BILL NUMBER: AB 553 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 22, 2013
INTRODUCED BY Assembly Member Medina
FEBRUARY 20, 2013
An act to add Section 1923.52 to amend
Sections 1923.2 and 1923.5 of the Civil Code, relating to
reverse mortgages.
LEGISLATIVE COUNSEL'S DIGEST
AB 553, as amended, Medina. Reverse mortgages: notifications.
Existing state and federal law regulate the activities of
financial institutions. Existing state law regulates reverse mortgage
loans and requires a lender to refer a prospective borrower to a
housing counseling agency, as specified, and prohibits a lender from
accepting a full and complete application for a reverse mortgage loan
or assessing any fees without receiving certification, as specified,
that the borrower has received loan counseling. Existing law
prohibits a lender from taking a reverse mortgage application before
having provided an applicant a specified disclosure notice and
written checklist.
This bill would prohibit a lender from taking a reverse mortgage
application unless at least 7 days prior to receiving
counseling the applicant has received from the lender a specified
disclosure notice. The notice would indicate, among other things,
that a reverse mortgage is a complex financial arrangement that may
or may not be suitable for the applicant and that the applicant is
required to consult with an independent loan counselor.
or assessing any fees until seven days from the date of loan
counseling, as specified. The bill would make specified changes to
the disclosure notice. The bill would also
delete the requirement that the lender provide a written
checklist and would, instead, prohibit a lender from taking a
reverse mortgage application unless at least 7 days prior to
receiving counseling the applicant has received from the
lender a specified "Reverse Mortgage Suitability
Self-evaluation Worksheet" that would provide, among other things,
that the suitability of a recommended purchase of a reverse mortgage
should be determined with reference to the totality of the particular
borrower's circumstances, goals, and needs. reverse
mortgage worksheet guide. The bill would require that the
worksheet would contain certain
questions issues that the borrower is advised to
consider and bring to his or her reverse mortgage
counseling session. discuss with the counselor. The
bill would require the counselor and the prospective borrower to sign
the worksheet, as specified.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares the following:
(a) A reverse mortgage is a loan that allows a homeowner to
convert home equity into tax-free cash payments. More than 90 percent
of all reverse mortgages are obtained through the Home Equity
Conversion Mortgage (HECM) program sponsored by the United States
Department of Housing and Urban Development. Many senior citizens use
reverse mortgage payments to supplement retirement income or pay
medical expenses. Although the HECM program has been in existence
since 1989, the program has seen rapid growth only in the past few
years. As the population ages, this growth rate is expected to
accelerate. The growth rate is also expected to increase as sales
agents and lenders turn from the declining subprime and conventional
mortgage market to the rapidly growing market for reverse mortgages.
(b) Because reverse mortgage decisionmaking involves a number of
complex issues, before committing to a loan every senior should
contemplate possible negative consequences. Every prospective
purchaser of a reverse mortgage should study and complete
the worksheet this act would require before attending their mandatory
HUD-approved reverse mortgage counseling session. No purchaser
should move forward in purchasing their reverse mortgage loan unless
and until he or she completes the self-evaluation and clearly
understands if a reverse mortgage is suitable for his or her needs.
and discuss with an HUD-approved reverse mortgage
counselor the items in the reverse mortgage worksheet guide specified
in subdivision (b) of Section 1923.5 of the Civil Code.
(c) This act shall be known, and may be cited, as the
Reverse Mortgage Elder Protection Act of 2013. In enacting the
Reverse Mortgage Elder Protection Act of 2013, In
specifying these requirements, it is not the intent of the
Legislature to discourage the use of reverse mortgages, which often
provide substantial benefits to senior citizens. Rather,
anticipating the continued rapid growth in the reverse mortgage
market, the Reverse Mortgage Elder Protection Act of 2013 seeks
these 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 a sometimes vulnerable
population. reverse mortgage loan borrowers.
