New California Disclosure Requirements Cause Confusion for Lenders

During a special workshop on the reverse mortgage landscape in California at the NRMLA annual meeting, it become clear after only a few minutes that there is immense confusion among lenders surrounding AB329, California’s Reverse Mortgage Elder Protection Act.

According to AB329, borrowers in California must now receive the Plain Language Important Notice Reverse Mortgage Disclosure before they go through counseling. 

However, what happens in a case transfer or when the borrower goes to counseling prior to meeting with a lender remains extremely unclear. One suggestion provided by the session was to give the disclosure out at the loan officer’s seminar, and have all the participants sign and date it.

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While the panel expressed hope of a change in the law to clarify case transfers, it is up to individual loan companies to determine their policies so as to comply with the law in these circumstances.

RMD contacted the counseling agencies and confirmed the confusion.  The President of the National Housing Counseling Association, Michael Keene, said that there is, “no onus on the counseling agency to provide [the disclosures] at all.” He called the plain language notice, “strictly a lender obligation.”

Keene added that while what happens if the borrower goes to the counselor first is addressed in the new counseling checklist requirements, it has not yet been addressed in the plain language notice. “I don’t know if counseling agencies are prepared to provide a solution to that now,” said Keene, “We’re trying to get an industry-wide solution in the next couple of weeks.”

While the confusion surrounding the Important Notice Reverse Mortgage Disclosure remains widespread, NRMLA and the National Housing Counseling Association are working with the state of California to try to clarify the situation.

Write to Reva Minkoff

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  • Since I was one of those speakers, it seems incumbent to clarify what the issue is.

    California Assembly Bill 329 Section 4 replaces California Civil Code Section 1923.5 by supplanting the current required disclosure with an entirely new one including a completely new processing regime. It also added a brand new counseling checklist with a separate and very different processing regime. Section 1923.5 is now bifurcated into part (a) dealing with the greatly revised required disclosure page and part (b) dealing with the new counseling checklist. The new law goes into effect on January 1, 2010. Except for the required disclosure page which follows the quoted portion, part (a) reads as follows:

    “1923.5. (a) No reverse mortgage loan application shall be taken by a lender unless the loan applicant, prior to receiving counseling, has received from the lender the following plain language statement in conspicuous 16-point type or larger, advising the prospective borrower about counseling prior to obtaining the reverse mortgage loan:”

    This language strongly implies that the actual lender must have given the borrower the required disclosure BEFORE going to counseling. However, many questions arise that are not answered in the statute, including:

    What must be done if the borrower goes to counseling before meeting with any lender? What if after going to the counselor, the borrower decides that she/he wants a different lender than the one which provided the required disclosure? What if the borrower goes to a seminar, gets the required disclosure from the presenter that has the name of the originator and the lending institution but due to delays by the time the borrower finishes counseling, the originator is with a different lender and the borrower wants that originator? What if the borrower changes brokers but not lenders?

    So what is the intent of the law? It APPEARS that the intent is to make the actual lender responsible for ensuring that the borrower received the required disclosure before meeting with the counselor. If this interpretation is correct, how can the situations described in the questions above be cured? What is clear is that the law is unclear on this very point.

    Many of us BELIEVE that California lawmakers did not intend for seniors to be restricted from being able to get a reverse mortgage for six months just because they took counseling before receiving the required disclosure or decide to change lenders. Unlike the checklist in part (b) of Section 1923.5, there is no basis found in the statute to conclude that by a counselor providing the disclosure before, during, or after counseling, the problems will be cured.

    It SEEMS as if one possible way to take care of the problem is, after providing the required disclosure to the borrower, to send the borrower back to counseling and get a new counseling certificate with a new date. Of course if the HUD Case Number had been obtained by another lender previous to the date on the new counseling certificate, two certificates will need to be retained: one to show that the counseling requirement was met in order to obtain the HUD Case Number and the other to show that the borrower met the California requirement. At the time that a lender gives a borrower the required disclosure, it would be wise to obtain and retain a signed and dated copy of the California required disclosure so that if the timing of counseling is questioned in the future, there is some evidence that the lender complied with the requirements of the California statute.

