Sponsored by Illinois Senator Jacqueline Collins and State Representative Arthur Turner, Senate Bill 1440 is headed for the desk of Illinois Governor Bruce Rauner to be enacted into law, riding a tide of bipartisan support.
Illinois’ new legislation, the Reverse Mortgage Act, requires a three-day “cooling-off period” from the time a lender makes a written commitment to make a reverse mortgage, during which time the borrower cannot be required to close or proceed with the loan.
“We want to make sure that seniors understand that while a reverse mortgage may be a good financial decision for them, it’s not a risk-free loan,” said Bob Palmer, policy director for Housing Action Illinois, told ReverseMortgageDaily.com. “We particularly want to make sure seniors understand all the things they need to do to avoid defaulting on the loan, such as keeping current on their property taxes and homeowner insurance.”
The bill also includes certain provisions that consolidate conflicting state laws regarding reverse mortgages to make certain definitions and terms consistent with federally-insured Home Equity Conversion Mortgages.
The Consumer Financial Protection Bureau recently issued a warning that the public doesn’t understand how a reverse mortgage works, citing a study that found many consumers were left with false impressions after viewing reverse mortgage advertisements, and followed that up by issuing an advisory warning consumers that many reverse mortgage ads are misleading.
“As older consumers consider reverse loans to tap into their home equity, they need to be careful of those late-night TV ads that seem too good to be true,” said CFPB Director Richard Cordray. “It is important that advertisers do not downplay the terms and risks of reverse mortgages or confuse prospective borrowers.
The Illinois legislation includes provisions intended to ensure that seniors considering reverse mortgages are better educated about their responsibilities as a borrower, while also being protected against predatory lending practices and scams.
“Reverse mortgages are complex loans that 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,” said Housing Action Illinois and Illinois Attorney General Lisa Madigan in a written statement.
The legislation arrives on the heels of several proposed and finalized reverse mortgage bills that enact cooling-off periods in other states, namely Connecticut and California.