California Governor Signs Reverse Mortgage Protection Bill Into Law

California Govenor Jerry Brown (D-CA) signed into law a bill on Wednesday that aims to prohibit inappropriate conduct by insurance professionals in the sale of reverse mortgages.

Authored by Assemblyman Mike Eng (D-CA), AB 793 is designed to prohibit unscrupulous insurance agents and brokers from participating with, employing, or making referrals to an individual involved in the sale of reverse mortgages with the sole purpose of cross-selling inappropriate products such as annuities.

“AB 793 provides another level of protection for seniors from being persuaded to use the proceeds of a reverse mortgage to purchase inappropriate insurance products, primarily annuities and long-term care insurance that may not be suitable for them,” Eng said in a statement.

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The bill had the support of the Dave Jones, the California Insurance Commissioner, who asked the Governor to sign the bill last week.

“There is an increasing need for this bill as the growth of the reverse mortgage business has been accompanied by aggressive marketing and abuse, especially when reverse mortgages are marketed along with insurance products or financial investment vehicles,” said Commissioner Jones. “A reverse mortgage should be an option of last resort only for seniors with an immediate need for cash and have no other means.”

The Commissioner said the bill should stop insurance agents from making referrals to an individual involved in the sale of reverse mortgages.

“This new law will help return the concept of a reverse mortgage to its original form and protect seniors from being sold products they simply don’t need and, in fact, actually harm them financially,” he said.

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  • Even though Assemblymember Eng, the author of the bill, tried to explain his concern about how the bill (AB 793) will be interpreted in a letter in a July 13th letter to the Secretary of the California Senate, it seems to have no effect on the Commissioner of the California Department of Insurance.  Here are the last two paragraphs of that letter: 

    “In the same way, it is not the intent of AB 793 to prevent a senior from purchasing noncasualty insurance products from an insurance broker or agent, such as an annuity or long-term care insurance, when the purchase is independent of a reverse mortgage loan referral. Also, like AB 329, AB 793 intends that this independence can be shown by the broker or agent maintaining procedural safeguards designed to ensure that the agent or broker transacting insurance has no direct financial incentive to refer the policyholder or prospective policyholder to a reverse mortgage lender. My aim with AB 793 is to address insurance agents and brokers who, with full knowledge that a senior has recently acquired a reverse mortgage, inappropriately solicit those funds for the purpose of selling a noncasualty insurance product. Outside of an improper referral prohibited by this measure, if a senior independently wishes to purchase an insurance product with the proceeds of a reverse mortgage, that action would be permissible under this bill as described above.”

    Unfortunately the language of the statute does not reflect the current position of Chairman Eng.  Here is the relevant portion of the law:

    “(2) Except as provided in subdivision (b), individuals transacting insurance shall not receive compensation, commission, or direct incentive for providing reverse mortgage borrowers with a noncasualty insurance product that is connected to or a result of the reverse mortgage.”  [California Civil Code 785.1(a)(2)]

  •  Commissioner Jones. “A reverse mortgage should be an option of last resort only for seniors with an immediate need for cash and have no other means.”

    I swear this phrase is imbeded in every politician, higher up, financial guru on the planet. They have no clue or even try to understand how a Reverse Mortgage works.

    • Eric- This is the same quote that caught my eye. It’s a shame that it comes from our State Insurance Commissioner. But this being California, the state not of the people but of bankrupt bureaucrats, lobbyists and clueless lawmakers and governors, this comes as no surprise. And that it comes as no surprise is truly the shameful part.

  •  Commissioner Jones. “A reverse mortgage should be an option of last resort only for seniors with an immediate need for cash and have no other means.”

    I swear this phrase is imbeded in every politician, higher up, financial guru on the planet. They have no clue or even try to understand how a Reverse Mortgage works.

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