Sec. 106-19-6 - Requirements for Reverse Mortgage Loans

ยง 106-19-6. Requirements for Reverse Mortgage Loans

6.1. Security Instrument. -- The security instrument shall expressly and conspicuously bear a legend identifying the security as a reverse mortgage.

6.2. Single Family Dwelling. -- The reverse mortgage loan shall be secured by a first lien on real property improved by a one-unit single family dwelling that is the residence of the mortgagor(s). The proceeds of a reverse mortgage loan are to be advanced to the mortgagor(s) during the life of the loan in equal installments, in advances through a line of credit or otherwise, in lump sums, or through a combination thereof.

6.3. Comply with Federal Laws. -- All lenders shall comply with all applicable federal laws and regulations, including but not limited to the applicable sections of the Truth in Lending Act (15 USC ' 1601 et seq.), the Equal Credit Opportunity Act (15 USC ' 1691 et seq.) and the Real Estate Settlement Procedures Act (12 USC ' 2601 et seq.).

6.4. Comply with State Laws. B All lenders must comply with all applicable state laws and regulations, including but not limited to the applicable sections of the West Virginia Consumer Credit and Protection Act, W. Va. Code '46A-1-101 et seq.

6.5. Application Fee. -- Prior to the closing of a reverse mortgage loan, the only charge a lender may collect from an applicant is an application fee which must be designated as such and which may not be a percentage of the principal amount of the loan or amount financed. The fee shall be reasonably related to the services to be performed.

6.6. Loan to Value Ratio. -- The maximum loan to value ratio for any loan projected at the time of loan closing shall not exceed eighty percent (80%) of the anticipated value of the property at anticipated loan maturity or at any time prior to the anticipated loan maturity date. The loan to value ratio shall be calculated by dividing the numerator, as defined in subdivision (a) of this subsection, by the denominator, as defined in subdivision (b) of this subsection.

6.6.a. Numerator of the Ratio. -- The numerator of the loan to value ratio shall include: all principal, all accrued loan interest, all fees, costs and payments incurred in connection with the origination of the loan, including but not limited to charges for the purchase of annuities, the payment of real estate taxes and insurance to the extent that an escrow account is established to fund real estate tax and insurance obligations or the lender has committed to advance funds to pay for such taxes and insurance on the property securing the reverse mortgage and any shared appreciation assuming (i) no early prepayment of the reverse mortgage loan, (ii) any loan amounts, such as credit lines and reserve accounts, which may be drawn at the discretion of the mortgagor(s) or by the lender are drawn fully at the earliest opportunity, (iii) the current interest rate if fixed or, if variable, the yearly average of the base index and margin chosen by the lender for the eight year period preceding the loan closing, and (iv) if applicable, a projected appreciation or depreciation rate for home prices which is determined by the same factor as is used in the denominator set forth in subdivision (b) of this subsection.

6.6.b. Denominator of the Ratio. -- The denominator of the loan to value ratio shall be determined by increasing or decreasing the appraised value of the real property, as determined at loan closing by an independent certified or licensed appraiser, by a factor that the creditor reasonably believes will be the average annual increase or decrease in the value of the real property securing the reverse mortgage loan from the loan closing until the anticipated loan maturity; Provided, however, that this factor shall in no event exceed the average of the yearly changes in the Consumer Price Index for Shelter, as determined by the United States Department of Labor, for the eight years preceding the year in which the loan is made.

6.6.c. Term Loan. -- For a term loan, the anticipated loan maturity shall be the date of maturity of the loan. No term loan may have a maturity date of less than ten years.

6.6.d. Tenure Loan. -- For a tenure loan, the Commissioner of Banking may, in his or her discretion, review and approve the data and assumptions used to establish the anticipated loan maturity for each reverse mortgage loan.

6.7. Alternative to Loan to Value Ratio. -- As an alternative to subsection 6.6 of this rule, the parties may agree that the total obligation of the mortgagor(s) to the lender arising from the reverse mortgage loan shall be no greater than eighty percent (80%) of the actual value of the property at maturity or the amount of the original loan principal at loan closing whichever is greater. The eighty percent (80%) cap is exclusive of any actual losses incurred by the lender as a direct result of a breach of a loan covenant by the mortgagor(s). The difference between the principal and accrued interest and eighty percent (80%) of the actual value of the property at maturity shall be known as "equity participation".

6.8. Right to Prepay. -- The mortgagor(s) may prepay any loan without penalty at any time. The payment of any fees or charges, such as a termination fee, that otherwise would be due at maturity without prepayment shall not be considered a penalty.

6.9. Attachment Prohibition. -- A lender shall not use or attach any property or asset of the mortgagor except the real property securing the reverse mortgage loan in satisfaction of a reverse mortgage obligation.

6.10. Late Payment. -- In the event that a lender fails to make or remit to the mortgagor(s) any payment required under any loan within fifteen (15) days of its due date, the lender shall forfeit the interest that would have been earned on the outstanding loan principal for the entire period during which payments were suspended, ceased or made late, and may be subject to other penalties as provided for in chapter 31A of the West Virginia Code.

