California Reverse Mortgage Bill Amended, New Hearing Scheduled

Today, a hearing is scheduled in California for AB 329, to discuss the amended bill which no longer includes the “fiduciary duty” and “cause of actions” provisions.  Opponents of the bill are still concerned that the amended bill would reduce the availability reverse mortgages in the state due to a provision which would extend the right of recession to 30 days.

The bill was introduced by California Assembly member Mike Feuer earlier this year and according to latest assembly committee analysis AB 329 will:

  1. Prohibit a lender or any other person that participates in the origination of a reverse mortgage from requiring the prospective borrower to purchase an annuity as a condition of obtaining a reverse mortgage loan.
  2. Prohibit a lender or any other person that participates in the origination of a reverse mortgage from doing either of the following:
    1. Participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity, unless the lender maintains firewalls and other safeguards designed to ensure that individuals participating in the origination of the mortgage shall have no involvement with, or incentive to provide the prospective borrower with, any other financial or insurance product.
    2. Refer the prospective borrower to anyone for the purchase of an annuity or other financial or insurance product.
  3. Permit the borrower to rescind any reverse mortgage within 30 days of execution by providing the lender with written notice and returning any payments received in connection with the reverse mortgage within 15 days of rescission.
  4. Provides that prior to accepting a final and complete application for a reverse mortgage the lender shall provide the borrower with a list of not fewer than ten counseling agencies that are approved by the United States Department of Housing and Urban Development to engage in reverse mortgage counseling. Provides further that the counseling agency shall not receive any compensation, either directly or indirectly, from the lender or from 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.
  5. Requires the lender, prior to counseling, to provide the prospective borrower with a plain and conspicuous written statement warning the prospective borrower of the legal and financial implications of a reverse mortgage, a statement of the risks associated with using reverse mortgage proceeds to purchase annuities or other financial products, and notice that the borrower has a 30-day right of rescission, as specified.
  6. Requires a lender, prior to counseling, to provide a prospective borrower with a written checklist pertaining to the risks and suitability of a reverse mortgage. Requires further that the borrower and counselor sign the checklist acknowledging that the items have been discussed in counseling and the checklist be returned to the lender, along with the required counseling certificate, prior to closing.

To read more about the AB 329, click the link below.  Thank you Shannon Hicks for the update.

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AB 329

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  • This is crazy. It will only create greater worry to the seniors entering a reverse mortgage. I am for some safe guards but all of these are over the top. This makes it sound like the senior has no thinking ability.

    #1 & #2 are fine ideas.
    #3 This will create many issues. Why are they saying 30 day rescission for reverse mortgages? If they are considering this change it should also be for the forward world.
    #4 This will be confusing to the senior but ok
    #5 Prior to counseling? Would the client sign something confirming this has been done?
    #6 Why don’t they torture the senior a little more? This is all before counseling.

  • Is there any prohibition on RM proceeds being taken to Las Vegas and gambled with? Or is it not ok to buy a second home, or setting up a young lady, or a buying hot racing car? Surely seniors need more protection from themselves and predatory salespeople (wink, wink). This over regulation could really escalate in a silly way.
    I think, that like some insurance products, a free-look period (with free, independent consultation services maybe paid for by a RM industry group assessment program) might weed out some of the bad apples. This would give borrowers a second shot at avoiding inappropriate RM fund usage in addition to the pre-counseling.

  • Just another example of an overzealous state legislator trying to “pile-on” unnecessary regulations. If the 30 day right to rescind remains intact in this bill and it actually passes, all other provisions are completely unnecessary because it will kill the reverse mortgage business in California.

  • I pity the poor senior who needs their funds as soon as
    possible and has to wait 30 days? What lender will release funds during the rescission period. None.

  • Just a few words.

    Mike Feuer is just another stupid assemblyman, just like the highlights of todays news. Who is paying him!!!!!!!!!! How would he do his “busy” if so many barriers were placed in the way. Also, when did senior homeowner become childern. It is their money!, Not their kids, not their lenders, not salespeople or legistlators! Stop treating America people like two year olds. Yes there are bad people out there (just like politicions), so should we get rid of everyone?

    These folks were able to make decision their whole life, why not how??

