California Reverse Mortgage Bill Passes Assembly, Heads to Senate

The California Assembly passed a bill earlier this week, which is meant to provide an additional level of protection to senior citizens considering reverse mortgages. 

Passed by a vote of 49-29, SB 660 requires that a checklist be provided to the consumer prior to the mandatory counseling session and states that any person who recommends a reverse mortgage, with anticipation of financial gain, owes a duty of honesty, good faith, and fair dealing to the consumer. 

Senator Lois Wolk, D-Davis, told the Daily Democrat that, "These loans, while appropriate in some instances, can have devastating financial consequences.  Because the amount due can fairly quickly exceed the value of the home, borrowers get trapped. They lose their equity and their ability to move into assisted living or other supportive housing, or otherwise provide for long-term care. This measure ensures that seniors have the information they need when making important financial decisions involving their homes."


The new version of SB 660 includes the following amendments:

  1. Specify that a lender, broker, person, or entity shall not be deemed to have breeched the duty set forth by this bill solely based on the actions or omissions of the counseling agency.
  2. Provide that compliance with existing law may be cited by a lender, broker, person, or entity as evidence demonstrating compliance with the duties of this bill.
  3. Requires the counseling agency to provide the prospective borrower with a written checklist of issues and problems that could arise in the transaction if the prospective borrower seeks counseling prior to requesting a reverse mortgage.
  4. Require that the notice that must be delivered to reverse mortgage borrowers highlight certain risks associated with reverse mortgages.

"With the rise in abuses in the reverse mortgage market, this standard is not only appropriate, but also necessary to protect seniors from those who would take financial advantage of them," said Wolk.

The Senate must now vote on the new amendments, then it can be sent to the Governor for his signature.

Senior mortgage protection measure passes

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    • One thing of concern would be cross selling. Another is that there is no independent review of the financial information that the originator provides. Then there is the question of undue pressure, etc. Many of these concerns are easily dealt with if counseling occurs after origination.

  • The devil is in the details. Will the “list” be like in Casablanca: “Round up all the usual suspects” type of laundry list, which would inspire debate on all sides? Or, hopefully, it will be a well crafted and brief list of really important points.

    • I want to jump in here before someone else does.

      The list was repugnant when first written. The amended list is shown below:

      “The written checklist shall conspicuously alert the prospective borrower, in 12-point type or larger, that he or she should discuss with the agency counselor the following issues:

      (A) How unexpected medical or other events that cause the prospective borrower to move out of the home earlier than anticipated will impact the total loan cost.

      (B) The extent to which the prospective borrower’s financial needs would be better met by options other than a reverse mortgage, including, but not limited to, less costly home equity lines of credit, property tax deferral programs, or governmental aid programs.

      (C) Whether the prospective borrower intends to use the
      proceeds of the reverse mortgage to purchase an annuity or other insurance products and the consequences of doing so.

      (D) The effect of repayment of, or inability to repay, the loan on residents who are not borrowers after all borrowers have died or permanently left the home.

      (E) The prospective borrower’s ability to finance routine or catastrophic home repairs, especially if maintenance is a factor that may determine when the mortgage becomes payable.

      (F) The impact that the reverse mortgage may have on the
      prospective borrower’s tax obligations, eligibility for government assistance programs, and the effect that losing equity in the home will have on the borrower’s estate and heirs.

      (G) The ability of the borrower to finance alternative living accommodations, such as assisted living or long-term care nursing home residency, after the borrower’s equity is depleted.”

      I will be reading it over carefully this weekend. I hope this helps.

  • Critic, what's the problem? It would only take about a week to cover and answer (with a lot of crystal ball gazing thrown in) these points. I figure a good accountant, financial planner and estate lawyer team could bill $300X40 hours (no overtime) or $12,000. (Would this be an appropriate use of RM proceeds?)

    • dduck12,

      Maybe this should be called the full licensed financial advisors act of 2009? I hardly think they could do this with one professional. They will need all three. Maybe they could give a discounted price like $35K rather than $36K. Just an idea.

      Counselors are not trained to answer many of the issues. Since California cannot dictate what HUD must include in its counseling curriculum how do they expect counselors to get the training, knowledge, and information they need to advise seniors on the checklist items?

  • Like many news articles, by the time they are published they are out of date. New information on the status of the California bills will be reported on RMD next week.

  • Like many newspaper (the Daily Democrat from Woodlake, California) articles, by the time they are published, they are out of date. The status of SB 660 changed by the afternoon of publication. More about this and the status of its competing legislation will be reported in RMD next weekend.

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