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.
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