California Bill Prohibits Insurance Brokers from Reverse Mortgage Participation

A bill introduced in California prohibits all insurers, brokers, agents and others engaged in the transaction of insurance, from participating in, being associated with, or employing any party that participates in or is associated with, the origination of a reverse mortgage.

The bill, AB 793, introduced by Assemblymember Mike Eng (D-Calif.) in February, also prohibits insurers, brokers, agents and others from referring a client or prospective client to any party that participates in or is associated with the origination of a reverse mortgage. However, brokers can still offer customary insurance that is normal under a reverse mortgage loan, the bill specifies.

HUD already has protections in place that prevent reverse mortgage lenders from also selling insurance to reverse mortgage borrowers. The California bill would go a step further to prevent insurance agents from also making reverse mortgage recommendations or being involved in the origination process.

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AB 793 may be heard in committee on March 20, according to California bill documents.

View the full text of the bill.

Written by Elizabeth Ecker

 

 

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  • Cute, so an insurance adviser in CA, when I perceive that someone may need an RM loan, I just tell them to look in the phone book (ooops, I mean Google it).

  • While Elizabeth presents the contents of a very short bill correctly, the following statement is only partially true: “HUD already has protections in place that prevent reverse mortgage lenders from also selling insurance to reverse mortgage borrowers.”

    Under federal law generally there is no restriction about selling financial or insurance products at any time AFTER a HECM funds. There are no federal rules regarding cross selling for proprietary reverse mortgage products at all.

    Last year, the Fed proposed R-1930 which would have prohibited any sales of investments and most insurance products by originators, lenders, or anyone else generally related to a reverse mortgage until at least 10 calendar days had passed from the time a reverse mortgage funded. R-1930 was proposed on 9/24/2010 and withdrawn on 2/1/2011 in deference to the policy making of the Consumer Financial Protection Bureau specifically on reverse mortgages.

    Based on the interpretation expressed in R-1930, the Fed seems to believe that HERA permits cross selling following rescission but the Fed is not FHA or HUD. State laws may not be so permissive. Lenders can also have their own rules in place. Cross selling is a very provocative topic deserving far more attention from HUD than it has received to date.

    HOWEVER, I am not an attorney and this is not a legal opinion. Or loosely interpreting Jim Milano: “You gets what you pays for.”

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