BILL NUMBER: AB 1700 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Medina
FEBRUARY 13, 2014
An act to amend Sections 1923.2 and 1923.5 of the Civil Code,
relating to reverse mortgages.
LEGISLATIVE COUNSEL'S DIGEST
AB 1700, as introduced, 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 final 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 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 delete the requirement that
the lender provide a written checklist and would, instead, prohibit a
lender from taking a reverse mortgage application unless the
applicant has received from the lender a specified reverse mortgage
worksheet guide. The bill would require that the worksheet contain
certain issues that the borrower is advised to consider and 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. (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 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) 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, 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
reverse mortgage loan borrowers.
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 reverse
mortgage worksheet guide , 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 wo
rksheet 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 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 things 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 is provided to the lender. A copy of the
checklist reverse mortgage worksheet guide
shall be provided to the borrower.