The Oregon state senate’s Committee on Housing Development held a hearing last week on a piece of proposed legislation that seeks to limit the amount of equity a reverse mortgage lender can receive after the sale or transfer of a property.
Industry representatives contend that if enacted, the bill could potentially halt the availability of proprietary product offerings in the state.
But the proceeding revealed that the bill could be amended to better reflect a more narrow target than the reverse mortgage industry, namely the home equity contract or home equity investment (HEI) industry.
Senate Bill (SB) 534 is positioned primarily as a consumer protection measure. The lawmaker who introduced the bill, Sen. Deb Patterson (D-Salem), described for the committee what motivated her to bring into the legislature and what she feels it will help accomplish.
Reason for the bill
At the beginning of the SB 534 section of the hearing, Patterson explained that she introduced the bill on behalf of Sen. Tim Knopp, who no longer serves in the Senate.
“I certainly have a heart for this issue,” she said. “I would just like to say that he shared with me his belief, with which I concur, that a person should know how much is being held from their equity. It’s often in the fine print, and people don’t know. So older adults have been taken advantage of, because they think that they’re [entering into something that] gives back all of their equity. But a portion is kept that they’re not aware of, and so this was to have more transparency around that.”
Three witnesses were called to testify on the potential impact of the bill. One was a private citizen, Samantha Demchak, who also submitted a letter to the legislature describing how a client of hers engaged in a home equity contract with Unison in 2017.
This person ultimately “needed to sell her home to move into a senior living community,” but after the contract’s repayment requirements then needed to apply “for Medicaid to cover her expenses, shifting the financial burden to Oregon taxpayers.”
Reverse mortgage industry comments
The other two witnesses were members of the reverse mortgage industry. Rodd Miller, the reverse mortgage division manager at PacRes Mortgage in Portland, explained his opposition to the bill by saying that it would damage the availability of reverse mortgages in the state.
“My primary concern [about the bill is], as it is currently written, will have unintended consequences of eliminating reverse mortgages entirely within our state,” he said. “Which will bring tremendous harm towards senior homeowners.”
Miller responded to Demchak’s testimony by drawing contrasts between the way home equity contract products typically work, and how they differ from the ways that reverse mortgages work.
“That’s a very heart-wrenching situation, and I’m disappointed to hear about that outcome. But that is not how a reverse mortgage actually works,” he said. “The Federal Housing Administration (FHA) is the agency behind the predominant reverse mortgage product in use today, known as the Home Equity Conversion Mortgage (HECM). This program has been enhanced and refined over the last 20 years since they allow our seniors to access the equity in their homes, and FHA provides the federal guarantee that lenders need to extend new mortgages to members of our community.”
The bill, he said, runs counter to the terms of a HECM and could harm older homeowners seeking to tap their equity. Those sentiments were also shared by David Ellison, a reverse mortgage originator with Longbridge Financial in the Portland area.
“It is important to be able to parse the difference between a reverse mortgage loan that is [backed by] FHA, a loan that is governed by HUD regulations [and which is] very tightly regulated. Equity sharing agreements [are totally different],” he explained.
Differences emerge
He went on to explain some of the more granular differences between the two products, and urged the assembled lawmakers to iterate the language of the bill to specify which industry it’s targeting.
“This legislation should be clarified to discuss equity sharing agreements, not all reverse mortgage loans,” he said. “Because we couldn’t be more different.”
Interestingly after Ellison finished his testimony, Demchak further clarified the distinction between equity contracts and reverse mortgages herself.
“They are completely different things,” she said. “The home equity investment company [is] investing in the equity that your house is going to accrue, so you’re paying a percentage of the equity. They’re completely different things. And in SB 534, it does say reverse mortgage. When I talked to Sen. Knopp, it was in regards to home equity investments, not reverse mortgages.”
Potential amendments
At the end of the bill’s segment of the hearing, the committee chair seemed to suggest that the bill would require revision to better reflect its language with its intent to target the HEO industry and not reverse mortgages.
“Thank you for that clarification,” said Sen. Khanh Pham, who chaired the proceedings for the committee. “It sounds like we need to do some amendment processing to make sure that we’re accurately targeting the products.”
“I’ve done a lot of research, but I do concur with David that it […] they are apples and oranges,” Demchak concluded.
HousingWire’s Reverse Mortgage Daily (RMD) reached out to the office of Sen. Patterson about the hearing and the sentiment that seemed to come out of it regarding a potential need to amend the bill.
“Our office has no updates or statements to share at this time,” a representative for the senator’s office said in an email. “We are working with the constituent who brought the proposal forward to find a path for the bill.”
