By Adam Wilson

Jun. 12, 2008 (McClatchy-Tribune Regional News delivered by Newstex) -- As of today, some Washington brokers will not be able to offer reverse mortgages, in which senior citizens can draw down the equity in their houses in monthly payments.

By all accounts, the ban is unintentional. Legislators voted unanimously this year to move unregulated mortgage brokers under the scrutiny of the Department of Financial Services.

But by making those businesses subject to the Consumer Loan Act effective today, they ban them from offering the reverse-mortgage style of loan.

"We've talked to (the department) today. We've talked to their legal counsel; we've talked to their attorney general to resolve this. It looks like they can't correct this without legislation," David Willis, a loan officer for Allied Home Mortgage Capital Corp., said Tuesday.

Willis said he brokered six reverse mortgages in the Olympia area last month. They are popular, he said, because they offer seniors with a limited income a way to stay in their houses.

"People can still get reverse mortgages through banks and credit unions," noted Scott Jarvis, the director of the Department of Financial Institutions.

A complex subtlety of law caused the ban for brokers, who used to be exempt from state regulation.

The Mortgage Broker Practices Act regulates brokers for banks and credit unions. The Consumer Loan Act regulates other lenders, including some making loans for cars and furniture.

But about 300 state businesses didn't fall under either law, usually because they offered only mortgages approved by federally backed Fannie Mae (NYSE:FNM) or Freddie Mac (NYSE:FRE) , according to legislative reports.

Prompted by increasing mortgage foreclosures nationwide, legislators wanted to place those exempt businesses under state regulation.

Sen. Brian Weinstein, D-Mercer Island, wrote Senate Bill 6471, which moved them under the Consumer Loan Act.

The act forbids certain types of variable-interest loans that are not harmful when reversed, like the mortgages, said Willis, the broker. He says that's a problem for Thurston County seniors because few banks offer the loans.

"Over 90 percent of the banks in our area do not do reverse mortgages. Those that do, you're dealing with someone several cities away," Willis said.

The National Reverse Mortgage Lenders Association sent out an alert to members in Washington about the issue last week. It advised them to talk to their lawyers about the new law.

"Unfortunately, the law is going to affect different business in different ways. The legislation, when they wrote it, I don't think they anticipated this," said Erin Gulick, a policy associate with the group.

Jarvis said the issue wasn't brought to his agency's attention until after the bill passed.

"Sometimes, legislation may have unintended consequences, but if no one comes to complain or bring it to their attention, it's not fair to fault the Legislature for it," he said.

But the unintended consequence can't be overlooked, Jarvis said.

"I don't believe we have any flexibility to ignore the law," he said.

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