    NRMLA is working with Jerry Brown’s office, the California Attorney General, to find a way to be in compliance with the requirements of the new law when a borrower goes to counseling first or decides to change lenders once counseling is completed.

    There are also transition issues. What happens if the borrower received counseling before January 1, 2010, and wants to switch to a new lender on January 3, 2010, which rules apply? The old (but revised) adage still holds true: Oh, the unintended (and messy) consequences of well intentioned legislation.

    CAVEAT: Whether you are a broker or a lender, at the meeting and in this Comment, we advise you in determining what needs to be done to seek the advice and counsel of a competent legal advisor who is knowledgeable and experienced in these matters.

  • I am not an attorney, my points below are simply opinion.

    I would think if the borrower went to counseling PRIOR to application, it would infer that the applicant already understood the counseling requirement. In this instance all disclosures would be dated after counseling including the new one. An signed LOX would seem logical to me.

    The borrower returning to counseling for a second time seems to be punitive. It punishes the borrower completing their due diligence ahead of time and it will only create future delays in counseling.

    I hope for the sake of all, this gets clarified.

    • Mr. Chrome,

      California lawmakers want serniors to realize counseling is not simply a procedure or a lack of confidence in their ability to comprehend. The lawmakers want seniors to know that it is a real opportunity to understand and confirm their understanding of the reverse mortgage transaction and its ramifications with a qualified independent third party. They also want them to know what it is they are walking into so that they can be prepared.

      While your idea of punishment is not misunderstood, I believe California lawmakers see the potential for a missed opportunity to understand what the transaction is about as a far graver potential “punishment” to a senior than the time it takes to redo counseling. It appears the California lawmakers wanted to make originators and lenders the responsible parties for putting the senior on notice. Please see my next comment below which also includes the required disclosure.

  • The required disclosure is not just a notice that counseling is required. It is a warning to the senior as to the seriousness of the transaction and a strong admonition to understand what it is they are entering into. The required notice as contained in California Civil Code Section 1923.5(a) is shown below.

    IMPORTANT NOTICE
    TO REVERSE MORTGAGE LOAN APPLICANT

    A REVERSE MORTGAGE IS A COMPLEX FINANCIALTRANSACTION. IF YOU DECIDE TO OBTAIN A REVERSE MORTGAGE LOAN, YOU WILL SIGN BINDING LEGAL DOCUMENTS THAT WILL HAVE IMPORTANT LEGAL AND FINANCIAL IMPLICATIONS FOR YOU AND YOUR ESTATE. IT IS THEREFORE IMPORTANT TO UNDERSTAND THE TERMS OF THE REVERSE MORTGAGE AND ITS EFFECT. BEFORE ENTERING INTO THIS TRANSACTION, YOU ARE REQUIRED TO CONSULT WITH AN INDEPENDENT LOAN COUNSELOR. A LIST OF APPROVED COUNSELORS WILL BE PROVIDED TO YOU BY THE LENDER. SENIOR CITIZEN ADVOCACY GROUPS ADVISE AGAINST USING THE PROCEEDS OF A REVERSE MORTGAGE TO PURCHASE AN ANNUITY OR RELATED FINANCIAL PRODUCTS. IF YOU ARE CONSIDERING USING YOUR PROCEEDS FOR THIS PURPOSE, YOU SHOULD DISCUSS THE FINANCIAL IMPLICATIONS OF DOING SO WITH YOUR COUNSELOR AND FAMILY MEMBERS.

    It is troubling to read that some individuals who originate in California are not already familiar with the notice, its contents, and the requirements placed on the lender. If you fall into this category, it is important that you seek your supervisor and notify that individual of the need for you and all other originators under that person’s direction to be know the policy of the company for complying with the new California disclosure rules.

  • JEV,

    Thanks for the info. Originators aren't the only ones unfamiliar with the law but lenders as well. I have contacted two for the wording and neither fully aware of what I was talking about.

    Does the state or any lenders have something preprinted what we originators can use for the disclosure?

