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