Legislative and Regulatory Roundup MBAs Reverse Mortgage Lending Conference 2009 San Diego, California September 11, 20

1. Legislative and Regulatory RoundupMBA's Reverse Mortgage Lending Conference 2009San Diego, CaliforniaSeptember 11, 2009

2. FHA Home Equity Conversion Mortgage (HECM) Updates HECM Origination Fees: ML 2008-34 (10/31/2008) Minimum of $2,500; Maximum of $6,000 2% of MCA up to $200,000 Plus 1% of MCA > $200,000 HECM Loan Limits: Nationwide loan limits of $625,500, through December 31, 2009. ML 2009-07 (02/24/09) Clarification of Counseling Requirements: ML 2009-10 (03/27/2009) Applicant must initiate communications with counselor, without lender’s assistance, and counselor must be independent third party Lender must provide list of approved agencies (at least 10 ? 5 within local area (1 within driving distance) and 5 enumerated agencies) Counselors must review and document budget analysis New HECM Counseling Certificate (addresses how fees will be paid – upfront, financed, waived; ML 2008-12) HECM for Purchase Program: ML 2009-11 (03/27/2009) (supersedes ML 2008-33). MCA – lesser of appraised value, sales price, or FHA limit

3. FHA Home Equity Conversion Mortgage (HECM) Updates Reminder of HECM Refinance Requirements: ML 2009-21 (06/30/2009) HECMs that have been assigned to HUD (that are not finally due/payable) can be refinanced/insured with reduced upfront MIP. Must provide Anti-Churning Disclosure. Borrower may waive/opt-out of counseling if within 5 years of previous HECM, borrower receives Anti-Churning Disclosure, and the increase in the principal limit is at least 5 times the transaction costs (must include estimate of increase in case binder). Not available for HECM for Purchase. Counseling Final Rule: (09/02/09) Establishes testing standards to qualify individuals as HECM counselors. Establishes HECM Counseling Roster of eligible individual counselors (automatic inclusion for qualified counselors, removal for cause, procedure for reinstatement). HECM counselors who have passed the examination will be placed on the Roster for 3 years, after which the counselor must retake the exam.

4. FHA Home Equity Conversion Mortgage (HECM) Non-Updates HECM for Coops – No word yet from HUD. Restrictions Related to Financial/Insurance Products – Enacted by HERA; HUD announced intention to solicit comments prior to issuing definitive guidance (ML 2008-24; 09/16/2008). No further word yet from HUD.

5. State Law Updates New Hampshire – Enacted new requirements effective July 31, 2009. Prohibits a “yield spread premium” in a reverse mortgage transaction. (YSP = cash rebate paid to a mortgage broker or mortgage originator that is based on selling an interest rate to a borrower that is above the wholesale par rate for which the borrower qualifies.) Prohibits a broker or funder of reverse mortgage transactions (and any affiliate of those persons) from any participation or association with “financial or insurance activity” (or employment of any person who does). No express allowance for firewalls. Prohibits directly or indirectly requiring the purchase of any other financial or insurance product as a condition of obtaining a mortgage.

6. State Law Updates New York – Enacted Reverse Mortgage Fairness Act of 2009 (eff. Oct. 26, 2009): Addresses property and income tax treatment of reverse mortgage loan proceeds. New York – Requirements for registration of mortgage loan servicers (eff. July 1, 2009): Expressly applicable to nonexempt servicers of reverse mortgage loans (as well as forward loans) – persons making payments to borrowers under reverse mortgage loans.

7. State Law Updates Vermont – Enacted new reverse mortgage act (eff. July 2009) Generally Prohibits Proprietary Products – Prohibits issuing reverse mortgage loan unless: Lender is HUD-approved Loan complies with all HECM requirements Loan is insured by FHA or other agency, or is a government-sponsored enterprise product. Requires referral to counseling organization (face-to-face, unless the applicant cannot or chooses not to travel and cannot be visited by a counselor in their home, in which case telephone counseling is acceptable (with state banking department approval)).

8. State Law Updates Vermont – Enacted new reverse mortgage act (cont.) Prohibitions for annuities (prohibits requiring an applicant to purchase an annuity as a condition of obtaining the reverse loan; prohibits offering or referring an applicant to anyone for the purchase of an annuity prior to closing or before the expiration of the right to rescind). No express allowance for firewalls. Banking Division Notice (08/04/09) Requirements for telephone counseling Must obtain approval Qualifications for telephone counselors Counseling must be in person whenever possible

9. State Law Updates Washington: Enacted the Washington State Reverse Mortgage Act (eff. July 26, 2009) Amended Consumer Loan Act to provide that the Act’s prohibition against compound interest does not apply to reverse mortgage loans made in accordance with new Washington State Reverse Mortgage Act. Requirements for Licensees Providing Proprietary Reverse Mortgage Loans: Licensees must generally maintain irrevocable standby letter of credit necessary to fund all reverse mortgage loan requirements anticipated over the next 12 months, or $3 million, whichever is greater. Licensees must generally maintain minimum capital of $10 million. Exemption: Licensees that only originate proprietary loans that are fully disbursed at closing or that are sold into the secondary market to investors with sufficient credit rating, under written commitment, for delivery within 10 days of closing. Requirements for Proprietary Reverse Mortgage Loans: May not offer without preapproval by state banking department Prohibits prepayment penalties, except if lender has paid or waived all usual fees or costs, the penalty does not exceed the total amount of usual fees or costs the lender absorbed or waived, and the lender provided prior written notice of the penalty. Requirements for timing of advances, and payment of late charges for late advances.

