12 U.S.C. § 1715z–20 — Insurance of home equity conversion mortgages for elderly homeowners

(a) Purpose. This section authorizes the Secretary to run mortgage insurance designed to do two things. First, it addresses the special needs of elderly homeowners by reducing the economic hardship caused by rising health, housing, and basic-living costs when income is reduced. It does this by insuring home equity conversion mortgages that let a homeowner turn part of accumulated home equity into money that can be used. Second, it encourages mortgagees and people in the mortgage market to make and service home equity conversion mortgages for elderly homeowners.

(b) Definitions. For this section:

(1) “Elderly homeowner” and “homeowner” mean a homeowner who is at least 62 years old, or whose spouse is at least 62 years old, or who meets any higher age set by the Secretary.

(2) “Mortgagee,” “mortgagor,” “real estate,” and “State^*” have the meanings given in section 1707 of this title. This section does not define those terms itself.

(3) “Home equity conversion mortgage” means a first mortgage that provides future payments to the homeowner based on accumulated equity and that a housing creditor, as defined in section 3802(2) of this title, is authorized to make: (A) under a United States law other than section 3803 of this title, or under regulations of an agency issued under that law; (B) under section 3803 of this title, despite any State constitution, law, or regulation; or (C) under a State constitution, law, or regulation.

(4) “Mortgage” means: a first mortgage or first lien on real estate owned in fee simple; a first or subordinate mortgage or lien on all stock allocated to a dwelling unit in a residential cooperative housing corporation; or a first mortgage or first lien on a leasehold that is (A) under a renewable lease lasting at least 99 years, or (B) under a lease lasting until at least the minimum number of years that the Secretary specifies beyond the actuarial life expectancy of the mortgagor or co-mortgagor, whichever date is later.

(5) “First mortgage” means the classes of first liens commonly used under the law of the State where the real estate or dwelling unit is located to secure advances on real estate or its unpaid purchase price, or a first or subordinate lien on all stock allocated to a dwelling unit in a residential cooperative housing corporation, together with any credit^* instruments secured by that lien.

(c) Insurance authority. When a mortgagee applies, the Secretary may insure a home equity conversion mortgage eligible under this section. On terms and conditions the Secretary sets, the Secretary may also commit to insure such a mortgage before it is executed or before money is disbursed, but only to the extent the Secretary determines that the mortgage (1) could improve the financial situation of elderly homeowners or otherwise meet their special needs, (2) includes suitable safeguards against the special risks of these mortgages, and (3) is likely to be accepted in the mortgage market.

(d) Eligibility requirements. To qualify for insurance, a mortgage must:

(1) Be originated by a mortgagee approved by the Secretary.

(2) Be signed by a mortgagor who: (A) qualifies as an elderly homeowner; (B) received adequate counseling under subsection (f) from an independent third party that is not directly or indirectly associated with or paid by anyone involved in originating or servicing the mortgage, funding the loan behind the mortgage, or selling annuities, investments, long-term-care insurance, or any other financial or insurance product; (C) received the full disclosure required by the Secretary of every cost charged to the mortgagor, including estate-planning, financial-advice, and other services related to the mortgage but not required to obtain it, with a clear statement identifying which charges are required and which are not; and (D) meets any additional requirements set by the Secretary.

(3) Be secured by a dwelling designed mainly as a one- to four-family residence, with the mortgagor occupying one of the units.

(4) Allow full or partial prepayment at any time during the mortgage without a penalty.

(5) Provide for a fixed or variable interest rate, or for future sharing between the mortgagor and mortgagee of increases in the property's value, as they agree.

(6) Contain provisions for satisfying the obligation that the Secretary finds satisfactory.

(7) State that the homeowner is not liable for any difference between the homeowner's remaining net debt under the mortgage and the amount the mortgagee recovers from (A) the net sale proceeds of the mortgaged dwelling, based on the amount of accumulated equity the mortgagor chose to place under the mortgage and the mortgagor and mortgagee agreed on, or (B) insurance benefits paid under subsection (i)(1)(C).

(8) Contain the terms and provisions the Secretary requires about insurance, repairs, alterations, tax payments, a default reserve, delinquency charges, foreclosure, anticipation of maturity, additional and subordinate liens, and other matters.