SEC. 2. Section 1923.52 is added to the Civil
Code, to read:
1923.52. (a) No reverse mortgage loan application shall be taken
by a lender unless the loan applicant, at least seven days prior to
receiving counseling, has received from the lender the following
plain language statement in 16-point font or larger, advising the
prospective borrower about preparing for counseling prior to the
prospective borrower's counseling session:
IMPORTANT NOTICE TO REVERSE MORTGAGE LOAN APPLICANT
A REVERSE MORTGAGE IS A COMPLEX FINANCIAL TRANSACTION THAT MAY OR
MAY NOT BE SUITABLE FOR YOUR IMMEDIATE AND OR FUTURE NEEDS. IF YOU
DECIDE TO OBTAIN A REVERSE MORTGAGE LOAN, YOU WILL SIGN BINDING LEGAL
DOCUMENTS THAT WILL HAVE IMPORTANT LEGAL AND FINANCIAL IMPLICATIONS
FOR YOU AND YOUR ESTATE. IT IS THEREFORE IMPORTANT TO UNDERSTAND THE
IMPLICATION OF BECOMING INVOLVED IN A REVERSE MORTGAGE LOAN AND FOR
YOU TO BE PREPARED TO DISCUSS WITH A REVERSE MORTGAGE COUNSELOR
WHETHER OR NOT A REVERSE MORTGAGE LOAN IS SUITABLE FOR YOU. BEFORE
ENTERING INTO THIS TRANSACTION, YOU ARE REQUIRED TO CONSULT WITH AN
INDEPENDENT LOAN COUNSELOR.
(b) In addition to the plain statement notice described in
subdivision (a), no reverse mortgage loan application shall be taken
by a lender unless the lender provides the prospective borrower with
a written suitability worksheet at least seven days prior to his or
her meeting with a HUD-approved counseling agency on reverse
mortgages. The suitability worksheet shall alert the prospective
borrower, in 16-point font or larger, that he or she should discuss
suitability issues with the agency counselor. The worksheet shall
read as follows:
The State of California has determined that it is in your best
interest to review and complete this worksheet before you attend your
reverse mortgage counseling session. You are also advised to discuss
every concern you may have about suitability with your counselor.
You should not move forward with purchasing a reverse mortgage loan
unless you understand whether or not a reverse mortgage is a suitable
loan for you. Carefully read through each of these suitability
questions and make notes on a separate piece of paper of any question
or questions you may have about suitability. Have these questions
with you when you have your reverse mortgage counseling session. The
purpose of the counseling session is for you to have an opportunity
to speak openly and candidly with a neutral professional whose sole
purpose is to help you understand what it means to become involved
with this particular loan.
Reverse Mortgage Suitability Self-evaluation Worksheet
The suitability of a recommended purchase of a reverse mortgage
should be determined, with reference to the totality of the
particular borrower's circumstances, goals, and needs, including, but
not limited to, the following:
Directions: Carefully read through each of these suitability
questions and make notes on a separate piece of paper regarding any
question you may have about suitability. You are also advised to
bring these questions with you when you have your reverse mortgage
counseling session. The purpose of the counseling session is for you
to have an opportunity to speak openly and candidly with a neutral
professional whose sole purpose is to help you understand what it
means to become involved with this particular loan.
1. What happens to others in your home after you die or move out?
Rule: When the borrower dies, moves, or is absent from the home
for 12 consecutive months, the loan becomes due.
Considerations: Having a reverse mortgage affects the future of
all those living with you. If the loan cannot be paid off, then the
home will have to be sold in order to satisfy the lender.
µ Who is currently living in the home with you?
µ What will they do when you die or permanently move from the
home?
µ Have you discussed this with all those living with you or any
family members?
µ Who will pay off the loan, and have you discussed this with
them?
µ If your heirs do not have enough money to pay off the loan, the
home will pass into foreclosure.
Do you need to discuss this with your counselor? Yes or No
2. Do you know that you can default on a reverse mortgage?
Rule: There are three continuous financial obligations. If you
fail to keep up with your insurance, property taxes, and home
maintenance, you will go into default. Uncured defaults lead to
foreclosures.
Considerations: Will you have adequate resources and income to
support your financial needs and obligations once you have removed
all of your available equity with a reverse mortgage?
µ Are you contemplating a lump-sum withdrawal?
µ What other resources will you have once you have reached your
equity withdrawal limit?
µ Will you have funds to pay for unexpected medical expenses?
µ Will you have the ability to finance alternative living
accommodations, such as independent living, assisted living, or a
long-term care nursing home?
