Section 79.2 contains definitions of terms that are used in Part 79.

Section 79.3 provides that only licensed or exempt entities may make reverse mortgage loans and describes the financial responsibility requirements that must be met by licensees and information that must be provided by exempt organization before the department will grant them authority to do reverse mortgage loans.

Section 79.4 sets forth new requirements and restrictions concerning the advertising of reverse mortgage loans.

Section 79.5 sets forth various requirements and limitations on lenders. This sub-section covers loan-to-value ratio limitations and financial fitness assessments of applicants and related “set aside account” provisions for certain loans. It also grants consumers a right to cancel for three (3) business days after the issuance of a commitment.

Section 79.6 sets forth a mortgagor’s obligations to maintain the real property securing the reverse mortgage loan and the creditor’s remedies if the mortgagor fails to maintain the property.

Section 79.7 specifies the events that permit the mortgagee to terminate the mortgage, notice and disclosure requirements required to accelerate the mortgage, and the homeowner’s rights to cure any events of default.

Section 79.8 outlines the fees, costs and payments that lenders and brokers may charge applicants or borrowers at or before closing.

Section 79.9 specifies enhanced disclosures that must be provided to applicants. It also sets forth counselling requirements for prospective borrowers.

Section 79.10 sets forth the circumstances when a lender would be exempt from the requirement of making as many Real Property Law section 280-a loans as Real Property Law section 280 loans.

Section 79.11 sets forth a list of prohibited conduct that could subject lenders and brokers to administrative penalties if violated.

Section 79.12 sets forth provisions concerning the payment of real estate taxes and insurance for a mortgaged property and the respective rights and obligations of mortgagors and mortgagees.

Section 79.13 obligates the directors, trustees, and officers of lending institutions to adopt proper policies and procedures to implement the requirements of this regulation.

Section 79.14 provides a compliance safe harbor for a limited duration for certain lenders.

1. Statutory Authority: Sections 280, 280-a and 280-b of the Real Property Law (“RPL”) provide for the regulation of reverse mortgage loans.

2. Legislative Objectives: By enacting Sections 280 and 280-a, the Legislature created a reverse mortgage product in the State of New York to ensure that seniors could stay in their homes and utilize their equity to safeguard their financial stability. In doing so, the legislature recognized the potential for consumer abuses and entrusted the Superintendent with the authority to write regulations governing the origination and servicing of reverse mortgage loans in New York. The Department responded by promulgating the existing version of Part 79.

Now, by enacting a new RPL Section 280-b, the Legislature has determined that additional consumer protections are also needed for federal home equity conversion (“HECM”) loans insured by the federal Department of Housing and Urban Development (“HUD”). Section 280-b (2) prohibits unfair or deceptive practices in the connection with the marketing of reverse mortgage loans. Section 280-b (3) provides that lenders must provide supplemental consumer protection materials to consumers in a form or manner specified by the Superintendent. Section 280-b (4)(b) provides for special notices and warnings concerning set aside accounts.

Accordingly, the new version of Part 79 increases and clarifies disclosure requirements, requires counseling as a prerequisite to origination of a reverse mortgage, creates new advertising standards and incorporates a new financial fitness test as part of the underwriting process to evaluate the need for a set aside account.

The following is a summary of the major changes from the previous regulation:

(a) Enhanced Disclosures. The proposed regulation lays out specific notice language to be given to applicants warning of the potential risks of a reverse mortgage loan and the benefits of speaking with a housing counselor. Additional notice requirements would also include, among other things, a list of termination and acceleration events, information on the applicant’s 3-day cooling off and recession period, a listing of all fees and costs associated with the reverse mortgage, and a schedule of estimated payments.

