Lobbyists Are Frantic Over California Reverse Mortgage Legislation

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.

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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.

Protecting Seniors from Reverse Mortgages

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  • Has anyone noticed the current HUD certificate is a checklist of issues that the client and counselor both sign to indicate they have been discussed?

    The current list of counseling list that all seniors should get has 5 local and 5 national organizations. Perhaps there is some attempt to coordinate between federal and state counseling requirements? or is this asking too much? To me it looks close, but not a perfect fit.

    • Okay, Prescott Cole. Enough of your accusations without substantiation! For once in your wretched life provide some facts: What unscrupulous lenders? Which California bankers are frantic?

      And California Senator Wolk, let's have examples of seniors who have had devastating financial consequences. As far as we know, there are over 300,000 American families very happy that they have reverse mortgage proceeds.

      It's time for the self-important grandstanding and fear-mongering rhetoric to end!

  • It's time for these journalists to stop sensationalizing and start providing some specific examples. They will find those are few and far between. They are doing a tremendous disservice to our senior community by restricting access to this important product.

  • Lawsuits cost money and hurt many and make lawyers rich. CA SB660's ambiguous language leaves RM lenders open to law suits not just from the seniors who take out the loans, but from family and heirs who have may have no notion of the financial situation that the senior(s) encountered which drove them to get a reverse mortgage in the first place.

    We certainly do owe prospective clients “honesty, good faith, and fair dealing” as do any other loan officers selling any other kinds of mortgages. What I don't understand is why a HECM is considered the big dragon of the mortgage world, full of dishonesy, bad faith and unfair dealing. The seniors I work with (and their families) consider HECMS to be, at worst, the only solution available to them, and at best, miracles. What (as a good friend at the local HUD/HOC says) can you compare them to? A loan insured by the federal government, for which you may but do not have to make payments and which is not based on income or credit requirements? HELLO!!!!

    Are there drawbacks? Sure. And I always say, reverse mortgages may not be for every senior, but every senior should know about them. Why? Because situations change, needs change, bottoms drop out of markets and pensions are affected by the drop in stock values, property values, and suddenly, seniors who cannot wait for markets to come back (some I talk to have had to try to find a job when they are in their 70s and that's not easy especially in this economy) are left to face a house payment they cannot make or other bills they cannot pay.

    So what else do the senior advocacy groups have to do with their time? Could it not be spent better developing programs that help seniors through these times? Oh, wait! Didn't HUD and the Congress already develop one of those programs in the 1980s? What was it called? Oh, yes, the HECM Reverse Mortgage!

    Putting a senior into a loan with a house payment that will ensure foreclosure and threaten their health and well being with worries about where they will live and what they will live on — it seems those forward mortgage loan officers who have done that to line their own pockets (oh, maybe the MBA wouldn't like that!) should be the ones the senior groups and the CA legislature should be looking at. I just hope that seniors appreciate all the hard work the advocacy groups and the legislature are doing to cause lenders to be unwilling to help seniors in California by providing them with one avenue of independent living in their own homes — a reverse mortgage.

    And the lawyers will be so willing to take their family's money and the lender's money as well.

    And as for the counseling rules, they don't apply to the national banks, so what does the MBA care? Although they lobbied against part of the bill, they did not argure about that portion. So the national banks, the major lenders of reverse mortgages, don't have to hand a list of questions to their clients, because they aren't governed by CA law in this. Sweet deal, huh? So all of you out there who think the MBA may be watching out for your interests — well unless you are with a national bank — wake up!

    • That isn't necessarily so. in Cuomo v. Clearing House Association, the U.S. Supreme Court, in its decision on June 29, 2009, gave the states more power to challenge national banks and go after them for violating state laws.

      • That is interesting! At the NRMLA conference in DC the attorney speaking on new state proposals opined that national banks would be exempt, but if the Supremes say differently, maybe the MBA will move its big guns just to spike the whole thing. And of course pretty little bluebirds fly beyond the rainbow . . . .

      • Yes, this was a surprise decision, written by Justice Antonin Scalia, who was joined by the four liberal justices.

