To: All Institutions Engaged in Reverse Mortgage Lending in New York State
From: Rholda Ricketts
Date: May 17, 2022
Re: Reverse Mortgage Loans for Cooperative Apartment Units
The New York State Department of Financial Services (the “Department”) is issuing this Industry Letter to establish its expectations for all institutions intending to originate reverse mortgage loans on cooperative apartment units (“Coop-Reverse Mortgage”) when the newly enacted Section 6-O*2 of the New York Banking Law (the “NYBL”) goes into effect on May 30, 2022.
Currently, there is a comprehensive regulatory framework that addresses the marketing, origination, and servicing of reverse mortgages in New York. Title 3 of the New York Code of Rules and Regulations Part 79 (“3 NYCRR 79”), establishes various requirements relating to the marketing, origination, servicing and termination of reverse mortgage loans in New York. In addition, Title 3 of the New York Code of Rules and Regulations Part 38 (“3 NYCRR 38”), addresses issues involving, among other things, commitments and advertising for mortgage loans generally. The Department is of the view that most of the existing requirements of 3 NYCRR 79, and 3 NYCRR 38, apply to Coop-Reverse Mortgages with equal force. However, there are certain provisions of these regulations that, due to the different nature of the collateral securing the loan, are not applicable to Coop-Reverse Mortgages, or conflict with the provisions of Section 6-O*2.
Accordingly, while the Department considers whether to amend its existing regulations to specifically address Coop-Reverse Mortgages, or issue a separate regulation governing this new product, institutions that seek to originate, or service Coop-Reverse Mortgages are directed to comply with the provisions of 3 NYCRR 79, and 3 NYCRR 38 in originating or servicing such mortgages, subject to the clarifications, modifications and exclusions described below. However, in the event of any inconsistency between the provisions of Section 6-O*2 and provisions of either 3 NYCRR 79 or 3 NYCRR 38, the provisions of Section 6-O*2 will govern; and in the event of any inconsistency between the provisions of 3 NYCRR 79, and 3 NYCRR 38, provisions of 3 NYCRR 79 will govern.
Definitions - 3 NYCRR 79.2
To clarify and to properly facilitate the application of 3 NYCRR 79 to Coop-Reverse Mortgages, the definition of “reverse mortgage loan” in 3 NYCRR 79.2(q) shall be deemed to include the definition of “reverse cooperative apartment unit loan” in Section 6-O*2(1)(a).
Additionally, for Coop-Reverse Mortgages, the definitions contained in 3 NYCRR 79.2 shall be modified as follows:
- The term “authorized designee,” as defined in Section 79.2(d), shall be deemed to include a “third-party contact” as that term is defined in Section 6-O*2(1)(g).
- To comply with the requirements of Section 6-O*2(2)(h), a “housing counselor,” as defined in 3 NYCRR 79.2(k), may only be referred to a borrower if such person has received “cooperative housing training.”
- The term “property charges”, as defined in 3 NYCRR 79.2(p), shall include cooperative maintenance fees.
Although it is not a defined term, 3 NYCRR 79 frequently uses the terms “property” or “real property” to refer to the collateral securing the interest in a reverse mortgage. For Coop-Reverse Mortgages, “real property” or “property” shall be read as either the “cooperative apartment unit” or the “shares or membership representing an ownership interest in the apartment unit securing the Coop-Reverse Mortgage” as appropriate for the specific requirement to which the language relates.
Furthermore, the term “HECM loan” referenced in 3 NYCRR 79 shall not be applicable to Coop-Reverse Mortgages.
Authority to Make Reverse Mortgage Loans – 3 NYCRR 79.3
According to the “authorized lender” definition in Section 6-O*2(1)(c), lenders engaging in the origination of Coop-Reverse Mortgages must be approved by the Superintendent. This approval requirement is similar to the existing requirement in 3 NYCRR 79.3(b), which provides that “no person or entity may engage in the business of making a reverse mortgage loan unless they have applied and are granted such right by the superintendent.”
Since Coop-Reverse Mortgages cannot be originated as part of the Department of Housing and Urban Development’s Home Equity Conversion Mortgage program, the Department considers Coop-Reverse Mortgages to be proprietary reverse mortgage products. As such, entities currently holding a “Reverse Mortgage Lending Dual Authority” from the Department are not required to submit a new application for authority to engage in Coop-Reverse Mortgage lending activities, as the existing “dual authority” authorizes the lender to originate proprietary reverse mortgages.
Unless excluded from the application process as outlined above, any person or entity seeking to originate Coop-Reverse Mortgages must submit an application through the Nationwide Multistate Licensing System following the Reverse Mortgage Lending Dual Authority checklist.
In addition, exempt organizations, as defined in Section 590.1(e) of the NYBL, are required to notify the Superintendent that such organizations are making Coop-Reverse Mortgage loans in this State and submit the information and documents outlined in Section 79.3(c)(2).
The form of surety bond required under Section 6-O*2(6)(a) shall be posted on the Department’s website.
Standby Letter of Credit – 3 NYCRR 79.3(c)(2)(ii)
The Department has received a number of inquiries about the standby letter of credit requirement established by Section 6-O*2(6)(a) for lenders originating Coop-Reverse Mortgages. That section requires that lenders maintain an irrevocable standby letter of credit based on the greater of three million dollars or the amount necessary to fund all reverse mortgage loan requirements anticipated over the next twelve months based on loans on the lender's books and loans expected to be made over the twelve-month period.
For the avoidance of doubt, the terms of 3 NYCRR 79.3(c)(2)(ii) shall apply to Coop-Reverse Mortgages. Therefore, the standby letter of credit requirement shall not apply to the origination of a Coop-Reverse Mortgage when the proceeds of such loan are fully dispersed at loan closing.
Advertising Restrictions – 3 NYCRR 79.4
In addition to compliance with the advertising and marketing restrictions outlined in Sections 6-O*2(5)(a-c) of the NYBL and 3 NYCRR 79.4 (excluding 79.4(c)(2)(iii)), lenders are prohibited from including any emblem, logo or image on mailing and marketing material employed in the solicitation of Coop-Reverse Mortgages that would mislead a potential borrower into believing that Coop-Reverse Mortgages are sponsored, endorsed or insured by a government agency.
Requirements for Reverse Mortgage Loans – 3 NYCRR 79.5
Until further notice, the provisions of 3 NYCRR 79.5(g), and (i) shall not apply to Coop-Reverse Mortgages. Given that Coop-Reverse Mortgages are a new product, the Department is seeking comments on whether the requirements and authorizations contained in these subsections, including allowing lenders to offer an annuity, or incorporate a shared appreciation feature, should be extended to loans authorized by Section 6-O*2.
Also, as applied to Coop-Reverse Mortgages, the following modifications to 3 NYCRR 79.5 shall apply:
- Lenders shall apply Section 6-O*2(2)(a) instead of 3 NYCRR 79.5(j).
3 NYCRR 79.10
3 NYCRR 79.10 shall not apply to Coop-Reverse Mortgages.
Additional Considerations for the Origination of Coop-Reverse Mortgages
Lenders are also advised to undertake an extensive review of all pre-existing disclosure forms that will be used as templates for creating Coop-Reverse Mortgage disclosures, notification or application documents. Such review should establish a clear roadmap for determining the correct term to employ in each instance where it is necessary to replace references to “property” or “real property.”