The State Senate voted Thursday evening on a bill to protect elderly homeowners in dire financial circumstances from possible deception or bad decisions by requiring banks to counsel them on the pros and cons of reverse mortgages before signing any such agreement.
The bill passed the chamber on a 24-12 mostly party-line vote, with all Democratic state senators voting in favor of the pro-consumer legislation and two-thirds of Republican senators voting against the measure.
“Senior citizens who are struggling financially and facing the challenge of whether or not to keep their home, most likely their biggest investment and asset, should absolutely receive counseling before entering into a reverse mortgage agreement,” said Senator Tim Larson (D-East Hartford). “It’s common sense to make sure that anyone entering into a contract of this magnitude knows what they getting.”
Senate Bill 579, “An ACT CONCERNING PROTECTIONS FOR CONSUMERS APPLYING FOR REVERSE MORTGAGES,” establishes a counseling requirement that must be met before any bank or credit union in Connecticut can accept a reverse annuity mortgage loan application (a reverse annuity mortgage allows elderly homeowners to convert accumulated home equity into liquid assets.)
Such counseling may include telling elderly homeowners about other options available to them, the financial implications of entering into a reverse mortgage, disclosing that a reverse mortgage may have tax consequences, affect eligibility for assistance under federal and state programs, or have an impact on the homeowner’s estate and heirs.
The bill also requires reverse mortgage lenders to store a signed certification from the borrower that the counseling requirements were met.
Nationally, reverse mortgages are sometimes marketed to older Americans with advertisements featuring reassuring celebrity spokesmen. Last year, the Consumer Financial Protection Bureau fined three reverse mortgage companies a combined $800,000 for using deceptive advertisements to sell reverse mortgages, noting that while these national firms promoted the loans as essentially risk-free, borrowers of reverse mortgages can default on their loans and lose their homes through foreclosure if they fail to make necessary payments for property taxes, insurance or home maintenance.
The bill now heads to the House of Representatives for consideration.