§ 1715z-20. — Insurance of home equity conversion mortgages for elderly homeowners.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC1715z-20]
TITLE 12--BANKS AND BANKING
CHAPTER 13--NATIONAL HOUSING
SUBCHAPTER II--MORTGAGE INSURANCE
Sec. 1715z-20. Insurance of home equity conversion mortgages for
elderly homeowners
(a) Purpose
The purpose of this section is to authorize the Secretary to carry
out a program of mortgage insurance designed--
(1) to meet the special needs of elderly homeowners by reducing
the effect of the economic hardship caused by the increasing costs
of meeting health, housing, and subsistence needs at a time of
reduced income, through the insurance of home equity conversion
mortgages to permit the conversion of a portion of accumulated home
equity into liquid assets; and
(2) to encourage and increase the involvement of mortgagees and
participants in the mortgage markets in the making and servicing of
home equity conversion mortgages for elderly homeowners.
(b) Definitions
For purposes of this section:
(1) The terms ``elderly homeowner'' and ``homeowner'' mean any
homeowner who is, or whose spouse is, at least 62 years of age or
such higher age as the Secretary may prescribe.
(2) The terms ``mortgagee'', ``mortgagor'', and ``State'' have
the meanings given such terms in section 1707 of this title.
(3) The term ``home equity conversion mortgage'' means a first
mortgage which provides for future payments to the homeowner based
on accumulated equity and which a housing creditor (as defined in
section 3802(2) of this title) is authorized to make (A) under any
law of the United States (other than section 3803 of this title) or
applicable agency regulations thereunder; (B) in accordance with
section 3803 of this title, notwithstanding any State constitution,
law, or regulation; or (C) under any State constitution, law, or
regulation.
(4) Mortgage.--The term ``mortgage'' means a first mortgage or
first lien on real estate, in fee simple, on all stock allocated to
a dwelling in a residential cooperative housing corporation, or on a
leasehold--
(A) under a lease for not less than 99 years that is
renewable; or
(B) under a lease having a period of not less than 10 years
to run beyond the maturity date of the mortgage.
(5) First mortgage.--The term ``first mortgage'' means such
classes of first liens as are commonly given to secure advances on,
or the unpaid purchase price of, real estate or all stock allocated
to a dwelling unit in a residential cooperative housing corporation,
under the laws of the State in which the real estate or dwelling
unit is located, together with the credit instruments, if any,
secured thereby.
(c) Insurance authority
The Secretary may, upon application by a mortgagee, insure any home
equity conversion mortgage eligible for insurance under this section
and, upon such terms and conditions as the Secretary may prescribe, make
commitments for the insurance of such mortgages prior to the date of
their execution or disbursement to the extent that the Secretary
determines such mortgages--
(1) have promise for improving the financial situation or
otherwise meeting the special needs of elderly homeowners;
(2) will include appropriate safeguards for mortgagors to offset
the special risks of such mortgages; and
(3) have a potential for acceptance in the mortgage market.
