As of January 1st, 2016, a new Illinois reverse mortgage law has gone into effect. It governs how these Home Equity Conversion Mortgages (HECMs) are handled in this state, and coincides, in part with the recent federal update to the national reverse mortgage rules. Here’s the scoop.
In August of 2015, Illinois Governor Bruce Rauner signed the Reverse Mortgage Act. It replaces the old legislation and serves to consolidate any laws that were in duplicate prior. It also codifies a list of consumer protections, enacting a three-day period post-loan where a borrower can cancel the loan with no obligation if they so choose.
The Reverse Mortgage Act is also designed to assure that borrowers receive more education and financial advisement prior to taking out these loans. Its main purpose, however, is to shield vulnerable borrowers from unscrupulous and predatory lending practices.
Using the power of the new law, the Attorney General will be able to create new educational manuals, booklets and website content as well as other educational documents that provide more in-depth information to consumers who are seeking a reverse mortgage. It also will educate them on any prospective alternatives to the loans to help provide a more level playing field from lender to borrower.
“Reverse mortgages should be taken out only after a consumer has had an opportunity to carefully consider his or her financial future and consult with a qualified housing counselor, and this law will help us make sure that consumers are better educated and protected against predatory lending practices and scams,” a spokesperson from the Office of the Attorney General stated to the press after Rauner signed off on the Act.
Specifically noted in the law is the “cooling off” period before a loan can legally close. Lenders will be required to provide a 12-point font document that entails all the details and disclosures about this three-day period. Additionally, the Act provides that all lenders and parties involved in the lending process verify that said borrower/s received the educational documents before signing off on the loan.
The new Act is part of a nationwide reform aimed at helping to reduce fraud, elder abuse and predatory lending. It makes these loans safer for the borrowers and more feasible for banks because it reduces the risk of foreclosure and eviction.
For qualifying borrowers, a reverse mortgage enables them to borrow a portion of the existing equity in their homes, with no monthly payments and the balance being due after they have died, tendered from the sale of their home. Under new federal rules, borrowers must now also prove that they can afford to pay for the proper upkeep of the home, insurance and annual property taxes.
You can read the full Act here: http://housingactionil.org/2015/08/11/reverse-mortgage-consumer-protections-signed-into-law/