(b) Housing Counselor Checklist and Counselling Requirement. Housing counselling will become mandatory for applicants considering loans under RPL 280 or 280-a. For applicants considering HECM loans, this new requirement is consistent with HUD regulations governing counselling. The new provisions also require the delivery of a housing counselor checklist to all reverse mortgage applicants. Such checklist lays out the items to be discussed with a housing counselor prior to moving forward with the reverse mortgage. The checklist will ensure that applicants are fully informed of the potential risks and benefits of a reverse mortgage.

(c) Creation of Advertising Restrictions. The current Part 79 does not include any restrictions or requirements for the advertising of reverse mortgage loans to potential consumers. The new version creates such restrictions and requirements. Specifically, certain disclosures are required if an advertisement references any material loan terms. Moreover, false or misleading statements in an advertisement are explicitly prohibited and samples of all advertisements are to be maintained for a period of three years from the date of last publication. Further, the new regulation no longer excludes reverse mortgage loans from the requirements of Part 38 of the General Regulations of the Superintendent. The advertising and disclosure requirements of Part 38 will also become applicable to supplement the new requirements of Part 79.

(d) Financial Assessment Form/Set Aside Account. The proposed amendments remove the unconditional requirement for a set-aside account for the payment of property taxes and insurance and instead replace it with a requirement for a financial fitness assessment of each applicant to determine their need for a set-aside. Borrowers who do reverse mortgage loans pursuant to RPL 280 or 280-a will be evaluated based upon the new test in Part 79.5 (l) (4). Borrowers who do HECM loans will be evaluated under a substantially similar test required by HUD regulations. This new financial fitness test in Part 79 is intended to be substantially similar to the HUD test.

(e) Special Authorization by the Department to do Reverse Mortgage Loans. The new Part 79.3(a) provides that only licensed or exempt entities may make reverse mortgage loans. Section 79.3 9 (c) (1) sets forth an application procedure and the financial responsibility requirements that must be met by a licensee. Section 79.3 (c) (2) sets forth the application provision for exempt organizations and the information they must provide before the department will grant them authority to do reverse mortgage loans. Section 79.3 (d) provides for filing deadlines.

3. Needs and Benefits: Based on industry and consumer concerns, the Department has identified the need to increase consumer protections for seniors taking out a reverse mortgage loan. The new version of Part 79 increases and clarifies disclosure requirements, requires counseling as a prerequisite to origination of a reverse mortgage, creates advertising standards and incorporates a financial fitness test as part of the underwriting process. These changes are consistent with the goals of RPL sections 280, 280-a and 280-b. The new regulation should provide a systematic and consistent way to regulate both HECM and non-HECM reverse mortgage loans for the benefit of senior citizens.

4. Costs: Although reverse mortgage lenders may incur some additional costs as a result of this regulatory change, the vast majority of reverse mortgage lenders are large businesses with the experience, resources and systems to comply with these requirements. Any additional costs created by new notices and disclosures will not be significant.

These proposed amendments will not result in any negative fiscal implications to the State.

5. Local government mandates: The proposed amendments do not impose any new programs, services, duties, or responsibilities upon any county, city, town, village, school district, fire district or other special district.

6. Paperwork: Additional disclosures and notice requirements will slightly increase the paperwork burden on the industry. The burden of this increase is outweighed by the consumer benefits expected to be received by potential customers and borrowers.

7. Duplication: The proposed amendments do not duplicate, overlap, or conflict with any other regulations.

8. Alternatives: The Department could choose not to amend the current regulation, however, without the proposed amendments the current regulation is impractical and insufficient.

9. Federal Standards: Section 255 of the National Housing Act governs HECM loans administered and insured by HUD. Public Law 73-479, 48 Stat. 1246. The enabling legislation is codified at 12 USC section 1715z-20. HUD has issued regulations to implement the HECM program. 24 C.F.R. Part 206.

The existing version of Part 79 did not regulate HECM loans. Such loans were excluded from the scope of our regulations. Newly enacted RPL 280-b changes that. In preparing the new Part 79, the Department tried to devise standards that are consistent with the HUD regulation wherever possible. For example, our new financial fitness requirements were derived from HUD standards in 24 CF.R. 206.205. The Department also used the HUD definition of “Eligible Survivor Non-Mortgagor Spouse” and HUD’s eligibility criteria for the protection of these non-borrowing spouses.

