A new state law designed to protect consumers from the risks of “reverse mortgages” mandates greater disclosure of fees charged by lenders but still permits them to penalize borrowers who pay off their loans early.
The allowance for prepayment penalties was described by supporters of the legislation as a compromise measure crafted in the wake of opposition by a national industry lobby group which a year ago scuttled efforts to approve similar legislation.
“Nobody wanted the prepayment penalties,” the state Department of Business Regulation’s director, A. Michael Marques, said yesterday, “[but] if the bill didn’t pass this year, the only one who benefits are the people who are trying to take advantage of the elderly.”
Reverse mortgages allow cash-strapped homeowners who are 62 or older and have paid off their houses to borrow against the equity. The loans do not come due until the borrower sells the house or dies.
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