(9) Provide future payments to the mortgagor based on accumulated equity, minus applicable fees and charges. The mortgagor chooses one of these payment methods: (A) payments based on a line of credit; (B) monthly payments for a period the mortgagor specifies; (C) monthly payments for a period the mortgagor specifies, based on a line of credit; (D) monthly payments for as long as the mortgagor lives; (E) monthly payments for as long as the mortgagor lives, based on a line of credit; or (F) another basis the Secretary considers appropriate.

(10) Allow the mortgagor to change the paragraph (9) payment method to any other method during the mortgage term. For a fixed-rate mortgage, the Secretary may limit this ability by regulation.

(11) Include restrictions the Secretary finds appropriate to ensure that the mortgagor does not pay unnecessary or excessive costs to obtain the mortgage, including estate-planning, financial-advice, or related-service costs.

(e) Disclosures by mortgagee. The Secretary must require each mortgagee of a mortgage insured under this section to give the homeowner:

(1) At the time of applying for the loan, a written list of the names and addresses of third-party information sources approved by the Secretary as responsible and able to provide the information required by subsection (f).

(2) At least 10 days before closing, a statement saying that the homeowner's liability under the mortgage is limited and explaining the homeowner's rights, duties, and remedies concerning temporary absences from the home, late payments, the lender's failure to pay, every condition that requires the loan obligation to be satisfied, and any other information the Secretary requires.

(3) Each year, no later than January 31, a statement summarizing the total principal paid to the homeowner under the mortgage loan, the total deferred interest added to the principal, and the loan balance outstanding at the end of the prior year.

(4) Before closing, a statement projecting the mortgage's total cost to the homeowner. The projection must use the projected total future loan balance and express the cost as one average annual interest rate for at least two different property-appreciation rates over the mortgage term. It must cover at least two projected loan terms set by the Secretary, including (A) a short-term mortgage and (B) a term equal to the mortgagor's actuarial life expectancy.

(f) Counseling services and information for mortgagors. The Secretary must provide, or arrange for, adequate counseling as required by subsection (d)(2)(B). Qualified counselors must meet standards and follow uniform protocols set by the Secretary within 12 months after July 30, 2008. The protocols must require the counselor to discuss with each mortgagor: (1) alternatives to a home equity conversion mortgage, including other housing and social-service, health, and financial options; (2) other home-equity-conversion choices that are available or may become available, such as sale-leaseback financing, deferred-payment loans, and property-tax deferral; (3) the financial effects of entering into a home equity conversion mortgage; (4) that the mortgage may have tax consequences, affect eligibility for Federal or State assistance, and affect the homeowner's estate and heirs; and (5) any other information the Secretary requires. The Secretary must consult consumer^* groups, industry representatives, counseling organizations, and other interested parties about feasible and desirable alternative ways to provide this information for insured home equity conversion mortgages and other reverse mortgages. After those consultations, the Secretary may adopt an alternative consumer-education approach instead of providing the education required here, but only if the alternative provides all information specified in this subsection.

(g) Limitation on insurance authority. The total number of mortgages insured under this section may not be more than 275,000. Insurance benefits may never exceed the maximum dollar limit in section 1454(a)(2) of this title for a one-family residence.

(h) Administrative authority. The Secretary may: (1) make contracts and agreements with Federal, State, and local agencies, public and private entities, and other people when the Secretary finds them necessary or desirable to carry out this section; (2) investigate and study data and publish and distribute reports as the Secretary considers appropriate; and (3) by notice or mortgagee letter, establish additional or alternative requirements that the Secretary considers necessary to improve the program's fiscal safety and soundness. A requirement under paragraph (3) takes effect when issued.

(i) Protection of homeowner and lender. (1) Despite any other law, and to further this program's purposes, the Secretary must take necessary action to: (A) give a mortgagor funds owed under the insured mortgage or related contracts but not received because the party responsible for payment defaulted; (B) recover those payments from any source; and (C) give a mortgagee funds owed under the insured mortgage or related contracts, up to the limits in subsection (g). (2) Such action may include: (A) paying the mortgagor or mortgagee from the Mutual Mortgage Insurance Fund; (B) accepting an assignment of the insured mortgage even when the mortgagor is not in default, calculating the insurance claim on the assigned mortgage, and paying it; (C) requiring the mortgagor to give a subordinate mortgage at any time to secure repayment of funds already advanced or to be advanced; (D) requiring the Secretary to be substituted into parties' rights against parties in default; and (E) charging premiums.