    This will not stop a bad guy from harding a senior, these type of people have always been around and will continue to be around.

    I wish people elected had to take counseling from people involved in their issue before they could vote, then make them sign 100 pages of disclosures, let some uw reveiw and approve it then give the people 30 to take back the vote!!

  • Perhaps someone should advise Mr. Feuer that it takes from counseling to closing at best three weeks and an average of 4 – 6 weeks.
    The senior and his/her family has all this time plus the three days of rescission now!
    If you can not make a descision in 30-45 days what makes anyone think they can make a descision is 60-75 days. Let us be realistic and do what is right!

  • We have to walk a fine line with state lawmakers, especially when we see their bills as harmful to those they are intended to correct. I am curious as to the response NRMLA and others have received from Feuer ‘s office.

    The reality (as I see it) they will not scrap the 30 day rescission completely as it is the cornerstone of their “consumer protection” bill. I think our only hope is to appeal to them to change the date that triggers the 30 day period to the date the senior either (1) signs the application or (2) obtains HUD counseling. This would prevent someone from being “fast-tracked” without ample time to consider their options (I’m reaching here…OK). Also thinking extending the rescission period to that of an annuity will reduce cross-selling makes no sense whatsoever!

    If the bill passes in it’s current form I see the following as possible consequences:

    1. (Worst-case) : Lenders quit offering HECMS in California

    (More likely):
    2. Lenders will not “fund” loans until after 30 day rescission has passed to avoid financial exposure (they can’t stomach a 15 day “payback period”).
    3. Warehouse lines may dry up or considerably shrink in California as the time period to warehouse loans has extended.
    4. Cost to warehouse loans will increase. In end, cost will be passed on to consumer.
    5. Loan officers may really want to examine their cash-flow carefully since they may not be paid for at least 40-45 days after loan docs are signed.
    6. Seniors who need money to avoid foreclosure in emergency situations are out of luck (thanks Cali!)
    7. Senior borrowers may skip HECMS because it’s a complete hassle.
    8. If this bill stops HECMs in California another bill will need to be passed a year later to clean up the mess they’ve made. (Remember Washington state anyone?).

  • Get on your computer’s folks; tell your assembly person your stories of seniors being helped and the hardship a 30 day rescission period will create.
    What lender in their right mind is going to fund a loan during a rescission period???????? What of HECM for home purchase?????? What seller in their right mind is going to consider a buyer using a reverse mortgage for purchase????
    It will take you 15 minutes to type a heart felt letter, print it, sign it and FAX it. Don’t send e-mails they do not have as much impact as a faxed letter. We need to protect the consumers we serve with our support, not to mention our industry in CA.

  • Angella,

    Thank you. I just wrote two letters while watching American Idol….

    One to my state Assemblyman and the other to my Senator.

    We all must write. Take the time. Be noisy but respectful. Ask your clients to write or fax their representatives.

    As for me, I’m faxing my letter and Fed-Ex ing my letters to get them noticed tomorrow.

    Apathy can cost our industry dearly so let’s get proactive!

  • We have been working on these bills for several months now and the recent changes — which make it a lot better than it had been– are the result of a lot of careful, technical explanining that we have been doing with the sponsors of the CA bills and their staffs. There is still more work to be done, but the amendments so far show we are being heard.

    Angella is right that you should send well-written, polite thoughtful letters explaining why a 30-day rescission would be problemmatic. Some of our members have also taken the time to meet with their elected officials to educate them more.
    By the way, working on state bills like this costs us tens of thousands of dollars in legal fees for legislative analysis and drafting, a necessary investment, of course, and another example of what NRMLA resources are spent on. If we weren’t on this the amendments to date would not have taken place.

    So far this year, we’ve been working on state legislation in CA, MN, WA, AZ, VT and others. Thank you to those who support our efforts with your membership dues and conference fees.

  • if we really wanted to help seniors & protect them during the lending process, it is very simple…simplify the application package to 3 pages. cut out all the legal mumbo jumbo & simply state the cost & the rules (how it works) of the reverse mortgage. Cut out all the confusing & over-whelming disclosures. the end.

  • iCare,

    I agree.

    However, most loan documents are drafted by attorneys, most lawmakers (state & federal) are attorneys. The goals are disclosure and cover your backside from lawsuits.

