California Reverse Mortgage Bill Amended, 30 Day Rescission Eliminated

The California Assembly Committee on Banking and Finance approved AB 329 with a few amendments, one of which strikes 30 day right of recession from the bill.  Next, AB 329 will be voted on by the full assembly.

Other than the elimination of the 30 day recession, the following amendments were added:

Cross Selling

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(B) Refer the borrower to anyone for the purchase of an annuity orother financial or insurance product prior to the closing of the reverse mortgage or before the expiration of the right of the borrower to rescind the reverse mortgage agreement.  

(2) This subdivision does not prevent a lender from offering orreferring borrowers for title insurance, hazard, flood, or other peril insurance, or other similar products that are customary and normal under a reverse mortgage loan.

Counseling

This subdivision does not prevent a counseling agency from receiving financial assistance that is unrelated to the offering or selling of a reverse mortgage loan and that is provided by the lender as part of charitable or philanthropic activities.

The counseling amendment seems to leave to the door open to influence counselors indirectly with payments, but I see what they are trying to get across.  You can read a copy of the amended version of AB 329 here.  

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  • This is great news! If you’re not in California, count your blessings because state regulations have a history of jumping to other states.

    Thank you too all of you who took the time to write your representatives and call. It made a difference!

  • We, in California, who originate in California owe a debt of gratitude to NRMLA and those who have actively fought this legislation. However, both California bills are still difficult but they are far less objectionable.

    Thanks to one and all for your hard work.

  • Reverse Mortgages Daily.

    After reading all the above comments about the HECM, most of which I agree with, I believe we are doing a disservice to the HECM borrower by allowing the lenders to discuss the investment potential in terms of percentages and not discuss the cash impact these investment decisions will have on the HECM borrower. They, the borrowers, are giving up equity in their homes for cash to live on for the rest of their lives.

    When the HECM was originally designed, it was to enable seniors to continue to live in their homes. I do not believe it was conceived to be a major sector of the investment portfolio. However, when we look at who the players entering the HECM market today, they are the same ones who created the sub-prime debacle and who were bailed out and are now looking at HECMs as a way to strip seniors of the equity in their homes. The estimate of home equity of senior homeowners is in the trillions of dollars. The senior citizen homeowner, along with other senior citizens, has suffered tremendous economic loss as a result of the sub-prime collapse. Home values along with retirement assets have tumbled and left them with severe cash shortages. The HECM is possibly the only way to make up for these shortages.

    We read about increases in margins as a tool to increase the acceptance of the reverse mortgage as the latest profit center. We never read about the impact these margin increases have on the senior homeowner needing a HECM to make up for the loss of cash flow due to the economic collapse. The Expected Rate determines the amount of cash a senior will get from a HECM. The expected rate has a floor of 5.5%. However, there is no upside limit on the expected rate. Fannie Mae sets the margins for the HECMs. The available cash loss to the homeowner as a result of increases in the index and/or margins is set out in the table:
    Age of Home-owner Home Appraised Value 10 year CMT rate Margin charged by Lender Expected Interest Rate* Factor forP.L Principal Limit Total Costs & Set aside Net Cash Avail-able Decrease in Cash Due to Margin % Decrease in cash from 5.5%
    75 $500,000 3.0`% 4.5% 7.50% .572 $286,000 $23,564 $262,435 ($68,988) (21.21%)
    75 $500,000 3.0`% 3.5% 6.50% .648 $314,000 $23,190 $290,810 ($40,602) (12.25%)
    75 $500,000 3.0% 2.5% 5.50% .732 $355,000 $23,588 $331,412

    70 $500,000 3.0`% 4.5% 7.50% .506 $253,000 $23,801 $229,198 ($78,884) (25.60%)
    70 $500,000 3.0`% 3.5% 6.50% .591 $284,500 $23,441 $261,059 ($47,023) (15.26%)
    70 $500,000 3.0% 2.5% 5.50% .689 $332,000 $23,918 $308,082

    65 $500,000 3.0`% 4.5% 7.50% .445 $222,500 $23,960 $198,539 ($85,700) (30.15%)
    65 $500,000 3.0`% 3.5% 6.50% .538 $256,500 $23,617 $232,883 ($51,397) (18.08%)
    65 $500,000 3.0% 2.5% 5.50% .649 $309,500 $25,021 $284,279

    75 $400,000 3.0% 4.5% 7.50% .572 $228,800 $21,564 $207,235 ($63,105) (23.34%)
    75 $400,000 3.0`% 3.5% 6.50% .648 $259,200 $21,980 $237,219 ($33,121) (12.25%)
    75 $400,000 3.0% 2.5% 5.50% .732 $292,800 $22,459 $270,340

    70 $400,000 3.0% 4.5% 7.50% .506 $202,400 $21,801 $180,598 ($72.136) (25.54%)
    70 $400,000 3.0`% 3.5% 6.50% .591 $236,400 $22,290 $214,108 ($38,626) (15.28%)
    70 $400,000 3.0% 2.5% 5.50% .689 $275,600 $22,866 $252,734

    65 $400,000 3.0% 4.5% 7.50% .445 $178,000 $21,960 $156,040 ($80,391) (34.00%)
    65 $400,000 3.0`% 3.5% 6.50% .538 $215,200 $22,510 $192,690 ($43,741) (18.50%)
    65 $400,000 3.0% 2.5% 5.50% .649 $259,600 $23,169 $236,431
    The decreases in cash, due to increases in the expected rate, for the HECM borrowers are significant.
    An alternative to this unfairness would be to set the expected rate at 5.5% and allow the initial rate to be calculated per the current formula (index + margin), this way the HECM would still be attractive and fair to the borrowers and investors. Remember the FHA underwrites any losses to the lenders.

    If the premise, at the inception of the HECM program, was that the HECM insurance premiums are to be used to offset losses from the program, then an accounting of this fund should be available. OMB should also conduct an audit to set out the annual activity of the fund from inception. If it is determined that the FHA has suffered losses, in excess of the accumulated fund balance, as a result of having to payoff lenders because the HECM balances exceeded the net proceeds of the sale of the homes, then remedial steps should be taken to ensure the integrity of the program. It is not fair to the HECM borrower to be charged a higher expected interest rate than the FHA charges on its forward mortgage interest rates.

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