  • I'd like to see the states (as well as the Federal government) go after reverse mortgage lenders who engage in cross-selling. Despite NRMLA's pontifications on so-called “ethical cross-selling,” there is no such thing as ethical cross-selling. All cross-selling in connection with reverse mortgages is unethical. If you make a reverse mortgage loan to a customer, you should be disqualified from selling or referring any other financial product (except, of course, services that are required to complete the transaction) to that customer. Either you're in the reverse mortgage business or you're in some other business. You can't have it both ways.

    • I agree that in a perfect world, cross-selling would be totally excluded from one product to the next. I've heard of banks pushing their RM officers to get bank accounts moved to their banks as part of the reverse mortgage. Is that cross-selling? Where is the line?

  • When a senior loses thier home to foreclosure and are left with nothing, try telling the senior how the state of California has protected them. Reverse Mortgages HELP seniors. Reverse mortgages allow seniors to live. Don’t take that away from them.

  • In evaluating her writing, it seems the real purpose of the article by Ms. Replogle on California AB 329 and SB 660 was to do little more than serve as propaganda. One certainly could not describe her article as educational, informative, or a rational discourse on the issues at hand.

    It is clear Ms. Replogle does not even know what reverse mortgages are. To her all reverse mortgages are HECMs. She makes it look like California is attempting to regulate HECMs and nothing more. She demonstrates no knowledge of or appreciation for the existing law (California Civil Code Section 1923 and the subsections there under) or its history.

    Ms. Replogle claims: “This is the first in a series of posts that will lay out issues and the status of bills seeking to overhaul state law on banking and lending.” She then goes on to say: “While advocates for senior citizens are pushing for passage of the bills without further amendment, lobbyists representing companies that offer reverse mortgages seek to block or water the bills down. The fight shows that despite bail-outs and the subprime meltdown, the banking industry remains a powerful force in Sacramento.”

    Ms. Replogle takes a snippet out of what Mr. Cole stated about lobbyists of bankers and built on it. Rather than depicting the statement for what it is, the ranting of someone who just fought a hard battle in committee and saw the legislation progress, she uses Mr. Cole (or Mr. Cole uses her) to attack our industry. To this observer, Mr. Cole’s first statement was little more than grandstanding and like the Man of La Mancha, but this time by mere words, vanquishing his enemy, those reviled lobbyists of California bankers.

    After tying us to bail-outs and subprime, Ms. Replogle then brings up inappropriate marketing and you guessed it that evil “cross selling.” She claims most lenders came into the industry in 2009 but does not even mention the fact that those who have been in the industry over five years originate the vast majority of HECMs.

    Ms. Replogle seems to have one goal in mind: reverse mortgages are dangerous in the hands of the banking industry. She strongly endorses the legislation with no knowledge of the impact it might have on seniors. To say she is biased against our industry is beyond an understatement.

  • In evaluating her writing, it seems the real purpose of the article by Ms. Replogle on California AB 329 and SB 660 was to do little more than serve as propaganda. One certainly could not describe her article as educational, informative, or a rational discourse on the issues at hand.rnrnIt is clear Ms. Replogle does not even know what reverse mortgages are. To her all reverse mortgages are HECMs. She makes it look like California is attempting to regulate HECMs and nothing more. She demonstrates no knowledge of or appreciation for the existing law (California Civil Code Section 1923 and the subsections there under) or its history. rnrnMs. Replogle claims: u201cThis is the first in a series of posts that will lay out issues and the status of bills seeking to overhaul state law on banking and lending.u201d She then goes on to say: u201cWhile advocates for senior citizens are pushing for passage of the bills without further amendment, lobbyists representing companies that offer reverse mortgages seek to block or water the bills down. The fight shows that despite bail-outs and the subprime meltdown, the banking industry remains a powerful force in Sacramento.u201drnrnMs. Replogle takes a snippet out of what Mr. Cole stated about lobbyists of bankers and built on it. Rather than depicting the statement for what it is, the ranting of someone who just fought a hard battle in committee and saw the legislation progress, she uses Mr. Cole (or Mr. Cole uses her) to attack our industry. To this observer, Mr. Coleu2019s first statement was little more than grandstanding and like the Man of La Mancha, but this time by mere words, vanquishing his enemy, those reviled lobbyists of California bankers.rnrnAfter tying us to bail-outs and subprime, Ms. Replogle then brings up inappropriate marketing and you guessed it that evil u201ccross selling.u201d She claims most lenders came into the industry in 2009 but does not even mention the fact that those who have been in the industry over five years originate the vast majority of HECMs.rnrnMs. Replogle seems to have one goal in mind: reverse mortgages are dangerous in the hands of the banking industry. She strongly endorses the legislation with no knowledge of the impact it might have on seniors. To say she is biased against our industry is beyond an understatement. rn

  • TO: JAMES VEALE AND COLLEAGUES

    James,

    Your appraisal of the situation is right on target, well done sir.

