California Reverse Mortgage Bill Awaits Senate Vote

A bill that would require California reverse mortgage lenders to provide certain disclosures to prospective borrowers during the application process is moving forward in the state’s legislature as it awaits a Senate vote.

Sponsored by Assemblyman Jose Medina (D-CA), AB 1700 aims to amend certain sections of California’s Civil Code relating to reverse mortgages. 

Specifically, the bill would implement a seven day cooling off period, prohibiting a lender from taking a reverse mortgage application or assessing any fees until one week from the date of loan counseling. 

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Additionally, the bill would delete the requirement that the lender provide a written checklist and would, instead, prohibit a lender from taking the loan application unless the applicant has received from the lender a specified reverse mortgage worksheet guide. 

The bill would require that the guide contain certain issues that the borrower is advised to consider and discuss with a HUD-approved housing counselor, as well as requiring both the counselor and the prospective borrower to sign the worksheet guide prior to closing.

“…[T]hese requirements seek to ensure that senior citizens will make informed decisions and that persons who offer, sell, or arrange the sale of reverse mortgages to senior citizens will act in the best interest of reverse mortgage loan borrowers,” states Section 1 of California’s Civil Code. 

AB 1700 bears similar resemblance to a previous bill (AB 553) Medina introduced in February 2013 that aimed to include a “suitability” checklist for reverse mortgage borrowers during the application process.

In May 2013, Medina removed AB 553 from further consideration after it was found that the bill would introduce an unnecessary burden on the lending process, according to the National Reverse Mortgage Lenders Association (NRMLA), which met with Medina in the months following the bill’s introduction.

The bill would have required an additional checklist seven days before counseling as well as a disclosure stating that a reverse mortgage is a complex financial tool that may or may not be suitable for an individual’s immediate and future needs.

AB 1700 passed the California Assembly on April 21 by an 11-1 vote and has since been amended by and re-referred to the state’s Senate Standing Committee on Judiciary.

The bill currently awaits a vote from the California Senate, which has adjourned until August 4.

View the bill.

Written by Jason Oliva

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  • I wonder if the initial disclosure will include Dante’s, “Abandon all hope, ye who enter here.” The California state legislature seems to have tackled this issue WITHOUT much input from our industry.
    The HECM program will always be more about education than salesmanship. I attribute our failures in this area to feckless and passive leadership.

  • Good Grief! Here goes another California politician who is attacking the reverse mortgage industry without knowing what he is talking about. The reverse mortgage loan has always been safe and highly regulated by FHA, and recent new rules are adding dramatically to that end. Even non-borrowing spouses are soon to be protected. This is just another example of California chasing business away, at the detriment of not only the targeted businesses, but its citizens as well.

  • Here is what I find most disturbing, this is what the politicians read as a summery for this bill when they are voting :

    California has seen a growing trend of seniors being aggressively targeted and marketed to by the financial industry with reverse mortgages. According to the Consumer Attorneys of California, there are more than 110,000 active reverse mortgages in the state, and nearly ten percent of those loans are in default. On any given day, a California senior citizen could potentially: contact a lender for a reverse mortgage, have an hour long phone counseling session (without the assurance of detailed information and clarity of the loan), and sign up for an inappropriate reverse mortgage product all in the same day. The reverse mortgage sales pitches are highly sophisticated, and the advertisements are often made by celebrities that focus primarily on the positive parts of the loan. The State of California has an interest in assuring that only appropriate reverse mortgages are sold to seniors. Low wealth seniors who become involved with unsuitable reverse mortgage loans run the ultimate risk of not only losing their homes, but also becoming a financial burden to the State.

    • Where was the HECM industry leadership and trade association when testimony was being given in committees? Sometimes I think we get what we deserve. We seem helpless to defend ourselves.

    • I have seen that same claim: “10% of reverse mortgages are in default” by Mark Takano, California representative. I find that hard to believe, when only not paying taxes and insurance are usually the only reasons for default (on a loan with no mortgage payments)! They should be made to prove their statements.

      • Ron,

        The greatest source of defaults in our industry comes from failure of heirs to pay off balances due especially when the HECM is underwater. Default is a legal term which applies to far more than failure to comply with a couple of HECM covenants.

      • Right, but when the politicians and media talk about the 10% foreclosure rate they do not differentiate the difference between that and the senior borrower in default because they cannot or have not paid their taxes. They claim that even with a Reverse Mortgage the borrowers do not have enough monthly income to pay taxes. I do not believe this is true. I bet that the percent of foreclosure due to the senior not paying their taxes is a lot lower that the 10% they keep talking about. Where are those statistic’s?

