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June 27, 2008

Governor to sign 'reverse' mortgage legislation

Governor Carcieri is scheduled to hold a ceremonial signing at the State House at 3 p.m. today for legislation designed to improve consumer protections against the risks of "reverse" mortgages.

Reverse mortgages allow cash-strapped homeowners age 62 or older who have paid off their houses to borrow against the equity. The loans do not come due until the homeonwer sells the house or dies.

The legislation passed by the General Assembly mandates greater disclosures of fees charged by the lender, and requires that borrowers receive financial counseling prior to obtaining a reverse mortgage that is not government-insured. (Federally insured reverse mortgages already require additional protections.)

The legislation approved by state lawmakers stops short of banning pre-payment penalties, which allow lenders to charge additional fees to borrowers who pay off the mortgage early. The AARP Rhode Island, a lobbying group for the elderly, had opposed any pre-payment penalties, the group's associate director of advocacy, Stephen Jennings,said.

"Our position is that pre-payment penalties trap people in loans that they may have decided weren’t a good thing for them,'' Jennings said, "but we supported the bill because we think other things in it are important.''

The legislation requires, among other things, that borrowers receive financial counseling from a government approved agency prior to entering the loan agreement, creates a three-day waiting period before the closing is finalized, and prohibits lenders from offering or requiring that borrowers also purchase an annuity until after the closing.

The House version of the legislation (H-7723 Sub A), which was signed by the governor on June 6, was sponsored by state Rep. Richard Singleton; state Sen. David Bates sponsored the Senate version (S-2598 Sub A).

-- Journal staff writer Lynn Arditi

Posted by maria caporizzo  at 12:59 PM | Permalink

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