The California Progress Report writes that two bills designed to protect senior citizens from unscrupulous reverse mortgage lenders are being pushed by senior citizen advocates, but lobbyists representing reverse mortgages lenders are seeking to block or water the bills down.
“The banking lobbyists are frantic,” said Prescott Cole of California Advocates for Nursing Home Reform, the bill’s sponsor, after SB 660 narrowly escaped death in last weeks hearing before the Assembly Committee on Banking and Finance. The bill passed 6-3, with the last two aye votes coming in over an hour after the bills were heard.
"Reverse mortgages can have potentially devastating financial consequences. Yet they are being marketed with impunity to thousands of seniors in California for whom they may or may not be appropriate," said Sen. Lois Wolk, D-Davis. SB 660, imposes a duty of "honesty, good faith, and fair dealing" on those involved in the recommendation and sale of reverse mortgages.
Both AB 329 and SB 660 are meant to add a layer of state laws to the existing federal requirements. The measures would require lenders to hand prospective borrowers a written warning about the implications of obtaining a reverse mortgage. The bills would also require lenders to give prospective borrowers a checklist of issues to be discussed with a reverse mortgage counselor. The checklist would have to be signed by the counselor and prospective borrower and provided to the lender before a loan application could be approved.
AB 329 would require lenders to give clients a list of at least 10 HUD-approved counseling agencies instead of the current five, and would prohibit lenders from compensating counseling agencies for their work. It also prohibits reverse mortgage lenders from certain types of “cross-selling”, for example, referring clients to insurance agents to purchase an annuity or other financial or insurance product.Both bills originally sought to impose a clear fiduciary duty on the lender to the prospective borrower.
AB 329 would have required lenders “to act in the best interest of the elder, with the utmost care, honesty and undivided loyalty, diligence, and good faith toward the elder.” However, banks and lenders didn’t like the language and lawmakers took it out which won the support of many lenders who originally opposed the bill.SB 660, on the other hand, has managed to survive, barely, with language that says the lender or broker “owes the prospective borrower a duty of honesty, good faith, and fair dealing.”
Representatives of the banking and mortgage industry oppose the language, saying it would leave them vulnerable to lawsuits.According to the article, Scott Govenar, a lobbyist for the California Financial Services Assn., said the “duty of honesty” language in the bill “creates a tort action with no clear guidance.”
Wolk then amended the bill to state that compliance with the checklist and a warning notice requirement in the bill could be used as evidence of compliance with the “duty of honesty, good faith, and fair dealing.” But the change did not appease bankers.
“With all due respect to the parties involved, it’s not helpful,” said Gene Erbin, a lobbyist for Bank of America at the bill’s July 6 hearing. SB 660, which will next be voted on by the full Assembly, is also supported by Aging Services of California, American Association of Retired Persons, California Alliance for Retired Americans, and Consumer Attorneys of California.