  • Here is a link to the bill and if you look on page 6 you can see what the author says about Reverse Mortgages which is in part what I posted earlier:

    http://www.leginfo.ca.gov/pub/13-14/bill/asm/ab_1651-1700/ab_1700_cfa_20140616_163223_sen_comm.html

    This is not just a California problem, as I am sure most of you are aware that when one state adapts something like this, others will soon follow, especially since it is California. I would hope that everyone will take the time to thoroughly go through this bill and see that there is many items that will be harmful to the process of obtaining a Reverse Mortgage, not just the 7 day cooling off period. What Assembly man Medina does not understand is the borrower can stop the loan from moving forward at any time during the processing of the loan which is usually 30 days from the time the counseling is completed.

    He states:

    “AB 1700 helps seniors evaluate whether or not a reverse mortgage
    is appropriate for their needs [by requiring prospective
    borrowers to complete] a Reverse Mortgage Worksheet
    Guide.”

    So the government is in the business of helping people evaluate whether or not something is right for them? Are they calling them up one by one and talking to each borrower to see what their needs are? No, but a worksheet will do the trick!
    Do they do this for other things? What about hard prescription drugs? What if a doctor wrote a script for a senior but the senior had to wait seven days before it could be filled? You mean to tell me that there are not prescription drugs that could not have an impact on a senior’s life in a negative way? Impair their driving, cause them to stumble and fall, maybe even take out a Reverse Mortgage!
    And what about credit cards? Until I opted out of receiving them a few years ago I was getting “Pre Approved” offers 2-3 a week. All I had to do was call in, give them my SS number and I would have instant credit, no counseling, no problem! I can then go out and get myself in all kinds of debt, possibly go bankrupt, talk about ruining someone’s life! Where is all the help and guidance from the government there?

    This bill will only put more fear into the seniors about our
    industry which will only inhibit them from even exploring whether the program may or may not be right for them.
    The individuals who really need educated are the ones responsible for writing these bills and the ones voting in favor of them without taking the time to fully understand not just the loan but the entire
    process a senior typically goes through in even making the decision to get one.
    If even one of these people would take 1 day or two or even better, a week to spend time with a loan officer and go on appointments and see how the whole process is done and handled and follow it all the way through underwriting and approval and even the signing, 3 day rescission period, funding and recording, I am willing to bet they would see things a whole lot differently.

  • And if rates rise during the week delay before app and case number, tough luck for the consumer who will receive a lower Principal Limit (lower proceeds).

  • I would love to know who sits up all night and thinks of all these new bills, regulations and changes. I am not only talking about California, I am talking Federally and in other states.

    I would also like to know who is going to remember to enforce all these new bills and reg changes that have occurred in the past 5 to 6 years?

    The consumer who is supposed to be protected more in today’s environment are the one’s that are the most confused and the most vulnerable, thanks to the law makers.

    Wow, where will we be 5 years from now??

    John A. Smaldone

  • Ok, I have to admit I am more than a little perplexed by the lack of comments about this bill. Are there so few of us left that care? Hello? Is this thing on? WAKE UP! Where is everyone???

  • Face it! California is a blue state and as to the legislative branch of government, the Democratic Party has never shown much trust in qualified credit counseling agencies and lenders (or their originators) to convey reasonably unbiased information about HECMs or proprietary reverse mortgages to prospects.

    The type of bill we are seeing this time in the California legislative branch is the same type of consumer protection bill we have seen year after year here in California.

    As to the complaints about NRMLA and our industry leaders, it is only thanks to their efforts that things are as good as they are here when it comes to originating HECMs. Despite some odd blogging out of NRMLA recently, all in all, for its size and budget, it is hard to be negative about the job that NRMLA is doing especially when it comes to its lobbying efforts on proposed legislation.

    Peter and Steve, keep up the good work!!

  • I have been on the phone with my state representatives office’s and they all tell me the train has left the station on this one. I am wondering how it got this far with what seems like no information that it was even happening? This is not a party vote, they received a total of 91 yes votes and only 1 no vote in the combined 3 votes. I am told that State Senator Mark Wyland is in favor of this bill, and he is Republican. I asked that he call me so I can talk to him about why is in favor of this bill, I am still waiting for the call.

    It seems very odd to me how quite it has been on this bill, almost like something we do not know about is going on (an I am not one to be paranoid).

    I have also heard rumblings about the CFPB looking into our comp plans and the fact that they might want them to be in line with how the forward loans are paid. We would have to picking 1 comp plan for every loan originated. As a broker I am more than just a little concerned about the governments continued meddling with our industry. I do not see the same type of scrutinization and constant micro management in any other sector of American business. When or should I say WILL it all stop? When their are no more brokers and very few banks to do all the loans?

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