Schwarzenegger Signs Reverse Mortgage Elder Protection Act Into Law

October 12th, 2009 | by John Yedinak Published in Legislation, News, Reverse Mortgage | 28 Comments

Over the weekend, California Governor Arnold Schwarzenegger signed AB 329, which establishes the Reverse Mortgage Elder Protection Act of 2009.

The bill is meant to provide senior homeowners with consumer protections to ensure that they’re informed about reverse mortgages. Specifically, the bill requires lenders provide prospective borrowers with a clear and informative written disclosure statement and a written checklist pertaining to the risks and suitability of a reverse mortgage, prior to borrower attending loan counseling.

“Fraudulent mortgage practices have become more prevalent as a result of the national foreclosure crisis that negatively impacted California’s housing market and economy,” says Mr. Schwarzenegger. “This legislation helps crack down on abusive lending practices by giving law enforcement the tools to effectively investigate mortgage fraud crimes and provides Californians with greater consumer protections to promote homeownership in a safe and accountable environment.”

The provisions of AB 329 will be administered by both the California Department of Real Estate (DRE) as to those licensees who are providing reverse mortgages using DRE licenses and the California Department of Corporations as to those providing reverse mortgages under California banking and California financial lender (CFL) laws.

AB 329

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Anonymous

I just heard from one of my lenders that it is pretty much etched in stone that YSP is gone in the beginning of 2010 and they are just trying to figure out the wording and the exact time to announce this. Anybody else know anything on this?
Anonymous

Is it true that application can not be taken before counseling and completed checklist has occurred?
Anonymous

I should know…..
Anonymous

Propane delivery men? lol
Anonymous

dduck12,rnrnAs well as attorneys, real estate brokers, propane delivery men, CPAs, and on and on it goes.
Anonymous

50 states. Sounds like the insurance business.
Anonymous

kpr2570,rnrnAlthough the MBA has attempted a state model bill, I do not believe it has the remotest chance of being the law of the land. Many commentators have embraced the idea of a national law imposing certain rules on the states.rnrnThe issue appears to be a constitutional one. There is also the question of which department or agency would regulate and oversee it. HUD has expressed it has absolutely no interest in overseeing such an act.rnrnDespite the u201cgood idea,u201d without some impetus pressing upon all of the parties, the chances of any national law seem minuscule. I suggest if you have an idea on how that can be done that you contact the MBA to present it. rn
Anonymous

Would this not be the lender’s responsibility to provide to LO’s with the proper, required documents for the specific state that they are doing business in?rnrnFor the record, the “tightening ” if you will, of this business is showing many the door here in Florida……rnrnWhile I believe that we should be disclosing as much as we can without using scare tactics, I believe that individual states setting these standards would be better served if we had a national set of rules and standards. Otherwise, your LO’s doing business in 50 states will have to be on top of each and every state’s rules, disclosures, etc…..and that is gonna’ get messy.
Anonymous

Mr. Smith,rnrnYou can see the disclosure statement in Section 4 (of AB 329 as enacted) as part of Subsection (a) of amended California Civil Code Section 1923.5. The contents that are required to be contained in the checklist can also be found at Section 4 but it is part of Subsection (b) of amended CCC Section 1923.5.
Anonymous

Mr. Fenton,rnrnThank you. You have a valid point; however, I believe both of our answers need clarification. rnrnI know of no guidance ever issued on Senate Bill 1609, the bill enacted in 2006 that AB 329 substantially amends. The chances that either department overseeing this bill will ever issue guidance on AB 329 seem remote. rnrnBased on a literal reading of the law, if a borrower attempts to receive counseling before meeting with a lender, it seems the counselor will have to advise the borrower that they do not need to apply for a loan with a lender before counseling; however, they must see a lender to get the California disclosure form before counseling can proceed. rnrnIf the borrower decides she/he wants a different lender at any point in the process after receiving counseling, nothing appears to restrict the borrower from acknowledging a new disclosure form with a different lender and retake counseling. This is an outrageous result but one possible interpretation.rnrnI am not an attorney and the issue of engaging a different lender after counseling should be addressed by an attorney. Although I was involved with getting the disclosure rewritten, I had no involvement in the disclosure requirements. Maybe someone who was involved in that process could address the issue.rnrnI am not sure the following is true: “Unlike the checklist there is no language making receipt of the statement by the counseling agency a legitimate alternative.” As to the checklist it is the providing of it to the borrower by the counseling agency that is the alternative — not the receipt of it by the counseling agency. rn
Anonymous

Mr. Veale, you’re right about the checklist, but my concern is around the “Plain Language Statement” which is also a requirement of this Act (section 4, a , rnrn”(a) No reverse mortgage loan application shall be taken by a lender unless the loan applicant, prior to receiving counseling, has received from the lender the following plain language statement in conspicuous 16-point type or larger, advising the prospective borrower about counseling prior to obtaining the reverse mortgage loan”…..rnrnSo, as the statement needs to be provided prior to counseling, what happens if the client has done independent research, obtained counseling and is now shopping for a loan? Unlike the checklist there is no language making receipt of the statement by the counseling agency a legitimate alternative.rnrnIn these cases, the lender cannot show that the client received the statement prior to counseling, because they were not in the picture. Taken literally a lender will not be able to make a loan to a senior unless they were the entity that gave them the pre-counseling statement. I am sure that was not what they had in mind, so I expect to see some guidance issued around this.rn
Anonymous

rainmand,rnrnNo. It goes on to say: “…or in the event that the prospective borrower seeks counseling prior to requesting a reverse mortgage loan application from the reverse mortgage lender, the counseling agency shall provide the prospective borrower with a written checklist.”rnrnMr. Fenton correctly points out that the disclosure form must be obtained from a lender; however, it is my opinion that does not restrict the borrower from engaging a different lender later after initial counseling. It seems that if the borrower does engage a different lender, the borrower will minimally have to acknowledge another disclosure form with the new lender and retake counseling. However, I am not even sure where my employer will ultimately come down on this particular issue.rnrnSince I am not an attorney, my opinion is just that. If the situation of changing lenders arises, legal counsel should be consulted.
Anonymous

