BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



           ------------------------------------------------------------ 
          |SENATE RULES COMMITTEE            |                  AB 2010|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 651-1520         Fax: (916) |                         |
          |327-4478                          |                         |
           ------------------------------------------------------------ 
           
                                         
                                 THIRD READING


          Bill No:  AB 2010
          Author:   Bonilla (D)
          Amended:  4/23/12 in Assembly
          Vote:     21

           
           SENATE JUDICIARY COMMITTEE  :  4-0, 7/3/12
          AYES:  Evans, Blakeslee, Corbett, Leno
          NO VOTE RECORDED:  Harman
           
          ASSEMBLY FLOOR  :  63-10, 5/10/12 - See last page for vote


           SUBJECT  :    Reverse mortgages:  counseling

           SOURCE  :     California Senior Legislature


           DIGEST  :    This bill requires a prospective borrower to 
          receive reverse mortgage counseling in person, unless the 
          borrower elects to receive the counseling in another 
          manner.

           ANALYSIS  :    Existing federal regulations define a "reverse 
          mortgage" as a nonrecourse consumer credit obligation in 
          which one or more advances are secured by the consumer's 
          "principal dwelling," but no payments from the consumer are 
          due until (1) the consumer dies; (2) the dwelling is sold; 
          or (3) the consumer stops occupying the dwelling as a 
          principal dwelling.  (12 Code of Federal Regulations 
          (C.F.R) Section 226.33)

          Existing state law defines a "reverse mortgage" as a 
                                                           CONTINUED





                                                               AB 2010
                                                                Page 
          2

          nonrecourse loan secured by a borrower's owner-occupied 
          principal residence which (1) provides cash advances based 
          on the value of the residence; (2) requires no payment of 
          principal or interest until the entire loan becomes due; 
          and (3) is made by a lender licensed and chartered pursuant 
          to state or federal law.  (Civil Code (CIV) Section 1923.)  
          A loan is due when (1) the residence securing the loan is 
          sold or transferred; (2) all borrowers stop occupying the 
          dwelling as a principal residence, as specified; (3) a 
          fixed maturity date occurs; or (4) an event specified in 
          the loan documents occurs, which jeopardizes the lender's 
          security.  (CIV Section 1923.2(f))

          Existing federal regulations, the Truth in Lending Act, 
          requires all lenders who offer reverse mortgages to make 
          specified disclosures to a borrower before the closing of 
          the transaction that include a "good-faith projection of 
          the total cost of the credit," including costs and advances 
          to a borrower (accounting for any annuities sold as part of 
          the transaction) and projections of the total cost of the 
          transaction based on different appreciation rates and loan 
          periods.  (12 C.F.R. Section 226.31 and 226.33)

          Existing federal regulations also establish that a borrower 
          may rescind a reverse mortgage contract within three days 
          of executing the contract. (12 C.F.R. Section 226.15.)  
          This right of rescission does not apply, however, to a 
          reverse mortgage that is used to purchase a residence.  (12 
          C.F.R. Section 226.15(f))

          Existing federal law places additional restrictions on 
          reverse mortgages that are federally insured.  A reverse 
          mortgage may only be federally insured if it is provided to 
          mortgagors who (1) are at least 62 years of age; (2) have 
          received adequate counseling by a third party; and (3) have 
          received full disclosure of all costs.  (12 U.S.C.S. 
          Section 1715z-20(d)(2).)  For the third-party counseling 
          requirement, a mortgagee must provide a list of contact 
          information for reverse mortgage counselors who are 
          approved by the Secretary of the Department of Housing and 
          Urban Development (HUD) at the time of the mortgage 
          application.  (12 U.S.C.S. Section 1715z-20(f)) 

          Existing state law requires a lender to provide a statement 

                                                           CONTINUED





                                                               AB 2010
                                                                Page 
          3

          to a prospective borrower before accepting a reverse 
          mortgage loan application, advising the borrower in 
          16-point type, among other things, that (1) it is important 
          to understand the terms of the reverse mortgage; and (2) 
          that the borrower is required to consult with an 
          independent loan counselor.  (CIV Section 1923.5)

          Existing state law requires a lender to provide a borrower 
          with a list of not fewer than 10 United States HUD approved 
          counseling agencies prior to accepting a final and complete 
          application for a reverse mortgage.  (CIV Section 
          1923.2(j))

          Existing state law prohibits a lender from accepting a 
          final and complete application for a reverse mortgage loan 
          from a prospective applicant, or assessing any fees, 
          without receiving a certification from an applicant or 
          their representative that the applicant received 
          counseling, as specified.  (CIV Section 1923.2(k))

          This bill requires reverse mortgage counseling to be 
          conducted in person, unless the certification specifies 
          that the applicant elected to receive counseling in a 
          manner other than in person.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   
          Local:  No

           SUPPORT  :   (Verified  7/6/12)

          California Senior Legislature (source)
          AARP
          California Advocates for Nursing Home Reform
          California Commission on Aging
          Contra Costa Advisory Council on Aging
          National Reverse Mortgage Lenders Association

           ARGUMENTS IN SUPPORT  :    According to the author:

            Telephone counseling is inadequate, for prospective 
            reverse mortgage borrowers, because it does not take into 
            consideration the special circumstances that may prevent 
            a senior from accurately understanding the complexities 
            of a reverse mortgage loan.

                                                           CONTINUED





                                                               AB 2010
                                                                Page 
          4


            When dealing with cases where there are other parties 
            involved, such as spouses of potential borrowers who are 
            also on title, telephone counseling does not ensure that 
            all parties are present and fully understand the subject 
            matter. 

            The need for in person counseling allows seniors to get 
            the full scope of what comes with a reverse mortgage.  
            Seniors need to understand that should they have to move 
            out of their home for example to a nursing home, the 
            requirement to repay the loan goes into effect 
            immediately.  The issue may arise that a senior may end 
            Ýup] in a nursing home. While loans that allow seniors to 
            tap into their home's equity to improve their 
            later-years' lifestyle, they could prove to be difficult 
            if they must move into a nursing home, even if only on a 
            short-term basis. 

            There are many specific issues that need to be discussed 
            during the counseling session Ýand] seniors may not 
            understand the severity Ýof potential issues] over the 
            phone.

            By mandating in-person counseling sessions, this bill 
            will help seniors with hearing or cognitive impairments 
            that may be exacerbated over the telephone.  


           ASSEMBLY FLOOR  :  63-10, 5/10/12
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Conway, Davis, Dickinson, Eng, 
            Feuer, Fong, Fuentes, Galgiani, Garrick, Gatto, Gordon, 
            Hagman, Halderman, Hall, Harkey, Hayashi, Roger 
            Hernández, Hill, Huber, Hueso, Huffman, Jones, Lara, 
            Bonnie Lowenthal, Ma, Mendoza, Miller, Mitchell, Monning, 
            Nestande, Pan, Perea, Portantino, Silva, Skinner, Smyth, 
            Solorio, Swanson, Torres, Valadao, Wieckowski, Williams, 
            Yamada, John A. Pérez
          NOES:  Donnelly, Beth Gaines, Gorell, Grove, Knight, Logue, 
            Mansoor, Morrell, Norby, Wagner
          NO VOTE RECORDED:  Cook, Fletcher, Furutani, Jeffries, 

                                                           CONTINUED





                                                               AB 2010
                                                                Page 
          5

            Nielsen, Olsen, V. Manuel Pérez


          RJG:m  7/6/12   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****
          




































                                                           CONTINUED