California Reverse Mortgage “Cool-Off” Bill Moves to Governor’s Desk

Lenders in California may soon be required to observe a seven day cooling period from the date of counseling before they may be able to take a reverse mortgage application or assess any fees, according to a bill passed by the state’s Senate this week.

After passing the California Senate by a vote of 35-0 on Wednesday, the bill (AB 1700), which amends certain sections of the state’s Civil Code relating to reverse mortgages, is now headed to the desk of Governor Jerry Brown.

Sponsored by Assemblyman Jose Medina (D-CA), AB 1700 would also require lenders to provide certain disclosures to prospective borrowers during the application process.

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The process to get the bill through left little time for meaningful discussion, said Peter Bell, president of the National Reverse Mortgage Lenders Association.

“So, now the citizens are stuck with a law—if the Governor signs the bill—that does little to provide any meaningful additional assistance to homeowners considering a reverse mortgage (and might harm some in rising interest rate environments), and is an inconvenience to both consumers and lenders alike,” Bell said in an email to RMD. “On the positive side, perhaps, once it can be demonstrated that this bill is, in fact, harmful to some consumers, we might be able to use it as a stepping stone to obtain more appropriate state legislation in California.”

Notably, a provision of the bill prohibits a lender from taking a reverse mortgage application unless the applicant has received from the lender a specified worksheet guide, which would contain certain issues that the borrower is advised to consider and discuss with a counselor during the application process.

Existing law currently prohibits a lender from taking an application before providing a specified disclosure notice and written checklist. The new bill, however, replaces the written checklist requirement with the worksheet guide. Additionally, AB 1700 would require the counselor and the prospective borrower to sign the reverse mortgage worksheet guide.

Prior to accepting a final and complete application for a reverse mortgage, lenders will also be required to provide borrowers with a list of at least 10 counseling agencies approved by the Department of Housing and Urban Development (HUD).

AB 1700 passed the California Assembly on April 21 by an 11-1 vote. Since then, it has been amended and re-referred tot he state’s Senate Standing Committee on Judiciary.

A previous version of a similar bill (AB 553), also introduced by Medina in February 2013, aimed to implement an additional checklist seven days before counseling as well as a disclosure stating that a reverse mortgage may or may not be suitable for an individual’s immediate and future needs.

Several months later, Medina removed AB 553 from further consideration before the state legislature.

Written by Jason Oliva

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  • This is a useless Bill and I cannot even believe it has been passed, and by a landslide! What is Medina’s agenda? Who is he? I have been told by many that this is not a big deal and probably why it did not really even get noticed. I can not disagree more. This is a big deal because once again it looks like seniors must be protected from our industry and that Reverse Mortgages are as bad as you have been hearing about for years from the media and the politicians. This will soon be a law nationwide and get even more ill advised politicians to propose even more Bills to ” protect” the seniors. And what about the seniors, how do you think they feel about being cast as to dumb to make decisions so they need even more time to think about making it?
    Am I the only one that is concerned about this and see it as another roll down hill and that this snowball is just getting BIGGER and BIGGER?

    • EricSD,

      Per his website Jose Medina is a graduate of UCR in Latin American Studies with a graduate degree in history. He is a Democrat who represents most of the Riverside County communities on Highway 15 that go from Riverside almost to Escondido in San Diego County where you originate. How you have no idea who he is, is strange.

      Despite the political support coming out of NRMLA for Democrats, the impression most Democratic elected officials have about reverse mortgage originators was best expressed by a former Florida Democratic state chairperson when she described the Republican Presidential candidate as preying on seniors like a bogus reverse mortgage peddler. (See http://rmdaily.wpengine.com/2008/09/19/mccain-called-bogus-reverse-mortgage-peddler-and-other-news-from-the-week/)

      In California it does not take a single Republican vote to get a bill to Governor’s desk. Yet the bill did get some Republican support.

      Other than knowing little about Medina, the first part of your comment is OK but the last part is questionable at best. There will be repercussions from the passage of this bill but they will not have the national impact you claim. But watch out Connecticut and Minnesota.

  • It appears that the California legislature suffers from a lack of effective reverse mortgage lobbying effort. Maybe our industry spends too much time attending conventions and not enough time in legislative committee meetings.

  • AB1700 provides CA consumers the tools and time to determine if a reverse mortgage is suitable for their circumstances. A suitable reverse mortgage is beneficial for the consumer, the lender, the taxpayer, and the FHA insurance fund. The intention of a reverse mortgage was supposed to provide a benefit for consumers and that will not happen if it is not suitable.

  • Exactly Eric. Most would wonder why all the layers and safeguards for something so safe. I wonder what the worksheet entails? What other options must be discussed. What must be sent during the loan process? Mr. Borrower glad you got counseled now you have to wait 7 days to be certain this is what you wants to do…as if counseling wasn’t enough. I think we need to move Seattle’s NEW reverse mortgage pilot down to CALI. If CALI goes sour so does the industry!

    • ReverseGuru,

      It seems you are as lazy about reading the bill as EricSD is about knowing who Jose Medina is. Here is the webpage where you will find the bill as passed: http://www.leginfo.ca.gov/pub/13-4/bill/asm/ab_1651-1700/ab_1700_bill_20140807_amended_sen_v96.htm

      If you know how to read a legal index, go to Page 6 starting with line 37 and going to the end of Page 9. The worksheet consists of five questions with explanations about the process and the five questions about and some directions about the worksheet itself. The five questions alone are:

      1. What happens to others in your home after you die or move out?

      2. Do you know that you can default on a reverse mortgage?

      3. Have you fully explored other options?

      4. Are you intending to use the reverse mortgage to purchase a financial product?

      5. Do you know that a reverse mortgage may impact your eligibility for government assistance programs?

      If you feel like I am throwing you and Eric under a minibus, well, you are right. It is very strange that you two guys do so little research on your own and do so little to keep up; yet you both are so willing to attack what has been going on for months and months as if someone has been intentionally hiding the actions of your state legislature from both of you until NOW. Please stay current and do a modicum of research on your own!!

      As to why Seattle was used as a test market, you will have to ask someone like Marty Bell. If the kinks are being worked out of the marketing approach and content at this stage, perhaps Seattle is a much better place for the testing to be done.

  • The information in this article is part wrong but mostly right. The primary issue is that the bill is waiting for the Governor’s signature to become law.

    When a bill originates in the California Assembly it must receive a minimum of 41 votes out of the 80 member Assembly in order to be passed on to the 40 member Senate.

    The bill never “passed the California Assembly on April 21 by an 11-1 vote” as the article states. On April 24, 2014, the bill passed the California Assembly by a 73-1 vote. The vote on April 21, 2014 referenced in the quotation was a vote by the California Assembly Committee on Banking and Finance to get the bill to the full Assembly for its vote three days later.

    Reading the article made me wonder why the Senate had voted on the bill before the Assembly had passed it since the vote shown in the article was so obviously wrong. Going to the state government legislative online law reporter, the facts quickly became evident.

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