(d) Eligibility requirements
To be eligible for insurance under this section, a mortgage shall--
(1) have been made to a mortgagee approved by the Secretary as
responsible and able to service the mortgage properly;
(2) have been executed by a mortgagor who--
(A) qualifies as an elderly homeowner;
(B) has received adequate counseling by a third party (other
than the lender) as provided in subsection (f) of this section;
(C) has received full disclosure, as prescribed by the
Secretary, of all costs charged to the mortgagor, including
costs of estate planning, financial advice, and other services
that are related to the mortgage but are not required to obtain
the mortgage, which disclosure shall clearly state which charges
are required to obtain the mortgage and which are not required
to obtain the mortgage; and
(D) meets any additional requirements prescribed by the
Secretary;
(3) be secured by a dwelling that is designed principally for a
1- to 4-family residence in which the mortgagor occupies 1 of the
units;
(4) provide that prepayment, in whole or in part, may be made
without penalty at any time during the period of the mortgage;
(5) provide for a fixed or variable interest rate or future
sharing between the mortgagor and the mortgagee of the appreciation
in the value of the property, as agreed upon by the mortgagor and
the mortgagee;
(6) contain provisions for satisfaction of the obligation
satisfactory to the Secretary;
(7) provide that the homeowner shall not be liable for any
difference between the net amount of the remaining indebtedness of
the homeowner under the mortgage and the amount recovered by the
mortgagee from--
(A) the net sales proceeds from the dwelling that are
subject to the mortgage (based upon the amount of the
accumulated equity selected by the mortgagor to be subject to
the mortgage, as agreed upon by the mortgagor and mortgagee); or
(B) the insurance benefits paid pursuant to subsection
(i)(1)(C) of this section;
(8) contain such terms and provisions with respect to insurance,
repairs, alterations, payment of taxes, default reserve, delinquency
charges, foreclosure proceedings, anticipation of maturity,
additional and secondary liens, and other matters as the Secretary
may prescribe;
(9) provide for future payments to the mortgagor based on
accumulated equity (minus any applicable fees and charges),
according to the method that the mortgagor shall select from among
the methods under this paragraph, by payment of the amount--
(A) based upon a line of credit;
(B) on a monthly basis over a term specified by the
mortgagor;
(C) on a monthly basis over a term specified by the
mortgagor and based upon a line of credit;
(D) on a monthly basis over the tenure of the mortgagor;
(E) on a monthly basis over the tenure of the mortgagor and
based upon a line of credit; or
(F) on any other basis that the Secretary considers
appropriate;
(10) provide that the mortgagor may convert the method of
payment under paragraph (9) to any other method during the term of
the mortgage, except that in the case of a fixed rate mortgage, the
Secretary may, by regulation, limit such convertibility; and
(11) have been made with such restrictions as the Secretary
determines to be appropriate to ensure that the mortgagor does not
fund any unnecessary or excessive costs for obtaining the mortgage,
including any costs of estate planning, financial advice, or other
related services.
(e) Disclosures by mortgagee
The Secretary shall require each mortgagee of a mortgage insured
under this section to make available to the homeowner--
(1) at the time of the loan application, a written list of the
names and addresses of third-party information sources who are
approved by the Secretary as responsible and able to provide the
information required by subsection (f) of this section;
(2) at least 10 days prior to loan closing, a statement
informing the homeowner that the liability of the homeowner under
the mortgage is limited and explaining the homeowner's rights,
obligations, and remedies with respect to temporary absences from
the home, late payments, and payment default by the lender, all
conditions requiring satisfaction of the loan obligation, and any
other information that the Secretary may require;
(3) on an annual basis (but not later than January 31 of each
year), a statement summarizing the total principal amount paid to
the homeowner under the loan secured by the mortgage, the total
amount of deferred interest added to the principal, and the
outstanding loan balance at the end of the preceding year; and
(4) prior to loan closing, a statement of the projected total
cost of the mortgage to the homeowner based on the projected total
future loan balance (such cost expressed as a single average annual
interest rate for at least 2 different appreciation rates for the
term of the mortgage) for not less than 2 projected loan terms, as
the Secretary shall determine, which shall include--
(A) the cost for a short-term mortgage; and
(B) the cost for a loan term equaling the actuarial life
expectancy of the mortgagor.
(f) Information services for mortgagors
The Secretary shall provide or cause to be provided by entities
other than the lender the information required in subsection (d)(2)(B)
of this section. Such information shall be discussed with the mortgagor
and shall include--
(1) options other than a home equity conversion mortgage that
are available to the homeowner, including other housing, social
service, health, and financial options;
(2) other home equity conversion options that are or may become
available to the homeowner, such as sale-leaseback financing,
deferred payment loans, and property tax deferral;
(3) the financial implications of entering into a home equity
conversion mortgage;
(4) a disclosure that a home equity conversion mortgage may have
tax consequences, affect eligibility for assistance under Federal
and State programs, and have an impact on the estate and heirs of
the homeowner; and
(5) any other information that the Secretary may require.
The Secretary shall consult with consumer groups, industry
representatives, representatives of counseling organizations, and other
interested parties to identify alternative approaches to providing
consumer information required by this subsection that may be feasible
and desirable for home equity conversion mortgages insured under this
section and other types of reverse mortgages. The Secretary may, in lieu
of providing the consumer education required by this subsection, adopt
alternative approaches to consumer education that may be developed as a
result of such consultations, but only if the alternative approaches
provide all of the information specified in this subsection.