µ Will you have the ability to finance routine or catastrophic
home repairs, especially if maintenance is a factor that may
determine when the mortgage becomes payable?
Do you need to discuss this with your counselor? Yes or No
3. Have you fully explored other options?
Rule: Less costly options may exist.
Consideration: Reverse mortgages are compounding loans, and the
debt to the lender accelerates as time goes on. You may want to
consider using less expensive alternatives or other assets you may
have before you commit to a reverse mortgage.
µ Alternative financial options for seniors may include, but not
be limited to, less costly home equity lines of credit, property tax
deferral programs, or governmental aid programs.
µ With peer-to-peer lending or other contractual arrangements, you
can use your home equity to secure loans from family members,
friends, or would-be heirs.
Do you need to discuss this with your counselor? Yes or No
4. Are you intending to use the reverse mortgage to purchase a
financial product?
Rule: Reverse mortgages are interest-accruing loans.
Considerations: Due to the high cost and accelerating debt
incurred by reverse mortgages, using home equity to finance
investments is not suitable in most instances.
µ The cost of the reverse mortgage loan may exceed any financial
gain from any product purchased.
µ Will the financial product you are considering freeze or
otherwise tie up your money?
µ There may be high surrender fees, service charges, or
undisclosed costs on the financial products purchased with the
proceeds of a reverse mortgage.
µ Has the sales agent offering the financial product discussed
suitability with you, and has the agent given you a written
suitability evaluation?
Do you need to discuss this with your counselor? Yes or No
5. The impact of reverse mortgages on your eligibility for
government assistance programs.
Rule: Income received from investments will count against
individuals seeking government assistance.
Considerations: Converting your home equity into investments may
create nonexempt asset statuses.
µ There are state and federal taxes on the income investments
financed through home equity.
µ If you go into a nursing home for an extended period of time,
the reverse mortgage loan will become due, the home may be sold, and
any proceeds from the sale of the home may make you ineligible for
government benefits.
µ If the homeowner is a Medi-Cal beneficiary, a reverse mortgage
may stymie the ability to transfer the home, thus, resulting in
Medi-Cal recovery.
Do you need to discuss this with your counselor? Yes or No
SEC. 2. Section 1923.2 of the Civil
Code is amended to read:
1923.2. A reverse mortgage loan shall comply with all of the
following requirements:
(a) Prepayment, in whole or in part, shall be permitted without
penalty at any time during the term of the reverse mortgage loan. For
the purposes of this section, penalty does not include any fees,
payments, or other charges that would have otherwise been due upon
the reverse mortgage being due and payable.
(b) A reverse mortgage loan may provide for a fixed or adjustable
interest rate or combination thereof, including compound interest,
and may also provide for interest that is contingent on the value of
the property upon execution of the loan or at maturity, or on changes
in value between closing and maturity.
(c) A reverse mortgage may include costs and fees that are charged
by the lender, or the lender's designee, originator, or servicer,
including costs and fees charged upon execution of the loan, on a
periodic basis, or upon maturity.
(d) If a reverse mortgage loan provides for periodic advances to a
borrower, these advances shall not be reduced in amount or number
based on any adjustment in the interest rate.
(e) A lender who fails to make loan advances as required in the
loan documents, and fails to cure an actual default after notice as
specified in the loan documents, shall forfeit to the borrower treble
the amount wrongfully withheld plus interest at the legal rate.
(f) The reverse mortgage loan may become due and payable upon the
occurrence of any one of the following events:
(1) The home securing the loan is sold or title to the home is
otherwise transferred.
(2) All borrowers cease occupying the home as a principal
residence, except as provided in subdivision (g).
(3) Any fixed maturity date agreed to by the lender and the
borrower occurs.
(4) An event occurs which is specified in the loan documents and
which jeopardizes the lender's security.
(g) Repayment of the reverse mortgage loan shall be subject to the
following additional conditions:
(1) Temporary absences from the home not exceeding 60 consecutive
days shall not cause the mortgage to become due and payable.
(2) Extended absences from the home exceeding 60 consecutive days,
but less than one year, shall not cause the mortgage to become due
and payable if the borrower has taken prior action which secures and
protects the home in a manner satisfactory to the lender, as
specified in the loan documents.