To the extent the Department deviated from HUD standards in minor respects, it did so to provide incrementally greater consumer protections.

The Federal Truth in Lending Act, 82 Stat. 146, codified at 15 U.S.C. §§ 1601-1667, also applies to multiple communications lenders have with applicants and customers. Regulation Z, promulgated pursuant to the Truth in Lending Act, provides more specific rules concerning these communications. 12 C.F.R. § 1026.

10. Compliance Schedule: On March 5, 2020, the Department repealed and replaced Part 79 through the adoption of an emergency rulemaking, which was re-promulgated on June 3. The Department had also proposed the same rulemaking on March 5, 2020, which the Department now adopts with non-substantive changes.

The Department had promulgated this regulation on an emergency basis to ensure that Part 79 reflected changes made by RPL 280-b as of the effective date of the new statute. The immediate effectiveness of the emergency regulation caused some hardship for reverse mortgage lenders. The coronavirus crisis also made it far more difficult for the industry to engage in normal business activities or make necessary adjustments to comply with the emergency regulation.

Accordingly, in this final adoption the Department has included the following transitional provision in Section 79.14: “Notwithstanding any other applicable federal or state law or rule, for one hundred and twenty (120) days including and following the March 5, 2020 effective date of this Part, mortgagees either originating or servicing RPL section 280-b loans shall not be in violation of this Part if they comply with the Part 79 that was in effect prior to March 5, 2020.”

The Department believes that the regulation in its final adopted form will not impose a greater burden upon HECM providers and should, in fact, decrease any burden and reduce the providers’ uncertainties. Accordingly, the Department did not provide for a longer transition on a forward-looking basis.

A revised Regulatory Flexibility Analysis, Rural Area Flexibility Analysis and Job Impact Statement are not required for the adoption of Part 79 because the non-substantive revisions to the regulation do not require a change to the previously published Regulatory Flexibility Analysis, Rural Area Flexibility Analysis and Job Impact Statement.

As a rule that requires a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2023, which is no later than the 3rd year after the year in which this rule is being adopted.

The New York State Department of Financial Services (the “Department”) received 2 comments on proposed new version of 3 NYCRR 79 (“Part 79”) from entities representing both consumers and reverse mortgage lenders. The comments acknowledge the need to update the rules, particularly in light of the new Real Property Law section 280-b (“RPL 280-b”) which provide federal home equity conversion mortgage (“HECM”) borrowers with additional consumer protections. This Assessment provides an overview of the revisions and clarifications the Department has made in response to comments, and, where applicable, the reasons for not making additional revisions or clarifications. In many instances, the Department did not make recommended revisions because it found them either unnecessary or inconsistent with the goals of the regulation.

DFS Authorizations for Reverse Mortgage Lenders

One industry commenter principally concerned with HECM loans complained that the Department had not yet posted application forms and clarifying information concerning the authorization process set forth in Part 79.3. Since receipt of that comment, the Department has prepared application materials and made them available to all who inquire and via the NMLS system.

A similar comment was made requesting clarification of the irrevocable standby letter of credit requirement in Part 79.3( c)(i). The Department has clarified such requirements as follows: First, this requirement only applies to loans done under RPL 280 or 280-a. Providers of these proprietary non-HECM loans can also request exemption from this requirement if they have a history of strong credit ratings or plan to fully disburse all proceeds at the loan closing. Second, the Department clarified that the 12-month period upon which the amount of the letter of credit is dependent, is a rolling 12-month period. Lastly, the Department clarified that the strong credit rating exemption does not apply for any period where the lender does not maintain the required strong rating for three consecutive years.