(j) Safeguard against displacement. The Secretary may not insure a home equity conversion mortgage unless it defers the homeowner's duty to satisfy the loan until the homeowner dies, sells the home, or another event specified in the Secretary's regulations occurs. For this subsection, “homeowner” includes the homeowner's spouse. Section 1647(b) of title 15 and regulations implementing it from the Board of Governors of the Federal Reserve System do not apply to a mortgage insured under this section.

(k) Insurance authority for refinancing. (1) On a mortgagee's application, the Secretary may insure a mortgage used to refinance an existing home equity conversion mortgage insured under this section. (2) By regulation, the Secretary must require the refinancing mortgagee to give the mortgagor, within the time and in the manner set by regulation, a good-faith estimate of (A) the refinancing's total cost and (B) the increase in the principal limit. The increase is the estimated initial principal limit of the new mortgage minus the current principal limit of the mortgage being refinanced. (3) The mortgagor may waive the third-party-counseling requirement in subsection (d)(2)(B) for the refinancing only if the mortgagor received the paragraph (2) disclosure, the principal-limit increase exceeds the refinancing cost by an amount the Secretary determines, and no more than five years passed between closing the original mortgage and applying for the refinancing mortgage. (4) Despite section 1709(c)(2)(A) of this title, the Secretary may reduce the single premium otherwise collected when the refinanced mortgage is insured. The Secretary must set that premium based on the study in paragraph (5). (5) Within 180 days after December 27, 2000, the Secretary must conduct an actuarial analysis of whether premiums under this subsection are adequate, considering (A) reducing the single premium, (B) creating one national limit on benefits under subsection (g), and (C) the combined effect of those two changes. (6) The Secretary may limit the origination fee charged to a mortgagor for a mortgage insured under this subsection. The limit must allow the fee to be fully financed through the mortgage and must include fees paid to Secretary-approved correspondent mortgagees.

(l) Funding for counseling. Based on accepted actuarial principles, the Secretary may use part of the mortgage-insurance premiums collected under this section to adequately fund the counseling and disclosures required by subsection (f), including counseling for homeowners who decide not to obtain a home equity conversion mortgage.

(m) Home-purchase mortgage. (1) Despite other provisions of this section, on a mortgagee's application the Secretary may insure a home equity conversion mortgage on terms and conditions the Secretary sets when it will buy a one- to four-family dwelling, one unit of which the mortgagor will occupy as a primary residence, and provide future payments based on available equity as allowed by subsection (d)(9). (2) The mortgage's principal obligation may not exceed the dollar limit in section 1454(a)(2) of this title for a one-family residence.

(n) Requirements for mortgage originators. (1) The mortgagee and every other party involved in originating a mortgage to be insured must either (A) not participate in, be associated with, or employ anyone involved in or associated with another financial or insurance activity, or (B) show the Secretary that it has or will have firewalls and other safeguards ensuring that (i) people originating the mortgage have no involvement with, and no incentive to provide, another financial or insurance product, and (ii) the mortgagor is not directly or indirectly required to buy another financial or insurance product as a condition of obtaining the mortgage. (2) The Secretary must approve every party involved in originating the mortgage.

(o) No required additional products. The mortgagee or another party may not require the mortgagor or anyone else to buy insurance, an annuity, or a similar product as a condition of eligibility for insurance under subsection (c). This does not bar title, hazard, flood, or other peril insurance, or other products that are customary and normal under subsection (c), as the Secretary determines.

(p) Study of consumer protections and underwriting. The Secretary must study and determine suitable consumer protections and underwriting standards to ensure that buying products mentioned in subsection (o) is appropriate for the consumer. The Secretary must consult consumer advocates, including recognized consumer-protection experts, industry representatives, counseling-organization representatives, and other interested parties.

(r) Limitation on origination fees. The Secretary must set limits on origination fees charged to a mortgagor for an insured mortgage. The limits must: (1) equal 2.0 percent of the mortgage's maximum claim amount up to $200,000, plus 1 percent of any amount above $200,000, unless later adjusted based on an analysis of (A) mortgagor costs and (B) the effect on the reverse-mortgage market; (2) have a minimum permitted amount; (3) allow the fee to be fully financed through the mortgage; (4) include fees paid to Secretary-approved correspondent mortgagees; (5) take effect on the same date as subsection (m)(2)'s principal-obligation limit; and (6) have a maximum of $6,000. The $6,000 maximum must be adjusted according to the annual percentage increase in the Consumer Price Index of the Department of Labor's Bureau^* of Labor Statistics, but only in $500 steps and only when applying the index increase to the maximum fee produces a dollar increase greater than $500.