Credit unions engaged in reverse mortgage lending, or interested in offering that line of lending to their members in the future, should be aware of changes in Illinois law governing the topic. Effective May 1, 2017, the Illinois Department of Financial and Professional Regulation has adopted amendments to the Illinois Administrative Code[i] governing state based credit unions. One change contained in the amended rules is the repeal of Reverse Mortgage Section[ii].
White the Reverse Mortgage Rule has historically governed reverse mortgage lending in Illinois, its repeal means that credit unions must look elsewhere for guidance on the topic. The rule was repealed as the result of a new Illinois act, the Reverse Mortgage Act[iii]. Public Act 99-331 creating the Reverse Mortgage Act became effective on January 1, 2016.
The Reverse Mortgage Act governs reverse mortgages defined as: “a non-recourse loan, secured by real property or a homestead property, that complies with all of the following:
(1) Provides cash advances to a borrower for the purchase of the home or based on the equity in a borrower’s owner-occupied principal residence, provided that it is a residence with not more than 4 units.
(2) Requires no payment of principal or interest until the entire loan becomes due and payable.”[iv]
The law sets forth provisions applicable to reverse mortgages, as well as identifying disclosures which must be provided to borrowers at the time of the initial inquiry regarding a reverse mortgage or, if not practically feasible, after the borrower makes a request to apply for a reverse mortgage. Such disclosures include: an educational document developed by the Office of the Attorney General; and a document providing the borrower with information pertaining to the availability of counseling services and containing the contact information for agencies approved by the U.S. Department of Housing and Urban Development (HUD) to conduct reverse mortgage counseling. The Act also contains statutory form language that must be provided on the documentation provided to the borrower.
Additionally, the Reverse Mortgage Act requires a 3 day “cooling-off” period during which the borrower shall not be bound to their acceptance of the lender’s written commitment to make a reverse mortgage loan. During that time period, the borrower may not be required to close or proceed with the loan. A borrower may not waive the 3 day cooling-off period. At the time the parties make a written commitment, the lender must provide the borrower with a separate document containing statutory form language regarding the cooling-off period.
Finally, the Reverse Mortgage Act places a statutory restriction on cross-selling by lenders, identifies restrictions on the distribution of loan proceeds, requires a written certification by the lender related to compliance with the Act, and provides enforcement mechanisms for non-compliance.
The Illinois Reverse Mortgage Act may be accessed here. If your credit union offers reverse mortgage lending, or is considering doing so, please consult with your attorney regarding the law governing such lending.
[i] 38 Illinois Administrative Code 190
[ii] 38 Illinois Administrative Code 190.150
[iii] 765 ILCS 945
[iv] 765 ILCS 945/5
By: Patrick Smith, Senior Vice President, Regulatory Affairs