(g) Limitation on insurance authority
The aggregate number of mortgages insured under this section may not
exceed 150,000. In no case may the benefits of insurance under this
section exceed the maximum dollar amount established under section
1709(b)(2) of this title for 1-family residences in the area in which
the dwelling subject to the mortgage under this section is located.
(h) Administrative authority
The Secretary may--
(1) enter into such contracts and agreements with Federal,
State, and local agencies, public and private entities, and such
other persons as the Secretary determines to be necessary or
desirable to carry out the purposes of this section; and
(2) make such investigations and studies of data, and publish
and distribute such reports, as the Secretary determines to be
appropriate.
(i) Protection of homeowner and lender
(1) Notwithstanding any other provision of law, and in order to
further the purposes of the program authorized in this section, the
Secretary shall take any action necessary--
(A) to provide any mortgagor under this section with funds to
which the mortgagor is entitled under the insured mortgage or
ancillary contracts but that the mortgagor has not received because
of the default of the party responsible for payment;
(B) to obtain repayment of disbursements provided under
subparagraph (A) from any source; and
(C) to provide any mortgagee under this section with funds not
to exceed the limitations in subsection (g) of this section to which
the mortgagee is entitled under the terms of the insured mortgage or
ancillary contracts authorized in this section.
(2) Actions under paragraph (1) may include--
(A) disbursing funds to the mortgagor or mortgagee from the
General Insurance Fund;
(B) accepting an assignment of the insured mortgage
notwithstanding that the mortgagor is not in default under its
terms, and calculating the amount and making the payment of the
insurance claim on such assigned mortgage;
(C) requiring a subordinate mortgage from the mortgagor at any
time in order to secure repayments of any funds advanced or to be
advanced to the mortgagor;
(D) requiring a subrogation to the Secretary of the rights of
any parties to the transaction against any defaulting parties; and
(E) imposing premium charges.
(j) Safeguard to prevent displacement of homeowner
The Secretary may not insure a home equity conversion mortgage under
this section unless such mortgage provides that the homeowner's
obligation to satisfy the loan obligation is deferred until the
homeowner's death, the sale of the home, or the occurrence of other
events specified in regulations of the Secretary. For purposes of this
subsection, the term ``homeowner'' includes the spouse of a homeowner.
Section 1647(b) of title 15) and any implementing regulations issued by
the Board of Governors of the Federal Reserve System shall not apply to
a mortgage insured under this section.
(k) Insurance authority for refinancings
(1) In general
The Secretary may, upon application by a mortgagee, insure under
this subsection any mortgage given to refinance an existing home
equity conversion mortgage insured under this section.
(2) Anti-churning disclosure
The Secretary shall, by regulation, require that the mortgagee
of a mortgage insured under this subsection, provide to the
mortgagor, within an appropriate time period and in a manner
established in such regulations, a good faith estimate of: (A) the
total cost of the refinancing; and (B) the increase in the
mortgagor's principal limit as measured by the estimated initial
principal limit on the mortgage to be insured under this subsection
less the current principal limit on the home equity conversion
mortgage that is being refinanced and insured under this subsection.
(3) Waiver of counseling requirement
The mortgagor under a mortgage insured under this subsection may
waive the applicability, with respect to such mortgage, of the
requirements under subsection (d)(2)(B) of this section (relating to
third party counseling), but only if--
(A) the mortgagor has received the disclosure required under
paragraph (2);
(B) the increase in the principal limit described in
paragraph (2) exceeds the amount of the total cost of
refinancing (as described in such paragraph) by an amount to be
determined by the Secretary; and
(C) the time between the closing of the original home equity
conversion mortgage that is refinanced through the mortgage
insured under this subsection and the application for a
refinancing mortgage insured under this subsection does not
exceed 5 years.
(4) Credit for premiums paid
Notwithstanding section 1709(c)(2)(A) of this title, the
Secretary may reduce the amount of the single premium payment
otherwise collected under such section at the time of the insurance
of a mortgage refinanced and insured under this subsection. The
amount of the single premium for mortgages refinanced under this
subsection shall be determined by the Secretary based on the
actuarial study required under paragraph (5).
