BILL ANALYSIS �
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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
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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
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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.
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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
�up] 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 �and] seniors may not
understand the severity �of 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
Hern�ndez, 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. P�rez
NOES: Donnelly, Beth Gaines, Gorell, Grove, Knight, Logue,
Mansoor, Morrell, Norby, Wagner
NO VOTE RECORDED: Cook, Fletcher, Furutani, Jeffries,
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Nielsen, Olsen, V. Manuel P�rez
RJG:m 7/6/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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