California’s Reverse Mortgage ‘Cooling Off’ Law Takes Effect

Starting Jan. 1, reverse mortgage professionals operating in California must comply with the new rules set forth by legislation passed in 2014, which requies lenders to observe a week-long “cooling off” period before assessing any fees or services from borrowers, among other provisions.

In October, California Governor Jerry Brown signed into law AB 1700, a bill sponsored by Assemblymember Jose Medina (D-Riverside) that requires lenders to wait seven days from the start of Home Equity Conversion Mortgage counseling before they can order appraisals, credit, title or other services.

Along with the “cooling period” provision, AB 1700 also amends a section of the California Civil Code, replacing a former Reverse Mortgage Counseling Checklist with a new Reverse Mortgage Worksheet Guide to be provided to borrowers prior to counseling sessions.

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But while the intent of the worksheet is to make borrowers aware of the various scenarios and considerations when determining if a reverse mortgage is right for them, some argue that this part of the legislation is redundant at best.

“The worksheet takes a lot of liberties as facts without fully explaining what they mean,” says Eric Meehan, owner and president of Golden Opportunity Mortgage, based in Solana Beach, Calif. “Yes, there are considerations in it, but many originators and counselors already talk about these considerations to their borrowers.”

Another area of concern has to do with the worksheet’s verbiage, which for some could be mistaken as having a negative connotation, as it contains repeated use of words like “not,” “cannot” and “fail,” as well as recurring allusions to the event of a borrower’s death throughout the four-page document.

“The context of how it’s written sounds like it was written by someone who’s against reverse mortgages,” Meehan says. “It’s a little disconcerting that these kinds of things are in play and are now part of the law in California.”

How these new rules stand to impact business for reverse mortgage professionals in 2015 and beyond remains to be seen, but one thing is clear: lenders, counselors and others working in the state will face another speedbump on top of the impending changes set to take effect for the industry nationwide.

“Not only does California have this [bill], but it also has the financial assessment coming up. So we have some work in front of us,” Meehan says. “But in the end this product is stronger, the industry has made it stronger, and it’ll thrive in the years to come.”

Written by Jason Oliva