6.11. Counseling and Information Services. -- All lenders shall deliver to all applicants a statement prepared by the West Virginia division of banking on the advisability and availability of independent counseling and information services. In addition, no reverse mortgage loan commitment or approval shall be issued by a lender until the applicant presents a written statement that the terms of the reverse mortgage loan have been explained by an attorney, a housing and urban development certified counselor or any other counseling service as indicated on the statement supplied by the West Virginia division of banking.

6.12. Reappraisal Requests. -- At the end of the term of a reverse mortgage loan, the mortgagor(s) may request that the real property securing the loan be reappraised to increase the payments made to the mortgagor(s) or to extend the loan term. The reappraisal may be performed at the lender's sole discretion. In all cases, the lender may require the mortgagor(s) to pay the cost of the reappraisal in advance. In the event the value of the property has increased, the lender may chose to increase the loan payments or extend the loan term where agreed to by the mortgagor(s) subject to the following:

6.12.a. The loan-to-value ratio limitations, as determined pursuant to this rule as of the date on which the increase or extension would begin, shall not be exceeded; and

6.12.b. Any existing insurance coverage shall be increased to insure the additional amounts to be due.

The mortgagor(s) shall execute all documents reasonably requested by the lender and pay all reasonable closing costs associated with the increase in payments or the extension of the loan term provided that the costs have been previously disclosed in writing to the mortgagor(s).

6.13. Reserve Account. -- The lender and the mortgagor(s) may agree in writing to establish a reserve account which may be drawn upon by the mortgagor(s) or the mortgagee to maintain the structural integrity of the real property, to pay real estate taxes or the premium on any required insurance or for any personal expenses of the mortgagor(s). The reserve account may bear interest at a rate that is different from the interest rate on other advances made pursuant to the terms of the reverse mortgage. A lender may only charge interest on advances actually made from the reserve account and not on the entire balance in the reserve account.

6.14. Security Agreement Requirements. -- The security agreement shall include the following:

6.14.a. a list of events which could result in termination of the reverse mortgage loan;

6.14.b. the lender's obligation to notify the mortgagor(s) in writing of any event that could lead to termination of the reverse mortgage loan pursuant to subsection 9.1 and subdivision 9.2.b of this rule; and

6.14.c. the name of a third-party, if any, designated by the mortgagor(s) to whom the lender is obligated to send written notice of any event that could lead to termination of the reverse mortgage loan pursuant to subsection 9.1 and subdivision 9.2.b of this rule.

6.15. Service of Foreclosure Documents. -- The lender shall also provide a copy of all foreclosure documents served on the mortgagor(s) to the third party designated in the security agreement simultaneously with service on the mortgagor(s); or if the mortgagor has not named a third party or if the third party can not be contacted, the lender shall notify in writing the County Clerk of the county where the property is located of its intent to commence foreclosure proceedings.

6.15.a. If a third party has been named but can not be contacted, then the lender shall cause a notice of the foreclosure to be published as a Class II legal advertisement in the county where the property is located, and shall retain in its records an affidavit of posting and proof of publication of the notice.

6.15.b. If repayment is due as a result of the death of the mortgagor(s), then the lender shall provide notice in writing to the heirs, administrator, or executor responsible for the property prior to any foreclosure action. This notice shall state:

6.15.b.1. the amount of the outstanding balance;

6.15.b.2. that the debt must be paid in full within thirty days of the repayment notice to prevent foreclosure proceedings;

6.15.b.3. that the estate may elect to pay the debt in full prior to foreclosure and thereby satisfy the reverse mortgage obligation;

6.15.b.4. that it is the responsibility of the estate, if it so desires, to arrange and pay for an appraisal of the property prior to sale or foreclosure, and that the only asset of the estate which may be used by the lender to satisfy the loan is the real property securing the loan and any limitation thereon as may be provided for in subsection 6.7 of this rule. The notice shall also state that no deficiency judgment may be sought or granted in any civil action involving a reverse mortgage.

6.16. Interest Accrual. -- Interest shall only accrue from the time monies are advanced to or on behalf of the mortgagor(s). Accrued interest may be added to the loan principal.

6.17. Conditions for Reverse Mortgage Loans that Require Annuity Purchase. -- A reverse mortgage loan which provides for the purchase of an annuity shall comply with the following conditions as applicable:

6.17.a. The company that issues the annuity shall have a rating of excellent or superior from the A. M. Best Company and shall be licensed by the State of West Virginia; and

6.17.b. If a trustee holds the annuity in trust during the life of the mortgagor(s), then

6.17.b.1. the trustee shall be a banking organization or an insurance company which is incorporated, chartered, organized or licensed under the laws of this state or any other state or the United States;

6.17.b.2. the trustee shall either appoint the Secretary of State, or where the trustee institution is chartered under federal law shall appoint its primary federal regulatory agency, as agent for service of process for any communication concerning a reverse mortgage loan made to a West Virginia resident;

6.17.b.3. the trust agreement shall provide that it is governed by West Virginia law;

6.17.b.4. payments derived from the annuity shall be paid by the trustee or the insurance company directly to the mortgagor(s) irrespective of whether the payment is made on behalf of the lender or investor; and

6.17.b.5. the mortgagor(s) shall have a beneficial interest in the trust irrespective of whether the lender or investor also has a beneficial interest in the trust.

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