Moving Toward Consensus on Reverse Mortgage Regulation

Industry advocates poised to get the message out about the value of a reverse mortgage have to convince people like Prescott Cole, senior staff attorney with California Advocates for Nursing Home Reform, self-described as a non-profit advocacy organization “dedicated to improving the choices, care and quality of life for California’s long-term care consumers”.

Cole and his group are among those who lobby lawmakers in Sacramento on issues affecting reverse mortgages and they are vocal in support of what they call “a fiduciary duty,” which would require originators “to put a customer’s interest above their own,” according to Cole.

In a recent legislative go-round, which resulted in passage of AB 329, a.k.a. “The Reverse Mortgage Elder Protection Act of 2009,” California lawmakers prohibited “a lender or any other person who participates in the origination of the [reverse] mortgage from participating in, being associated with, or employing any party that participates in or is associated with any other financial or insurance activity, as provided, except as specified.”


The bill also prohibits “a lender or any other person who participates in the origination of the [reverse] mortgage from referring a prospective borrower to anyone for the purchase of other financial or insurance products, except as specified.”

At the Annual Meeting of the National Reverse Lenders Mortgage Association in San Diego last week, the trade group’s attorney, Jim Brodsky, said the California law “addresses cross-selling at the initial point-of-sale” and he suggested that the wording be combined “with NRMLA’s ethics directive” on the issue, to create “a pro-active solution to the cross-sell complaint.”

Referring to “suitability,” Brodsky said “maybe California has a good idea.” The new law there requires lenders to provide prospective borrowers with a written checklist that encourages them to discuss with a counselor multiple issues, including the extent to which the prospective borrower’s financial needs would be better met by options other than a reverse mortgage, and the ability of the borrower to finance alternative living accommodations.

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade.  He can be reached at 

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  • Mr. Morse,

    Is Mr. Cole actually a California licensed attorney? Is he really a lobbyist here in the California state capitol advocating for the fiduciary standard you state?

    California AB 260 was signed into law by Governor Schwarzenegger less than 40 days ago and requires that all those licensed through the California Departments of Real Estate and Corporations provide the level of fiduciary care that Mr. Cole specifically advocates — on all mortgage transactions in the state of CALIFORNIA, period. Mr. Cole may counter that all lenders should be covered but where was he when AB 260 was working its way through the California Legislature and Senate?

    While it is not as surprising you are not aware of AB 260, it is very surprising Mr. Cole is not. Mr. Cole should describe how the fiduciary responsibility he espoused above differs in one iota from that required under AB 260.

    What is disgusting about the remarks of Mr. Cole is that he singles out the reverse mortgage industry as if our industry is the only part of the entire mortgage industry that deserves this level of fiduciary responsibility. It seems he has no cognizance of lenders taking far more advantage of seniors with other types of mortgages than has ever been done by our industry. Thank goodness for the wisdom of the California Legislature and Senate; they not only covered all mortgages but also mortgagors.

    Please allow this California lobbyist/lawyer the time to read the California law (AB 260) and comment again. Everyone deserves a second chance.

    [California AB 260 was covered by Mr. Clint Rockwell, an attorney, on Wednesday at the NRMLA Convention. Both Mr. Joel Schiffman, an attorney and partner of Mr. Jim Brodsky, and I also covered that same law on Friday morning as part of our NRMLA update on California laws.]

    • I am responding to James Veal’s post. I am a lawyer and I am an advocate for senior consumers and he, apparently, is unaware of the limitations of AB 260. There is always room for civil discourse and disagreement over issues but not for bluster and mud slinging. AB 260 only addresses the duty owed to consumers by brokers licensed through the California Department of Real Estate and Corporations. AB 260 is silent as to the duties of brokers selling reverse mortgages who are not. California does not actually have a separate Mortgage Broker License. When someone obtains a California Real Estate Broker License they are automatically licensed to function as a Mortgage Broker. This means they can list and sell real estate, and also negotiate loans secured by real estate, whether first mortgages or subordinate mortgage. There is another Mortgage Broker license under the California Finance Lenders Law (CFL) of the Department of Corporations. Those holding this license negotiate loans and act as negotiators with loans made by a Licensed Lender under the California Finance Lenders Law. Brokers operating under this license owe no fiduciary duty to their clients. They don’t even owe a duty of honesty, good faith or fair dealing. Mr. Veal asks me how the fiduciary responsibility I “espoused differs in one iota from that required under AB 260”. I just did. What I ask in return would be for James to do a little homework and find out what percent of reverse mortgages are sold by brokers with CFL licenses.

      • Mr. Cole,

        I appreciate your taking my call today. It is good we had a meeting of the minds and agree on the application of AB 260 as applying to California Financial Lenders and Residential Mortgage Lenders as well as those licensed by the California Department of Real Estate.

        Like you, I would like to see this same standard applied to all California mortgages originated by all mortgagees. Putting the economic interests of the customer above that of the lender is important and a necessary standard.

        I would like to correct a few things in the article. Mr. Cole is not a lobbyist as indicated in the second paragraph of the article, he is an advocate as Mr. Morse correctly pointed out in the first paragraph. Mr. Cole is also a California attorney.

  • Can you believe it?
    James E Veale & Michael Banner agreeing!
    It’s all about suitability & putting the client’s needs first!
    Go get’em Mr. Veale & have good holiday.

    • Mr. Banner,

      I am not after or against Mr. Cole. I am simply trying to reduce unnecessary provisions related to our industry here in California. For those of us subject to AB 260, we must meet the fiduciary standard of putting the economic interest of the customer in front of our own — as advocated by Mr. Cole. I agree with that standard.

      The problem is not with what fiduciary standard AB 260 requires; the issue is to which mortgagees and mortgage transactions does AB 260 apply. Immediately following his comment, Mr. Cole determined that AB 260 applies in the way and to the parties that were presented at the NRMLA convention and in my comment. That is the important issue, agreement as to application.

      I called Mr. Cole today and spoke with him for about an hour. We both agree that the same standard of care which is required in AB 260 should apply to all mortgage transactions in the state. In fact we agree on many fundamental issues related to our industry here in California. Mr. Cole and I are discussing other legislative issues; however, other than agreeing in principle as an individual, I will leave industry issues up to NRMLA.

      We are picking up our conversation on Monday and will hopefully keep up the correspondence in the days and years to come. I believe it is important for senior advocates to understand our concerns, and we, theirs.

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