(5) Actuarial study
Not later than 180 days after December 27, 2000, the Secretary
shall conduct an actuarial analysis to determine the adequacy of the
insurance premiums collected under the program under this subsection
with respect to--
(A) a reduction in the single premium payment collected at
the time of the insurance of a mortgage refinanced and insured
under this subsection;
(B) the establishment of a single national limit on the
benefits of insurance under subsection (g) of this section
(relating to limitation on insurance authority); and
(C) the combined effect of reduced insurance premiums and a
single national limitation on insurance authority.
(6) Fees
The Secretary may establish a limit on the origination fee that
may be charged to a mortgagor under a mortgage insured under this
subsection, except that such limitation shall provide that the
origination fee may be fully financed with the mortgage and shall
include any fees paid to correspondent mortgagees approved by the
Secretary.
(l) Waiver of up-front premiums for mortgages to fund long-term care
insurance
(1) In general
In the case of any mortgage insured under this section under
which the total amount (except as provided in paragraph (2)) of all
future payments described in subsection (b)(3) of this section will
be used only for costs of a qualified long-term care insurance
contract that covers the mortgagor or members of the household
residing in the property that is subject to the mortgage,
notwithstanding section 1709(c)(2) of this title, the Secretary
shall not charge or collect the single premium payment otherwise
required under subparagraph (A) of such section to be paid at the
time of insurance.
(2) Authority to refinance existing mortgage and finance
closing costs
A mortgage described in paragraph (1) may provide financing of
amounts that are used to satisfy outstanding mortgage obligations
(in accordance with such limitations as the Secretary shall
prescribe) and any amounts used for initial service charges,
appraisal, inspection, and other fees (as approved by the Secretary)
in connection with such mortgage, and the amount of future payments
described in subsection (b)(3) of this section under the mortgage
shall be reduced accordingly.
(3) Definition
For purposes of this subsection, the term ``qualified long-term
care insurance contract'' has the meaning given such term in section
7702B of title 26, except that such contract shall also meet the
requirements of--
(A) sections 9 (relating to disclosure), 24 (relating to
suitability), and 26 (relating to contingent nonforfeiture) of
the long-term care insurance model regulation promulgated by the
National Association of Insurance Commissioners (as adopted as
of September 2000); and
(B) section 8 (relating to contingent nonforfeiture) of the
long-term care insurance model Act promulgated by the National
Association of Insurance Commissioners (as adopted as of
September 2000).
(m) Funding for counseling and consumer education and outreach
Of any amounts made available for any of fiscal years 2000 through
2003 for housing counseling under section 1701x of this title, up to a
total of $1,000,000 shall be available to the Secretary in each such
fiscal year, in such amounts as the Secretary determines appropriate,
for the following purposes in connection with home equity conversion
mortgages insured under this section:
(1) Counseling
For housing counseling authorized by section 1701x of this
title.
(2) Consumer education
For transfer to the departmental salaries and expenses account
for consumer education and outreach activities.
(June 27, 1934, ch. 847, title II, Sec. 255, as added Pub. L. 100-242,
title IV, Sec. 417(a), Feb. 5, 1988, 101 Stat. 1908; amended Pub. L.
100-628, title X, Sec. 1066, Nov. 7, 1988, 102 Stat. 3275; Pub. L. 101-
508, title II, Sec. 2106, Nov. 5, 1990, 104 Stat. 1388-20; Pub. L. 101-
625, title III, Sec. 334(b)-(d), Nov. 28, 1990, 104 Stat. 4141, 4142;
Pub. L. 102-389, title II, Oct. 6, 1992, 106 Stat. 1592; Pub. L. 102-
550, title V, Secs. 503(c)(2), 520, Oct. 28, 1992, 106 Stat. 3779, 3793;
Pub. L. 104-99, title IV, Sec. 406, Jan. 26, 1996, 110 Stat. 45; Pub. L.
104-120, Sec. 6, Mar. 28, 1996, 110 Stat. 835; Pub. L. 105-276, title V,
Sec. 593(a)-(e)(1), Oct. 21, 1998, 112 Stat. 2654, 2655; Pub. L. 106-
569, title II, Sec. 201(a)(1), (b), (c)(1), Dec. 27, 2000, 114 Stat.
