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.
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