(3) The lender's right to collect reverse mortgage loan proceeds
shall be subject to the applicable statute of limitations for written
loan contracts. Notwithstanding any other provision of law, the
statute of limitations shall commence on the date that the reverse
mortgage loan becomes due and payable as provided in the loan
agreement.
(4) The lender shall prominently disclose in the loan agreement
any interest rate or other fees to be charged during the period that
commences on the date that the reverse mortgage loan becomes due and
payable, and that ends when repayment in full is made.
(h) The first page of any deed of trust securing a reverse
mortgage loan shall contain the following statement in 10-point
boldface type: "This deed of trust secures a reverse mortgage loan."
(i) A lender or any other person that participates in the
origination of the mortgage shall not require an applicant for a
reverse mortgage to purchase an annuity as a condition of obtaining a
reverse mortgage loan.
(1) The lender or any other person that participates in the
origination of the mortgage shall not do either of the following:
(A) Participate in, be associated with, or employ any party that
participates in or is associated with any other financial or
insurance activity, unless the lender maintains procedural safeguards
designed to ensure that individuals participating in the origination
of the mortgage shall have no involvement with, or incentive to
provide the prospective borrower with, any other financial or
insurance product.
(B) Refer the borrower to anyone for the purchase of an annuity or
other financial or insurance product prior to the closing of the
reverse mortgage or before the expiration of the right of the
borrower to rescind the reverse mortgage agreement.
(2) This subdivision does not prevent a lender from offering or
referring borrowers for title insurance, hazard, flood, or other
peril insurance, or other similar products that are customary and
normal under a reverse mortgage loan.
(3) A lender or any other person who participates in the
origination of a reverse mortgage loan to which this subdivision
would apply, and who complies with paragraph (1) of subsection (n),
and with subsection (o), of Section 1715z-20 of Title 12 of the
United States Code, and any regulations and guidance promulgated
under that section, as amended from time to time, in offering the
loan, regardless of whether the loan is originated pursuant to the
program authorized under Section 1715z-20 of Title 12 of the United
States Code, and any regulations and guidance promulgated under that
section, shall be deemed to have complied with this subdivision.
(j) Prior to accepting a final and complete application for a
reverse mortgage the lender shall provide the borrower with a list of
not fewer than 10 counseling agencies that are approved by the
United States Department of Housing and Urban Development to engage
in reverse mortgage counseling as provided in Subpart B of Part 214
of Title 24 of the Code of Federal Regulation. The counseling agency
shall not receive any compensation, either directly or indirectly,
from the lender or from any other person or entity involved in
originating or servicing the mortgage or the sale of annuities,
investments, long-term care insurance, or any other type of financial
or insurance product. This subdivision does not prevent a counseling
agency from receiving financial assistance that is unrelated to the
offering or selling of a reverse mortgage loan and that is provided
by the lender as part of charitable or philanthropic activities.
(k) A lender shall not accept a final and complete application for
a reverse mortgage loan from a prospective applicant or assess any
fees upon a prospective applicant until the elapse of seven days
from the date of counseling as evidenced by the counseling
certification and without first receiving certification from
the applicant or the applicant's authorized representative that the
applicant has received counseling from an agency as described in
subdivision (j) and that the counseling was conducted in person,
unless the certification specifies that the applicant elected to
receive the counseling in a manner other than in person. The
certification shall be signed by the borrower and the agency
counselor, and shall include the date of the counseling and the name,
address, and telephone number of both the counselor and the
applicant. Electronic facsimile copy of the housing counseling
certification satisfies the requirements of this subdivision. The
lender shall maintain the certification in an accurate, reproducible,
and accessible format for the term of the reverse mortgage.
(l) A lender shall not make a reverse mortgage loan without first
complying with, or in the case of brokered loans ensuring compliance
with, the requirements of Section 1632, if applicable.
