Agencies Confident About Implementation of California Elder Protection Act

During the National Reverse Mortgage Lenders Association Annual Conference in San Diego last month, concern was raised about the readiness of HECM counselors to advise borrowers on the topics required by California’s new mandated reverse mortgage counseling checklist. The checklist is a part of the California Elder Protection Act, also known as AB 329.

For some in the reverse mortgage industry, the counseling checklist has been quite contentious. There are concerns about whether or not it will be funded correctly and whether housing counselors are really qualified to discuss tax obligations with the borrower, let alone complications such as gifts of title in the case of divorce and gifts involving a non-resident alien spouse.  But the counseling agencies do not appear worried.

When contacted by RMD, Doug Erickson, Vice President Partner Relations of the Consumer Credit Counseling Service (CCCS), said, “Our counselors will fully cover the questions in the checklist as a part of their regular counseling session. Most of the questions on the checklist are already included in our sessions.  We will have some additional training prior to implementation of this requirement to assure that all the pertinent issues are covered.”

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Michael Keene, President of the National Housing Counseling Association, also said that the items on the checklist were, “something that should be routinely covered in every session.” He added, “Every counselor who has passed the test should be able to answer those questions.”

The California Elder Protection Act, AB 329, goes into effect on January 1, 2010.

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  • This response is very disappointing. The GAO report made it plain that counselors fell down on HUD standards. These standards are much higher.

    It will be interesting to see if counselors can disucss with seniors the extent to which other programs apply. This standard is not that they advise about the existence of other programs but that they competently advise them on how the program applies to them. In California there are state, county, and in places city programs for seniors. I really do not know how any counselor (especially those outside of California) can reasonably be expected to know and be current on such programs.

    If I were in the shoes of the counselors, I would not be accepting this responsibility so lightly. There are few originators who are familiar with the gift tax and the full legal implications involved in changes in titles between spouses, children and parents, etc. Although I respect our counseling core, it is a shame they do not realize what their responsibility actually could turn out to be.

    • Mr. Veale:

      I think that your response to quotes Mr. Erickson and Mr Keene is overly harsh. Asked a question about whether they will comply with California law, what are they supposed to say?? No??? and decrying regulations that will go into force in several weeks would not be a smart move….Can you imagine any lender giving a quote to a reporter saying they are going to struggle implementing the new RESPA regs?

      Counseling agencies are placed in a difficult spot in responding to pretty open ended “requirements”. As I see it they have a choice a) try to comply with what they think the rules mean or b) don't counsel in California. If they choose to continue its not surprising their public statements will be of confidence in their ability to comply.

      The requirement set out in AB329 IS easy to meet in certain areas and less so in others. Your concern and criticism seems to be based on an assumption that I don't think is 100% correct.

      The language in the bill is as follows:

      “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:” and goes on to list a lot of points for discussion.

      The bill did not dictate the nature of these discussions, but you appear to have decided on what they should be when you write:

      “This requires that the counselor not just present the idea that options are available to seniors and what some of the more important of them are but rather requires them to discuss the extent to which all options apply”

      Where in the legislation are counselors required to do this? All I saw is a requirement to provide and sign a checklist to a consumer of questions to ask the counselor.

      Admittedly only a foolish counseling agency would be unprepared to address these issues to some extent (most subjects ARE covered to some extent in a HUD compliant session today anyway), but there is no regulation describing how detailed these reply should be.

      From a counseling standpoint it would be great to understand what level of detail required in addressing “The extent to which the prospective borrower’s financial needs would be better met by options other than a reverse mortgage”…… or impact on tax situation., government benefits and so on but of course this kind of detailed guidance is nowhere to be seen.

      Should the regulator actually define the expectations of the counseling response to these broad issues, counselors will do their best to fully comply.

      I apologize in advance if I have missed detailed guidance on exactly what the devil of the details are… but without that information I believe you are imposing your own opinion of exactly what the content of a counseling session should be.