>>Specifically, the bill requires lenders provide prospective borrowers with …rnrnDoes this mean Californians aren’t allowed to receive counseling until they’ve selected a Lender first?
Anonymous

Where is the “clear and informative written disclosure statement and a written checklist pertaining to the risks and suitability of a reverse mortgage”? What exactly are they referring to? Is there specific papers that we must use? Seems like a very broad protection act if they are not providing specific paperwork. Sounds good though. rnOn the other hand I would not want them to provide specific paperwork because we all know how the government has been treating the reverse mortgage industry lately…I could only imagine how positive and encouraging their papers are or are going to be.rnEverything is becoming better and better for our industries future!?!
http://www.reversemortgagecalculator.org rainmand

>>Specifically, the bill requires lenders provide prospective borrowers with …

Does this mean Californians aren't allowed to receive counseling until they've selected a Lender first?
James_E_Veale_CPA_MBT

No. It goes on to say: “…or in the event that the
prospective borrower seeks counseling prior to requesting a reverse
mortgage loan application from the reverse mortgage lender, the
counseling agency shall provide the prospective borrower with a
written checklist.”
Daniel_Fenton

Mr. Veale, you're right about the checklist, but my concern is around the “Plain Language Statement” which is also a requirement of this Act (section 4, a ,<page 7>

“(a) No reverse mortgage loan application shall be taken by a lender unless the loan applicant, prior to receiving counseling, has received from the lender the following plain language statement in conspicuous 16-point type or larger, advising the prospective borrower about counseling prior to obtaining the reverse mortgage loan”…..

So, as the statement needs to be provided prior to counseling, what happens if the client has done independent research, obtained counseling and is now shopping for a loan? Unlike the checklist there is no language making receipt of the statement by the counseling agency a legitimate alternative.

In these cases, the lender cannot show that the client received the statement prior to counseling, because they were not in the picture. Taken literally a lender will not be able to make a loan to a senior unless they were the entity that gave them the pre-counseling statement. I am sure that was not what they had in mind, so I expect to see some guidance issued around this.
James_E_Veale_CPA_MBT

Mr. Fenton,

Your point is well taken. It is one I have not looked into.

I know of no guidance ever issued on Senate Bill 1609, the bill enacted in 2006 that AB 329 substantially amends. What do you believe are the chances that either department overseeing this bill will ever issue guidance on AB 329?

Based on a literal reading of the law, if a borrower attempts to do counseling without meeting with a lender, the counselor will have to advise the borrower that they do not need to apply for a loan with a lender before counseling; however, they must see a lender to get the California disclosure form.

It seems that if the borrower decides they want a different lender at any point in the process after counseling has been received, the borrower will have to get another disclosure form and counseling will have to be done all over again. This is an outrageous result but one possible interpretation.

However, this does not change the basic answer given to rainmand. A lender does not have to be selected first; however, potentially counseling might have to be redone because the lender that takes the application is different from the lender from which the borrower received the disclosure statement mandated under California Civil Code Section 1923.5(a).

I am no attorney and this should be addressed by an attorney. Thank you for pointing this out.

What is your initial interpretation?
James_E_Veale_CPA_MBT

Mr. Smith,

You can see the disclosure statement in Section 4 (of AB 329 as enacted) as part of Subsection (a) of amended California Civil Code Section 1923.5. The contents that are required to be contained in the checklist can also be found at Section 4 but it is part of Subsection (b) of amended CCC Section 1923.5.
kpr2570

Would this not be the lender's responsibility to provide to LO's with the proper, required documents for the specific state that they are doing business in?

For the record, the “tightening ” if you will, of this business is showing many the door here in Florida……

While I believe that we should be disclosing as much as we can without using scare tactics, I believe that individual states setting these standards would be better served if we had a national set of rules and standards. Otherwise, your LO's doing business in 50 states will have to be on top of each and every state's rules, disclosures, etc…..and that is gonna' get messy.
James_E_Veale_CPA_MBT

kpr2570,

Although the MBA has attempted a state model bill, I do not believe it has the remotest chance of being the law of the land. Many commentators have embraced the idea of a national law imposing certain rules on the states.

The issue appears to be a constitutional one. There is also the question of which department or agency would regulate and oversee it. HUD has expressed it has absolutely no interest in overseeing such an act.

Despite the “good idea,” without some impetus pressing upon all of the parties, the chances of any national law seem minuscule. I suggest if you have an idea on how that can be done that you contact the MBA to present it.
dduck12

50 states. Sounds like the insurance business.
The_Critic

dduck12,

As well as attorneys, real estate brokers, propane delivery men, CPAs, and on and on it goes.
Louise321

Propane delivery men? lol
The_Critic

I should know…..
junglegene

Is it true that application can not be taken before counseling and completed checklist has occurred?
EricSD

I just heard from one of my lenders that it is pretty much etched in stone that YSP is gone in the beginning of 2010 and they are just trying to figure out the wording and the exact time to announce this. Anybody else know anything on this?
Anonymous

I just heard from one of my lenders that it is pretty much etched in stone that YSP is gone in the beginning of 2010 and they are just trying to figure out the wording and the exact time to announce this. Anybody else know anything on this?

Schwarzenegger Signs Reverse Mortgage Elder Protection Act Into Law

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