SEC. 3. Section 1923.5 of the Civil
Code is amended to read:
1923.5. (a) No reverse mortgage loan application shall be taken
by a lender unless the loan applicant, prior to receiving counseling,
has received from the lender the following plain language statement
in conspicuous 16-point type or larger, advising the prospective
borrower about counseling prior to obtaining the reverse mortgage
loan:
IMPORTANT NOTICE
TO REVERSE MORTGAGE LOAN APPLICANT
A REVERSE MORTGAGE IS A COMPLEX FINANCIAL TRANSACTION. IF YOU
DECIDE TO OBTAIN A REVERSE MORTGAGE LOAN, YOU WILL SIGN BINDING LEGAL
DOCUMENTS THAT WILL HAVE IMPORTANT LEGAL AND FINANCIAL IMPLICATIONS
FOR YOU AND YOUR ESTATE. IT IS THEREFORE IMPORTANT TO UNDERSTAND THE
TERMS OF THE REVERSE MORTGAGE AND ITS EFFECT ON YOUR IMMEDIATE
FUTURE NEEDS . BEFORE ENTERING INTO THIS TRANSACTION, YOU ARE
REQUIRED TO CONSULT WITH AN INDEPENDENT REVERSE MORTGAGE
LOAN COUNSELOR TO DISCUSS WHETHER OR NOT A REVERSE MORTGAGE IS
SUITABLE FOR YOU . A LIST OF APPROVED COUNSELORS WILL BE
PROVIDED TO YOU BY THE LENDER.
SENIOR CITIZEN ADVOCACY GROUPS ADVISE AGAINST USING THE PROCEEDS
OF A REVERSE MORTGAGE TO PURCHASE AN ANNUITY OR RELATED FINANCIAL
PRODUCTS. IF YOU ARE CONSIDERING USING YOUR PROCEEDS FOR THIS
PURPOSE, YOU SHOULD DISCUSS THE FINANCIAL IMPLICATIONS OF DOING SO
WITH YOUR COUNSELOR AND FAMILY MEMBERS.
(b) (1) In addition to the plain statement notice described in
subdivision (a), no reverse mortgage loan application shall be taken
by a lender unless the lender provides the prospective borrower,
prior to his or her meeting with a counseling agency on reverse
mortgages, with a written checklist, or in the event that
the prospective borrower seeks counseling prior to requesting a
reverse mortgage loan application from the reverse mortgage lender,
the counseling agency shall provide the prospective borrower with a
written checklist. reverse mortgage worksheet guide.
The written checklist reverse mortgage
worksheet guide shall conspicuously alert the prospective
borrower, in 12-point type or larger, that he or she should discuss
with the agency counselor the following issues:
(A) How unexpected medical or other events that cause the
prospective borrower to move out of the home, either permanently or
for more than one year, earlier than anticipated will impact the
total annual loan cost of the mortgage.
(B) The extent to which the prospective borrower's financial needs
would be better met by options other than a reverse mortgage,
including, but not limited to, less costly home equity lines of
credit, property tax deferral programs, or governmental aid programs.
(C) Whether the prospective borrower intends to use the proceeds
of the reverse mortgage to purchase an annuity or other insurance
products and the consequences of doing so.
(D) The effect of repayment of the loan on nonborrowing residents
of the home after all borrowers have died or permanently left
the home. and that a 12
-consecutive month absence by the borrower will cause the reverse
mortgage loan to become due.
(E) The prospective borrower's ability to finance routine or
catastrophic home repairs, especially if maintenance is a factor that
may determine when the mortgage becomes payable.
(E) Reverse mortgages require three continuous obligations of the
borrower: maintenance and repair of the home, payment of property
taxes, and payment of property insurance premiums. A failure to do
any of these items could lead to default on the reverse mortgage.
(F) The impact that the reverse mortgage may have on the
prospective borrower's tax obligations, eligibility for government
assistance programs, and the effect that losing equity in the home
will have on the borrower's estate and heirs.
(G) The ability of the borrower to finance alternative living
accommodations, such as assisted living or long-term care nursing
home registry, after the borrower's equity is depleted.
(H) That a reverse mortgage is a compounding loan and that the
debt may accelerate over time.
(I) The risks associated with using the proceeds of a reverse
mortgage to purchase investment products.
(2) The checklist reverse mortgage
worksheet guide required in paragraph (1) shall be signed by
the agency counselor, if the counseling is done in person, and by the
prospective borrower and returned to the lender along with the
certification of counseling required under subdivision (k) of Section
1923.2, and the loan application shall not be approved until the
signed checklist reverse mortgage worksheet
guide is provided to the lender. A copy of the
checklist reverse mortgage worksheet guide shall
be provided to the borrower.