This same commenter asked the Department to set a minimum capital amount of $10,000,000 in Part 79.3(c)(1), because this dollar amount was used in the prior version of the regulation. The Department declines to do so. The Department believes an annual adjustment of this amount is necessary and plans to post periodic notices on its website providing this minimum capital amount.

Lenders’ Fees and Costs

The industry commenter requested the inclusion of additional fees in Part 79.8(c), governing fees after the closing of a loan. Upon further reflection, the Department has decided to remove this section entirely and as it was redundant of the rules already in effect under Part 419, which the Department notes is generally applicable to reverse mortgage loans.

Property Maintenance Requirements

The industry commenter considered Part 97.6 highly problematic because it introduced the term “structural integrity” into the mortgagor’s obligation to maintain the property in good condition. The commenter observed that the Department’s intent was unclear, and this new requirement was inconsistent with the Federal Housing Administration’s Minimum Property Requirements and Minimum Property Standards. They requested Part 79.6 be eliminated in its entirety. The Department has responded by re-writing Part 79.6 to eliminate the term “structural integrity.” Now, the mortgagor must maintain the property in a “reasonably similar condition, state and repair as the property is in at the time of closing.”

The Department also revised the provisions concerning when a lender can perform this maintenance itself, how the lender can recover the cost of such repairs, and the dispute resolution process.

Relationship to Other DFS Mortgage Regulations

The industry commenter asked the Department to restore certain exceptions found in the old version of Part 79. In particular, the commenter requested that Parts 38, 39, 80 and 82 not apply to HECMs. With respect to Parts 80 and 82, the Department included language exempting RPL 280-b loans from such parts to the extent that compliance would conflict with the HECM reverse mortgage loan program. On the other hand, the Department feels Parts 38 and 39 should apply to all reverse mortgages. This change was intentional and not inconsistent with HUD regulations.

Changes to Key Definitions

Both commenters criticized the use of the term “termination” in Part 79.7. The Department recognizes that this term is confusing. The Department used this term because it appears in the RPL. The Department resolved this problem by adding a definition to Part 79.2. The term “termination” shall mean acceleration of a reverse mortgage loan as a result of the mortgagor’s default. Acceleration is the common term of art.

The consumer advocate also pointed out that the term “Eligible Surviving Non-Mortgagor Spouse” is not consistent with the most recent guidance issued by HUD. HUD Mortgagee Letter 2019-15 (September 2019). This is relevant because a non-borrowing spouse has 180 days to make an election to retain the property subject to a reverse mortgage. The Department rewrote its definition to conform to the HUD letter. The Department never intended to provide narrower rights to these non-borrowing spouses.

Other changes in definitions are discussed when evaluating specific topics in the Assessment.

Advertising Standards and Prohibited Conduct

One commenter principally concerned with consumer protection requested that restrictions on advertising not be limited to print or electronic media. They asserted that a limitation of this type is not consistent with the defined term “advertisement” in Part 79.2. The Department has responded by striking the qualifying phrase “placed in print or electronic media” in Part 79.4 (a). The qualifying phrase is not necessary to the meaning of Part 79.4 (a), and the deletion removes an unintended ambiguity. The definition of “advertising” was also changed in Part 79.2 to remove an illustrative list of items.

The same commenter also argued that advertising restrictions should be based on a different legal standard. The regulation should prohibit “unfair and deceptive practices,” as opposed to “false and misleading statements.” The Department is not convinced that a meaningful distinction exists between these two phrases. One phrase refers to standardized marketing media, while the other refers to a set of behaviors and actions by people. Nonetheless, the Department moved Part 79.4(d) to Part 79.11 on prohibited conduct. Part 79.11 lists a broad range of unfair practices in marketing loans. False and misleading advertising does count as an unfair and prohibited practice. Other coercive behaviors or actions enumerated in Part 79.11 can be prohibited even if they are not upon factual misrepresentations in standardized marketing communications.