      • counselingguy,

        I am truly astonished by your reply. I would remind you as Mr. Peter Bell does vigorously and rigorously that representatives of HUD, Congress, and other agencies read RMD comments. Please note the involvement of Mr. Prescott Cole, legal counsel for an elder advocate group.

        I was involved with the replacement of the required disclosure with the California state Senate, starting in late 2007, denouncing the use of the term “additional income” in referring to mortgage proceeds as both misleading and deceitful. AB 329 did not change the required disclosure; that was accomplished by amendment to satisfy a California Senate requirement to drop a competing bill, California Senate Bill 660.

        In your reply you refer to regulations. I would overlook that except you discuss the regulator. I must plead ignorance; I know of no regulations or any regulator who has issued any regulations on California Assembly Bill 329 that will go into effect on January 1, 2010. If you have that information, please present it. I am afraid you are both greatly misinformed and worse, misinforming.

        California Civil Code Section 1923.5(a) tells consumers in its mandated disclosure that counseling is required. CCC § 1923.5(b)(1) states that the consumer should discuss the items presented in the checklist with the counselor. You state that places no implied or legislatively expected obligation on the counselor whatsoever.

        As a counselor, what is the consumer paying for? Most counseling in the past took 30 minutes or less. This has been reasonably verified by the GAO. That is a fee of $250 and more per hour. And yet if the law states that the consumer should discuss the items, the counselor is not obligated to do it? That is a pretty steep rate for that level of consumer protection.

        You knowingly quote CCC § 1923.5(b)(1)(B) in your reply above. I point you to CCC § 19235.5(b)(1)(F) as well. To a simple CPA and I believe most consumers, these require detailed responses. You state that a counselor is under no obligation to address them at all.

        I do not even agree with the obligation you believe is on a counselor. The counselor must only sign the checklist IF the counseling was done in person, i.e., face-to-face.

        Now going back to the question you claim Ms. Minkoff asked. If that was the question she actually asked, then you would have seen a harsh response. She and I speak by phone and correspond by email regularly. I will ask her if your question was ever asked and get back to you with that response and some additional comments.

        I would be worried about counseling if you were the only counselor I speak with. Fortunately the counselors I speak with see their responsibilities in a slightly different light.

  • Is the loan officer no longer the “expert”? Now it appears that HUD counselors will be on the slippery slope into providing “advice” to prospective HECM borrowers.

    Jim brings up a good point. HUD counseling has been found lacking already. Now we're going to ask them to discuss estate & tax planning issues?

  • Counselors and loan officers should be prepared to refer the homeowner to whatever agency/expert is appropriate for the guidance California wants. The responsibility to provide the proper contact info for government programs should be on the state, not us. Contact info for local legal and tax expert, associations should be made available as well. We shouldn't be asked to be responsible for anything other than the RM aspect.

  • PLEASE note that the CHECK LIST is ONLY required when there is a FACE TO FACE counseling session NOT WHEN DONE BY PHONE… A majority of counseling these days are done via phone. Are we making more of this than necessary?

    • Chuck,

      I apologize that I did a new comment rather than a reply so that you would be notified of my response below. You are now so notified. This is an important issue.

  • Chuck,

    I respectfully but fully disagree with your interpretation of the law. Please cite your reference in the statute.

    It is my understanding and that of those who negotiated the checklist that it is required in all counseling no matter what the presentation media including counseling provided by phone. However, if the counseling session is completed in a face-to-face session, the checklist must also be signed by the counselor. The following is taken from the related sections of the bill.

    California Civil Code Section 1923.5(b)(1) as provided in Section 4 of California Assembly Bill 329 as enacted on October 11, 2009 which becomes law on January 1, 2010 reads as follows:

    “(b)(1) In addition to the plain statement notice described in subdivision (a), no reverse mortgage loan application shall be taken by a lender unless the lender provides the prospective borrower, prior to his or her meeting with a counseling agency on reverse mortgages, with a written checklist, or in the event that the prospective borrower seeks counseling prior to requesting a reverse mortgage loan application from the reverse mortgage lender, the counseling agency shall provide the prospective borrower with a written checklist. 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: ….”