    My on going concern has been that we are seeing more and more states like California coming out with proposed bills that are supposed to protect the senior. Instead the bills being passed are only making it more difficult for the senior to obtain financial relief from programs like the Reverse Mortgage. Not to mention the compliance nightmare we as an industry is going to have with each state. Eventually it will become almost imposable to keep up with it. We are just starting to see the states jumping into the arena, I hate to see what it will be like 12 months from now.

    Some of what is being proposed in California that will require originators to disclose to the borrower is going to have a major impact on the survival of Reverse Mortgages. What we are seeing today is such a lack of understanding of the Reverse Mortgage by those same individuals that have the power to legislate requirements and regulations governing the product. How do we combat ignorant and close minded groups of legislators and reporters?

    James, Thank you once again for your great comment presentation.

    My best to all,

    John A. Smaldone

  • My internist recommended me to an ear doctor who in turn said I should have a mole looked at and why not go for that colonoscopy I've been putting off. This is for real, people in the legal field would be remiss not recommending a real estate or estate or even criminal lawyer to fit a particular set of circumstances. The lawyers out there, many in the legislative and regulatory fields feel that they are above us in the financial services field. Would I, a “financial planner” (although I call myself an insurance salesman), be wrong to recommend a good RM person to a client if the need be there? Should I not recommend LTCI to a person that gets an RM even if they need it? Damn well I should. The lawyers and regulators are throwing out the baby, the bath water and probably not too many of the bad apples. Why not just let the senior prospects sign a document saying that they will send a copy of any applications for a financial product (within 6 months, say) to their local state and/or federal representatives asking for their evaluation as to suitability within 10 days. (After all, the senior is paying their salary.) Perhaps these people writing laws and regulations could use some first hand experience in untoward consequences.

  • TO: JAMES VEALE AND COLLEAGUESrnrnJames,rnrnYour appraisal of the situation is right on target, well done sir. rnrnMy on going concern has been that we are seeing more and more states like California coming out with proposed bills that are supposed to protect the senior. Instead the bills being passed are only making it more difficult for the senior to obtain financial relief from programs like the Reverse Mortgage. Not to mention the compliance nightmare we as an industry is going to have with each state. Eventually it will become almost imposable to keep up with it. We are just starting to see the states jumping into the arena, I hate to see what it will be like 12 months from now.rnrnSome of what is being proposed in California that will require originators to disclose to the borrower is going to have a major impact on the survival of Reverse Mortgages. What we are seeing today is such a lack of understanding of the Reverse Mortgage by those same individuals that have the power to legislate requirements and regulations governing the product. How do we combat ignorant and close minded groups of legislators and reporters?rnrnJames, Thank you once again for your great comment presentation.rnrnMy best to all,rnrnJohn A. Smaldone

  • My internist recommended me to an ear doctor who in turn said I should have a mole looked at and why not go for that colonoscopy I’ve been putting off. This is for real, people in the legal field would be remiss not recommending a real estate or estate or even criminal lawyer to fit a particular set of circumstances. The lawyers out there, many in the legislative and regulatory fields feel that they are above us in the financial services field. Would I, a “financial planner” (although I call myself an insurance salesman), be wrong to recommend a good RM person to a client if the need be there? Should I not recommend LTCI to a person that gets an RM even if they need it? Damn well I should. The lawyers and regulators are throwing out the baby, the bath water and probably not too many of the bad apples. Why not just let the senior prospects sign a document saying that they will send a copy of any applications for a financial product (within 6 months, say) to their local state and/or federal representatives asking for their evaluation as to suitability within 10 days. (After all, the senior is paying their salary.) Perhaps these people writing laws and regulations could use some first hand experience in untoward consequences.

  • This is a very important product for a lot of seniors and must be done is a responsible way, it’s as simple as that.rnrnhttp://mymomnpop.com/ALWAYS_ACT_IN_AN_ELDERS_BEST_INTEREST

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