 NYCRR 79.2(k), may only be referred to a borrower if that person has received “cooperative housing training,” the letter read. “The term ‘property charge’, as defined in 3 NYCRR 79.2(p), includes cooperative maintenance charges.”
Naturally, definitions of what constitutes “property” or “real estate” need to be changed to more accurately reflect the nature of a negative amortization loan on a co-op apartment.
“For Coop Reverse Mortgages, the “real estate” or “property” shall be read as “the Cooperative Apartment” or the “shares or membership representing an ownership interest in the apartment unit securing the ‘Coop Reverse Mortgage’, as applicable for the specific requirement to which the language relates,” the letter explains.
The term “HECM loan” as used in the origination, management and termination provisions does not apply to cooperative loans, the letter states, due to the proprietary product restriction.
Authorization to make reverse mortgages on cooperatives, recent history
The criteria that dictate what qualifies as a “permitted lender” for such loans on co-ops will be similar to existing regulations, meaning they must apply for and be granted the right to do so by the NYDFS superintendent, says the letter. Additionally, product providers are reminded that only proprietary products—not Federal Housing Administration (FHA)-sponsored HECMs—are allowed in co-ops.
“As such, entities currently holding “dual reverse mortgage authority” from the [NYDFS] are not required to submit a new application for authorization to engage in Coop reverse mortgage business, as the existing “dual authority” allows the lender to create exclusive reverse mortgages,” the letter states.
As of May 2022, three lenders are currently qualified to offer exclusive reverse mortgages in New York State: Finance of America Reverse (FAR), Nationwide Equities, and Plaza Home Mortgage.
The law authorizing state co-op reverse mortgages — the culmination of a years-long effort by members of the reverse mortgage industry and New York state legislators — has been drafted after a similar bill that would allow reverse mortgages on co-ops failed to overcome a government veto at the time. Andrew Cuomo.
The revised bill passed less than 60 days before Cuomo resigned from office over allegations of sexual misconduct, and appeared to be in legislative limbo precisely because of turnover in the governor’s office.
However, nearly six months after being approved by the State Assembly and State Senate, the bill was delivered to Governor Hochul who signed it into law on relatively short notice. The governor acted well within 30 days, avoiding a “pocket veto” and allowing the bill to become law.
Read it letter by the NYDFS.