Committee unanimously supports Sen. Bailey bill to protect consumers who obtain reverse mortgages

AUGUSTA – On Wednesday, the Legislature’s Committee on Judiciary voted in favor of a bill sponsored by Sen. Donna Bailey, D-Saco, that would require reverse mortgage servicers to act in good faith. LD 1066, “An Act To Clarify the Definition of ‘Mortgage Servicer’ in the Laws Governing Mortgage Foreclosures” received unanimous, bipartisan support from the committee.

“In my experience representing homeowners as a lawyer, I have found many reverse mortgage companies are unnecessarily slow to give mortgage payoffs to the homeowner, causing unjustified interest to accrue, and putting unnecessary financial strain on the owner” said Sen. Bailey. “That’s simply not right. We need to stand up for consumer rights, and LD 1066 will help us do just that.”

This bill seeks to clarify a law the Legislature passed last session, LD 1327, “An Act To Require Residential Mortgage Loan Servicers To Act in Good Faith in Dealings with Homeowners.” It was the result of an agreement between stakeholders on how to hold mortgage servicers to a standard of good faith, while also recognizing that local community banks and credit unions should not be swept up in legislation that seeks to address a problem they are not a part of creating. The law that was passed was drafted such that it was not clear that all mortgage servicers, including those servicing a reverse mortgage, were to be included in the definition of those required to operate in good faith.

A reverse mortgage is a mortgage that can be accessed by a borrower over time. It is generally secured by an elderly person’s equity in their home, and no monthly payments are required, but the amount borrowed is repaid when the borrower sells the home or passes away. They are marketed as a way for older homeowners to be able to tap into the equity of their home, without incurring monthly payments. Unfortunately, because reverse mortgages are generally targeted to older borrowers and are complex legal agreements, many are not fully aware of the more severe terms of some of the reverse mortgage products. What may end up happening is that the amount owed may end up exceeding the value of the home, or that a failure to pay property taxes or homeowners insurance may subject the homeowner to foreclosure under the terms of the reverse mortgage.

It was the intention of those who worked on and drafted the previously passed law to include reverse mortgage servicer. LD 1066 seeks to address that oversight.

The bill faces votes in the Senate and House.

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