Conversely, another commenter was particularly concerned that Part 79.4(d)(1), now relocated to Part 79.11, prohibited statements that a HECM loan is “endorsed by the Federal Housing Administration or Housing and Urban Development.” Please note that on April 3, 2020 the Legislature made a technical amendment to RPL 280-b that clarified the advertising standards for HECM loans. Chapter 55, Subpart Z, of the Laws of 2020. Like Part 79, this legislative amendment makes clear that only false and misleading claims about reverse mortgage loans are prohibited. Accurate claims about HECMs are not prohibited.

Finally, the industry commenter also claimed that Part 79.4 is inconsistent with the standards set forth in Regulation Z, 12 C.F.R 1026.24, promulgated pursuant to the federal Truth in Lending Act. In response, the Department did correct one discrepancy on its proposal. The term “payments” has been changed to “repayments” in Part 79. 4(c)(2)(ii), since this subsection requires a disclosure of the borrower’s obligations to make payments during the full term of the loan. This sub-section did not reference a lender’s obligations.

Consumer Disclosures and Notices

One commenter suggested that obligatory notices to seniors in Part 79.9 should not be printed in all capital letters, since that format makes it harder for seniors to read. The Department accepted that change.

This commenter also wanted all required notices to be translated into the top 6 languages spoken in New York State, as is done with notices under Real Property Actions and Proceedings Law section 1304. The Department did not accept this proposal. The requirements of federal Regulation Z, 12 C.F. R. 1026.24 (i)(7) are sufficient. Lenders cannot selectively communicate with customers in a foreign language and then revert to English language documentation for provisions they don’t wish to emphasize. If a lender provides marketing materials and other notices in a foreign language, then it should also provide required notices in that same foreign language.

Counselling Requirements

One commenter requested clarification on the formal requirements for a counselling affidavit or certificate. They asked that DFS conform Part 79.5 and Part 79.9 to HUD standards. Conversely, the other requestor wanted the DFS to write specific language for that counselling affidavit.

The Department did not intend to deviate from HUD standards by adding additional formalities to the documentation. Thus, “counselling affidavit” has been changed to “counselling acknowledgement.” A HUD Certificate of HECM Counselling, or a reasonable equivalent for non-HECM loans, is sufficient to meet this requirement. The acknowledgement need not be notarized.

One commenter requested that these counselling acknowledgements in Part 79.5(e) have an expiration term. Accordingly, the Department added a 6-month expiration for acknowledgements. We are confident that almost all reverse mortgages can proceed from counselling to commitment within 6 months. If a particular application languishes for a longer period, the prospective borrower should speak with a counsellor again.

The same commenter wanted to add an additional cooling off period between the commitment offering and commitment signing. The Department rejected that idea. A right of rescission already exists during this period, and a second cooling off period is not necessary.

Transition

The commenter mainly concerned with HECM loans asked for a 120-day transition period, starting on March 5, 2020, to come into compliance with the new version of Part 79 adopted on an emergency basis. The Department has granted this request. The Department promulgated this regulation on an emergency basis mainly to be sure Part 79 reflected changes made by RPL 280-b as of the effective date of the new statute. We understand that the immediate effectiveness of an emergency regulation can cause surprise and some hardship for the industry. The coronavirus crisis also made it far more difficult for the industry to engage in normal business activities or make necessary adjustments to comply with the emergency regulation.

Please note that the final version of the new Part 79 will be adopted after this transition period is over. The Department is confident that the final version of Part 79 will not burden HECM providers more than the earlier emergency adoptions did. In important respects, it should decrease their burden and reduce their uncertainties. Accordingly, the Department did not provide for a longer transition than the one requested.

Finally, in response to comments for clarity, the new version of Part 79 is only applicable to reverse mortgage loan activity by a lender, broker or servicer after March 5, 2020. While the industry commenter asked the Department to write this explicitly into the regulation, the Department determined that this Assessment of Public Comment suffices to address any ambiguity.