2948, 2950.)
Amendments
2000--Subsec. (b)(2). Pub. L. 106-569, Sec. 201(b)(1), struck out ``
`mortgage','' before `` `mortgagee',''.
Subsec. (b)(4), (5). Pub. L. 106-569, Sec. 201(b)(2), added pars.
(4) and (5).
Subsecs. (k) to (m). Pub. L. 106-569, Sec. 201(a)(1), (c)(1), added
subsecs. (k) and (l) and redesignated former subsec. (k) as (m).
1998--Pub. L. 105-276, Sec. 593(d)(1), struck out ``Demonstration
program of'' before ``Insurance'' in section catchline.
Subsec. (a). Pub. L. 105-276, Sec. 593(d)(2), (3), struck out
``demonstration'' before ``program'' in introductory provisions,
inserted ``and'' at end of par. (1), substituted a period for ``; and''
at end of par. (2), and struck out par. (3) which read as follows: ``to
require the evaluation of data to determine--
``(A) the extent of the need and demand among elderly homeowners
for insured and uninsured home equity conversion mortgages;
``(B) the types of home equity conversion mortgages that best
serve the needs and interests of elderly homeowners, the Federal
Government, and lenders; and
``(C) the appropriate scope and nature of participation by the
Secretary in connection with home equity conversion mortgages for
elderly homeowners.''
Subsec. (d)(2)(C), (D). Pub. L. 105-276, Sec. 593(e)(1)(A), added
subpar. (C) and redesignated former subpar. (C) as (D).
Subsec. (d)(11). Pub. L. 105-276, Sec. 593(e)(1)(B)-(D), added par.
(11).
Subsec. (f). Pub. L. 105-276, Sec. 593(b), inserted concluding
provisions.
Subsec. (g). Pub. L. 105-276, Sec. 593(a), substituted ``The
aggregate number of mortgages insured under this section may not exceed
150,000.'' for ``No mortgage may be insured under this section after
September 30, 2000, except pursuant to a commitment to insure issued on
or before such date. The total number of mortgages insured under this
section may not exceed 50,000.''
Subsec. (i)(1). Pub. L. 105-276, Sec. 593(d)(2), struck out
``demonstration'' before ``program'' in introductory provisions.
Subsec. (k). Pub. L. 105-276, Sec. 593(d)(4), (5), redesignated
subsec. (l) as (k) and struck out heading and text of former subsec.
(k), which had required interim report not later than Sept. 30, 1989, on
design and implementation of demonstration program of insurance of home
equity conversion mortgages for elderly homeowners, preliminary
evaluation of program incorporating comments and recommendations not
later than Mar. 30, 1992, and updated report and evaluation biennially
thereafter, including analysis of repayment of home equity conversion
mortgages during report period.
Subsec. (l). Pub. L. 105-276, Sec. 593(d)(5), redesignated subsec.
(l) as (k).
Pub. L. 105-276, Sec. 593(c), added subsec. (l).
1996--Subsec. (d)(3). Pub. L. 104-120, Sec. 6(c), amended par. (3)
generally. Prior to amendment, par. (3) read as follows: ``be secured by
a dwelling that is designed principally for a 1-family residence and is
occupied by the mortgagor;''.
Subsec. (g). Pub. L. 104-120, Sec. 6(a), (b), substituted ``2000''
for ``1996'' and ``50,000'' for ``30,000''.
Pub. L. 104-99 substituted ``1996'' for ``1995'' and ``30,000'' for
``25,000''.
1992--Subsec. (g). Pub. L. 102-389 and Pub. L. 102-550,
Sec. 503(c)(2), amended subsec. (g) identically, substituting ``for 1-
family residences in the area in which the dwelling subject to the
mortgage under this section is located'' for ``for a 1-family
residence''.
Subsec. (j). Pub. L. 102-550, Sec. 520, inserted at end ``Section
1647(b) of title 15) and any implementing regulations issued by the
Board of Governors of the Federal Reserve System shall not apply to a
mortgage insured under this section.''
1990--Subsec. (d)(7)(A). Pub. L. 101-625, Sec. 334(c), added subpar.