    • cbi695,

      Under California Civil Code Section 1923.5 there has been a disclosure notice lenders were required to provide all borrowers since 2006. Unlike the distribution procedure that kicks in on January 1, 2010, for the new disclosure, the distribution rule for the old disclosure that terminates on December 31, 2009 only required that no application be taken until the required disclosure was given to the borrower. By then it was too late to do any good in counseling, since the final application can only be taken after counseling is completed.

      Your lenders should have the current California disclosure statement with the application package you are currently using. The new one will just replace the old. Just make sure that you use the new disclosure form at your first meeting with the borrower so that they do not get counseling done before signing off on the disclosure form. It sounds as if counselors will be checking but by then it could be too late or some counselors could be unfamiliar with the disclosure procedure (since it is only a lender issue) may not address it.

      As one of the individuals who fought to get the old disclosure form replaced, I feel the new one is more appropriate and now puts all originators on the same playing field. Before the change, the old disclosure described reverse mortgage proceeds as additional income. Some sophisticated California originators used that language to defend their use of the word “income” in their marketing along with the term “tax-free income.” No longer will they be able to “hide behind the skirts” of CCC 1923.5.

      The FTC has announced that it will treat the term “tax-free income” as misleading. The sooner originators stop using that phrase the better. Proceeds can be taxable, especially when it comes to payoffs where the value of the home is less than the balance due. There are other times but they are less frequent with HECMs.

  • Home is very special place for all of us. Normally first time home buyers use FHA home purchase leads to purchase new home. For those owners who are facing some financial difficulties this is the best program that can be used for loan modification. FHA home purchase leads have some guidelines and the guidelines that should get the help you need. FHA home purchase leads saves time and ensures that you and all other applicants receive consistent treatment. If you are interested in an FHA home purchase leads you may sure that you have received complete requirements. You are also required to follow certain rules, regulations and other guidelines. This is a critical step to help those who are struggling for their bad credit and have no funds to buy a house. You fill out all forms properly due to meet the requirements of lenders and banks.
    Reliable mortgage leads that you can receive to advance sales and to help consumers to meet financial needs that taking advantage of these resources is important to the success of your mortgage broker company. Mortgage leads are provided in different quantities based on the personal specifications or options chosen by the officer and it’s important to follow up on the leads as soon as possible. Because the leads have been pre-qualified and pre-filtered, providing detailed loan options to potential customers.

  • Home is very special place for all of us. Normally first time home buyers use FHA home purchase leads to purchase new home. For those owners who are facing some financial difficulties this is the best program that can be used for loan modification. FHA home purchase leads have some guidelines and the guidelines that should get the help you need. FHA home purchase leads saves time and ensures that you and all other applicants receive consistent treatment. If you are interested in an FHA home purchase leads you may sure that you have received complete requirements. You are also required to follow certain rules, regulations and other guidelines. This is a critical step to help those who are struggling for their bad credit and have no funds to buy a house. You fill out all forms properly due to meet the requirements of lenders and banks.rnReliable mortgage leads that you can receive to advance sales and to help consumers to meet financial needs that taking advantage of these resources is important to the success of your mortgage broker company. Mortgage leads are provided in different quantities based on the personal specifications or options chosen by the officer and itu2019s important to follow up on the leads as soon as possible. Because the leads have been pre-qualified and pre-filtered, providing detailed loan options to potential customers. rn

  • Home is very special place for all of us. Normally first time home buyers use FHA home purchase leads to purchase new home. For those owners who are facing some financial difficulties this is the best program that can be used for loan modification. FHA home purchase leads have some guidelines and the guidelines that should get the help you need. FHA home purchase leads saves time and ensures that you and all other applicants receive consistent treatment. If you are interested in an FHA home purchase leads you may sure that you have received complete requirements. You are also required to follow certain rules, regulations and other guidelines. This is a critical step to help those who are struggling for their bad credit and have no funds to buy a house. You fill out all forms properly due to meet the requirements of lenders and banks.rnReliable mortgage leads that you can receive to advance sales and to help consumers to meet financial needs that taking advantage of these resources is important to the success of your mortgage broker company. Mortgage leads are provided in different quantities based on the personal specifications or options chosen by the officer and itu2019s important to follow up on the leads as soon as possible. Because the leads have been pre-qualified and pre-filtered, providing detailed loan options to potential customers. rn

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