    Immediately after this introduction comes the checklist. Then following the checklist is the following statement referenced as CCC 1923.5(b)(2):

    “(2) The checklist required in paragraph (1) shall be signed by the agency counselor, if the counseling is done in person, and by the prospective borrower and returned to the lender along with the certification of counseling required under subdivision (k) of Section 1923.2, and the loan application shall not be approved until the signed checklist is provided to the lender. A copy of the checklist shall be provided to the borrower.”

    The last part of the last paragraph of the Legislative Counsel’s Digest contained in Section 1 of AB 329 reads as follows:

    “The bill would require a lender to provide a borrower with a checklist specifying issues the borrower should discuss with a reverse mortgage counselor or, if the borrower seeks counseling prior to requesting a reverse mortgage loan application, the bill would require a mortgage counselor to provide the checklist. The bill would require that the checklist be signed by the counselor, if the counseling is done in person, and the prospective borrower, with a copy provided to the borrower. The bill would prohibit approval of the loan application until the signed checklist is provided to the lender.”

  • My group sponsored AB 329. The intent of having a suitability checklist was to alert the borrower to the problems and pitfalls of reverse mortgages. The industry has done a phenomenal job of promoting the positive aspects of RMs, but it has been a little shy about letting borrowers know about what might be in store for them and their loved ones when the loan comes due. Since we believe brokers and lenders Haven’t been having serious discussions about suitability, AB 329 was developed to make it the business of the counselors to go over the issues of suitability. A lot can happen between the time a borrower takes out a reverse mortgage and dies/or permanently leave the dwelling. Here’s some things a prospective borrower will have to ponder: Often there will be individuals other than the borrowers living in homes with RM loans. What happens to them when the borrower dies? There are many types of family combinations living in the homes of borrowers; adult children with disabilities, a variety of relatives (some blood-relations other not), grandchildren, etc. When the borrower dies, the loan is due and if no one can pay of the loan, they all get evicted. Where do they go? Unfortunately for many, it’s going to be a scramble. Certainly for most, their next living situation will be less agreeable. Some will end up homeless. And for the disabled? Most will be headed for institutionalization at a great cost to the Medicaid program. Another problem is what happens to the borrowers who runs through all reachable equity then becomes stranded in the home unable to afford repairs, pay taxes or keep paying the insurance? They will go into default and will be foreclosed on. Were do they go and how do they pay for it? Even if they manage to stay in their homes, routine maintenance will be a crushing burden on those with low or modest incomes. Borrowers need to seriously think about what happens after they run through a RM and exhaust all their reachable equity. They will be unable to finance a move into assisted living or a CCRs which all require private pay. In California we are seeing individuals with reverse mortgage loans being taken off of waiting lists for assisted living facilities. Facilities are removing their names because they know that when the time comes for the RM borrower to move out of their home they won’t be able to move into their assisted living facility because the borrower won’t they have the money. Another problem is when a senior borrower’s health or cognitive ability begins to spiral and they are unable to fully manage independent living. Instead of being able to move into assisted living (because they’ll have not cash or ability to get cash) they will remain in their homes, stranded, until they are pulled out by Adult Protective Services and place in long-term care facilities on Medicaid. Some promoters of RMs have been saying that RMs will keep individuals for getting onto Medicaid, but this isn’t the case when an individual has exhausted all of their equity. The stranded borrower will not have a problem qualifying for Medicaid. Having a reverse mortgage and no equity will not prevent an individual from qualifying for Medicaid. What having a RM does effect, is an individual’s ability to pay privately when he or she goes into the nursing homes. Those with depleted equity will not be able to pay privately and will have no alternative but to be on Medicaid, which will be a burden on state budgets. Having the RM also effect what will be left to the heir – generally nothing. These are some of the painful downsides of reverse mortgages and it is going to be the responsibility of counselors to bring them to the borrowers attention.
    until they are pulled out by Adult Protective Services and place in long-term care facilities on Medicaid. In California a home is exempt for purposes of qualifying for Medicaid. Having a reverse mortgage will not prevent an individual for qualifying for Medicaid. A borrower will qualify for Medicaid. What having a RM does effect, is an individual’s ability to pay privately when they go into the nursing homes. Those with depleted equity will not be able to pay privately and will have no alternative but to be on Medicaid, which will be an unnecessary burden on state budgets. Having the RM also effect what will be left to the heir – generally nothing. These are some of the painful downsides of reverse mortgages and it is going to be the responsibility of counselors to bring them to the borrowers attention.