(A) and struck out former subpar. (A) which read as follows: ``the
foreclosure sale; or''.
Subsec. (d)(9), (10). Pub. L. 101-625, Sec. 334(b), added pars. (9)
and (10).
Subsec. (e)(2). Pub. L. 101-625, Sec. 334(d)(1), substituted
``statement informing the homeowner that the liability of the homeowner
under the mortgage is limited and'' for ``statement'' and struck out
``and'' at end.
Subsec. (e)(4). Pub. L. 101-625, Sec. 334(d)(2), (3), added par.
(4).
Subsec. (g). Pub. L. 101-508, Sec. 2106, substituted ``September 30,
1995'' for ``September 30, 1991'' and ``may not exceed 25,000'' for
``may not exceed 2,500''.
1988--Subsec. (b)(3). Pub. L. 100-628, Sec. 1066(a), made technical
amendment to reference to section 3802(2) of this title to correct
reference to corresponding provision of original act.
Subsec. (d)(3). Pub. L. 100-628, Sec. 1066(b), struck out ``and that
has a value not to exceed the maximum dollar amount established by the
Secretary under section 1709(b)(2) of this title for a 1-family
residence'' after ``by the mortgagor''.
Effective Date of 2000 Amendment
Pub. L. 106-569, title II, Sec. 201(c)(2), Dec. 27, 2000, 114 Stat.
2951, provided that: ``The provisions of section 255(l) of the National
Housing Act [12 U.S.C.1715z-20(l)] (as added by paragraph (1) of this
subsection) shall apply only to mortgages closed on or after April 1,
2001.''
Effective Date of 1998 Amendment
Pub. L. 105-276, title V, Sec. 593(f), Oct. 21, 1998, 112 Stat.
2655, provided that: ``This section [amending this section and enacting
provisions set out as a note below] shall take effect on, and the
amendments made by this section are made on, and shall apply beginning
upon, the date of the enactment of this Act [Oct. 21, 1998].''
Effective Date of 1996 Amendment
Amendment by Pub. L. 104-120 to be construed to have become
effective Oct. 1, 1995, see section 13(a) of Pub. L. 104-120, set out as
an Effective and Termination Dates of 1996 Amendments note under section
1437d of Title 42, The Public Health and Welfare.
Regulations
Pub. L. 106-569, title II, Sec. 201(a)(2), Dec. 27, 2000, 114 Stat.
2949, provided that: ``The Secretary shall issue any final regulations
necessary to implement the amendments made by paragraph (1) of this
subsection [amending this section], which shall take effect not later
than the expiration of the 180-day period beginning on the date of the
enactment of this Act [Dec. 27, 2000]. The regulations shall be issued
after notice and opportunity for public comment in accordance with the
procedure under section 553 of title 5, United States Code, applicable
to substantive rules (notwithstanding subsections (a)(2), (b)(B), and
(d)(3) of such section).''
Section 417(b) of Pub. L. 100-242 directed Secretary of Housing and
Urban Development, not later than 6 months after Feb. 5, 1988, to
consult with lenders, insurers, and organizations and individuals with
expertise in home equity conversion in developing proposed regulations
implementing this section and not later than 9 months after Feb. 5,
1988, to issue proposed regulations implementing this section.
Implementation of 1998 Amendment
Pub. L. 105-276, title V, Sec. 593(e)(2), Oct. 21, 1998, 112 Stat.
2655, provided that:
``(A) Notice.--The Secretary of Housing and Urban Development shall,
by interim notice, implement the amendments made by paragraph (1)
[amending this section] in an expeditious manner, as determined by the
Secretary. Such notice shall not be effective after the date of the
effectiveness of the final regulations issued under subparagraph (B) of
this paragraph.
``(B) Regulations.--The Secretary shall, not later than the
expiration of the 90-day period beginning on the date of the enactment
of this Act [Oct. 21, 1998], issue final regulations to implement the
amendments made by paragraph (1). Such regulations shall be issued only
after notice and opportunity for public comment pursuant to the
provisions of section 553 of title 5, United States Code
(notwithstanding subsections (a)(2) and (b)(3)(B) of such section).''