    If anything, the applications will be getting thicker. Yesterday a client had to sign THREE papers saying pretty much the same thing…I am not purchasing an annuity with the reverse proceeds.

    AB 329 will add even more paper to the stack, if there are any HECM lenders left in California if it passes in it’s present form.

    Gotta run . I’m buying shares in paper companies…good investment it seems.

  • Wow, with NRMLA on the case, everything should be just fine. Unless it’s not.
    Can’t figure out why no senior groups object to seniors being treated like 4 year olds. The obvious outcome of this bill, with the 30 day rescission, it that seniors will have less choice and less service for Reverses. And, nothing can stop anyone from spending the proceeds on whatever they choose.
    Unintended consequences rule the day again, thanks politicians.

  • Once again, someone abuses the system and now everyone else must suffer the consequences. If they had only passed legislation containing just a few of these kinds of provisions to help regulate the forward mortgage side, we might not have experienced the meltdown which now has us all choking on restrictions.
    Letters are a must. I think everyone here has stated their views clearly enough, let’s get busy and write those letters. If possible, see if you can meet with someone in your local state senator’s or assembleyman’s office.

  • As we write letters, don’t forget the one to AARP. I’m worried that AARP, in it’s zeal to “protect” it’s members, is slowly dissolving our self respect and the respect others may have for us. I thought we earned some degree of that respect for being the wise elders we often are. Some of California’s provisions make seniors out to be dolts! amd reverse mortgage originators and lenders nothing more than the devil incarnate.
    AARP has the power to help us reverse this trend in legislation.

  • I agree Joe, considering AARP’s role in the conception and evolution of the reverse mortgage, I have often been confused by the ways in which they seem to actually distance themselves from the program. Misrepresentations of closing costs and other errors in their reporting have struck me as particularly troublesome. An outright blanket endorsement may not be in their future as it is not a product they control but being accurately objective would be a welcomed change.

  • The California Legislature (and those of other states) found it necessary to enact legislation to more tightly regulate reverse mortgage lending because of the unethical behavior of a minority of reverse mortgage firms and originators, some of whom astonishingly are still in business, finding new, even more creative ways to circumvent the law. It is sad that some of these miscreants are active NRMLA members, operating under the aura of ethical innocence such affiliation supposedly provides.

    In the early years of existence of the HECM program, the largest reverse mortgage companies actively recruited insurance salespeople to become HECM originators because of their access to senior customers and the cross-selling opportunities such access provided. It is no wonder annuity sales have been and continue to be such a problem. More recently, the ethically-challenged snake-oil peddlers who sold sub-prime mortgages have gravitated into the reverse mortgage market, believing seniors would be their next easy prey.

    I applaud the efforts of California and other states to rid the marketplace of those bad actors who utilize unethical means to profit at the expense of anyone, including senior homeowners and their families. Hopefully, they will be forced from the marketplace, leaving in business only those to whom the customer truly comes first.

    The California legislation, as proposed, has some flaws. I believe ethical originators can live with all of them except for the 30-day recission provision. Our suggestions for improvement could be taken more seriously if the reverse mortgage industry were not infested with so many predators.

  • Maybe we should all write to our elected officials and let them know if they really want to help seniors they can work to keep the government (Fannie Mae, a wholly owned and operated subsidiary of the US government) from raising the interest rates on reverse mortgages.

  • OK all, I went to Mike Feuer’s web site and sent him a nice message that respectfully asked that he reconsider the “30 day recision period”. I think we can “live with” most of the other features – if necessary.

    I would have sent messages to my local politicos but honestly don’t know who they are or how to contact them. Does anyone know a simple way to find out who represents whom here in California?

  • If you wish to have maximum influence on pending legislation, be sure to e-mail (politely, of course) the State Assembly Member and State Senator who represent the district in which you live and vote.

    Keep it brief, and stick to one subject. Explain to the legislator why he or she should adopt your position. You want to help the legislator to make an informed judgment. Explain the possible consequences if legislation you oppose is passed. For example, it would not be an exaggeration to say that enactment of a 30-day recission could cause many, if not all, reverse mortgage lenders to cease doing business in California.

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