10. State Law Updates Washington: Requirements for Proprietary Reverse Mortgage Loans (cont.): Disclosure in loan agreement of any interest rate or other fees to be charged when loan becomes due and payable, plus a legend identifying the reverse mortgage loan. Annual statement of loan advances, balance, other terms, and contact information for inquiries. Must obtain an appraisal (or use current tax assessment) and provide copies of appraisal within 5 days of borrower's written request. Borrower has same right to rescind as under TILA. Annuity/financial products restrictions – prohibits: Requiring an applicant to purchase an annuity, insurance, or another product as a condition of obtaining a loan; Offering or referring the borrower to anyone for an annuity prior to closing or before the expiration of the right to rescind; Providing marketing info or sales leads regarding applicant; Receiving compensation for an annuity sale or referral.

11. State Law Updates Washington: Requirements for Proprietary Reverse Mortgage Loans (cont.): Lender and any other party that participates in the origination must maintain safeguards to ensure that individuals offering loans do not provide borrowers with any other financial or insurance products, and that individuals participating in origination have no ability or incentive to provide the borrower with any other financial or insurance product. Temporary absences not exceeding 180 consecutive days do not cause the mortgage to become due and payable; Loan documents may specify that extended absences exceeding 180 consecutive days, but less than one year, will not cause the mortgage to become due and payable if the borrower has taken prior action that secures and protects the home in a manner satisfactory to the lender. Lender must refer the applicant to an independent housing counseling agency prior to accepting a final and complete application or assessing any fees. List of at least 5 agencies, including at least 2 that can provide counseling by telephone (telephone counseling only at the borrower's request).

12. State Law Updates Washington: Requirements for Proprietary Reverse Mortgage Loans (cont.): Plain language counseling notice within three business days of receipt of completed application. Washington state resident must be at least 60 years of age. Requirements for All Reverse Mortgage Loans: Treble damages if lender defaults and fails to cure default.

13. State Law Updates Pending California Reverse Mortgage Elder Protection Act (Assembly Bill 329) Would prohibit prepayment penalties. Would impose late charge of three times the amount unless an actual default is cured. Absences exceeding 60 consecutive days, but less than one year, do not cause loan to be due and payable in borrower took prior action to protect the home. Disclosures Would prohibit ties with certain other financial or insurance products, including with regard to any person that participates in origination, unless the lender maintains procedural safeguards to separate origination function from the financial or insurance product. Compliance with HECM requirements would constitute compliance with these restrictions (even for non-HECM loans) Would require the lender to provide the prospective borrower with a list of at least 10 counseling agencies (currently law requires at least five, including at least two that can provide counseling by telephone). Would require lender to provide the prospective borrower, prior to counseling, with a written checklist of issues to discuss with the counselor, as stipulated in the bill. Would prohibit the counseling agency from receiving any compensation, directly or indirectly, from the lender or any other person or entity involved in originating or servicing the mortgage or the sale of annuities, investments, long-term care insurance, or any other type of financial or insurance product (although it would not prohibit the agency from receiving unrelated charitable or philanthropic financial assistance from the lender). Pending California Reverse Mortgage Provisions (Senate Bill 660) Would impose upon any person who recommends a reverse mortgage loan in anticipation of financial gain a duty of honesty, good faith, and fair dealing. Would require disclosure and checklist of issues to discuss with counselor.

14. Fannie Mae Updates Adjustable Rate Index (Ann. 09-16; 06/01/09) Discontinued offering commitments to purchase adjustable-rate HECMs using the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year (CMT). Will continue to offer commitments to purchase monthly adjustable-rate LIBOR-indexed HECMs (and fixed-rate HECMs). Effective Sept. 1, 2009.

15. General Updates SAFE Act Mortgage Loan Originator Licensing 48 states and the District of Columbia have passed legislation (CA bills pending). Depending upon state’s enactment, generally applies to loan originators of any “residential mortgage loan,” which would include reverse mortgage.

16. General Updates FHA Approval Process for Condominiums (ML 2009-19; 06/12/2009) New Direct Endorsement Lender Review and Approval Process (DELRAP) Alternative HUD Review and Approval Process (HRAP) Eliminates spot loan approval process Project approval not required for “site” condos with condo rider, FHA-to-FHA streamlined refis, or FHA/HUD REO Division sales Environmental Reviews not required under DELRAP, or under HRAP once projects beyond HUD’s purview Project Eligibility: Presale: At least 50% Owner-Occupancy: At least 50% Conversion: One-year waiting period is eliminated Recertification Every Two Years Manufactured Housing Condo Projects eligible Effective for case numbers assigned Oct. 1, 2009.

17. General Updates FHA Manufactured Housing Policy Guidance (ML 2009-16; 05/21/2009) Describes changes to requirements for new and existing construction

18. Kris D. Kully K&L Gates, LLP kris.kully@klgates.com Joseph DeMarkey MetLife Bank jdemarkey@metlife.com