    • I believe you agree with my conclusion that except for the requirement that the counselor sign the checklist in a face-to-face meeting the law does NOT distinguish between counseling in a face-to-face meeting and that provided through any other media including phone.

  • The counselor always has to sign the checklist: The plain language of AB 329 states: (j). The certification shall be signed by the borrower and the agency counselor, and shall include the date of the counseling and the name, address, and telephone number of both the counselor and the borrower. Electronic facsimile copy of the housing counseling certification satisfies the requirements of this subdivision. The lender shall maintain the certification in an accurate, reproducible, and accessible format for the term of the reverse mortgage.
    If the counseling is done in person than the signature will appear on the same piece of paper. Here’s why:
    AB 329 carries with it “legislative intent Legislative intent is suppose to give meaning and direction for interpreting what legislators had in mind while voting for the bill, just in case there any ambiguities (the plain language isn’t quite so plain) and to avoid any doubts as to what the bill is supposed to accomplish. Here is, verbatim, the legislative intent of AB 329 as it pertains to counselors and the suitability check list, “The bill would require that the checklist be signed by the counselor, if the counseling is done in person, and the prospective borrower, with a copy provided to the borrower. The bill would prohibit approval of the loan application until the signed checklist is provided to the lender.’ Tough to analyze because it first says that “The bill would require that the checklist be signed buy the counselor” but instead of having a period, it has a comma, followed by the clause ”if the counseling is done in person (comma), and the borrower (comma) with a copy provided to the borrower (period). The plain language is less than clear. However, the last sentence is complete and simple. The last sentence states: “The bill would prohibit approval of the loan application until the signed checklist is provide to the lender”. That means it has to be signed by the counselor and the borrower. The way to make sense out of what proceeds the last sentence is to interpret it to meant that, if the counseling were to a have been done in person, then the signatures of both the counselor and borrower would need to appear on the same paper, with the borrower retaining a copy.

    • Mr Cole;

      Thank you for being the first proponent of the bill to actually talk about some detail. As you are clearly familiar with the bill can you help me out with a broader understanding of what is meant by discussion of:

      “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.”

      Are the key points here that having tapped the equity in their home for a HECM it will be more difficult to obtain additional home equity financing and that borrowers should consider this in choosing how to use their proceeds.

      On the face of it the discussion seems pretty simple.. less equity, less future borrowing ability.. but I'd appreciate your thoughts on what the bills authors were trying to get at.

      • Thank your for your interest.
        Sorry for the delay in the response. I'm back from the Holidays.
        The legislator was concerned with a borrower's ability to remain in the home after he or she had run through all of their ready money and reachable assets. It really wasn't about the ability to borrow, it was more about the seniors' ability to survive once they tap out and become impoverished. It was about a borrower knowing about the possibility of going into default if the house falls into disrepair (the lender will not allow the home to go to waste). The legislation wanted the borrower to have this knowledge before committing to a reverse mortgage. They need to know that they run the risk of foreclosure if they cannot finance routine or catastrophic home repair. With this knowledge, the senior (hopefully) will make sure there is enough set-aside for the proverbial rainy day, so they will be about to repair the leaky roof.
        Call me if you want to discuss further.
        Prescott Cole
        415 974-5171

    • Mr. Cole,

      Here we disagree. Certificates are currently being issued. The checklist is brand new.

      If you are correct then what does CCC Section 1923.5(b)(2) mean when it says: “The checklist required in paragraph (1) shall be signed by the agency counselor, if the counseling is done in person, ….”

      • James,
        There is a specific piece of legislation that needs your input. Could you please call me?
        Prescott
        415 974-5171

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