BILL NUMBER: AB 329 AMENDED
BILL TEXT
AMENDED IN SENATE JULY 23, 2009
AMENDED IN SENATE MAY 27, 2009
AMENDED IN ASSEMBLY MAY 7, 2009
AMENDED IN ASSEMBLY APRIL 29, 2009
AMENDED IN ASSEMBLY APRIL 16, 2009
AMENDED IN ASSEMBLY APRIL 13, 2009
INTRODUCED BY Assembly Member Feuer
FEBRUARY 18, 2009
An act to amend Sections 1923.2 and 1923.5 of the Civil Code,
relating to reverse mortgages.
LEGISLATIVE COUNSEL'S DIGEST
AB 329, as amended, Feuer. Reverse mortgages.
Existing law defines and regulates reverse mortgage loans and
provides a disclosure notice that a lender must provide an applicant,
which informs the applicant that a reverse mortgage is a complex
financial arrangement and advises the applicant of the wisdom of
seeking financial counseling before entering the agreement. Existing
law prohibits a lender from referring a borrower to anyone for the
purchase of an annuity. Existing law requires a lender to refer a
prospective borrower to a housing counseling agency for counseling,
as specified, prior to accepting a final and complete application for
a reverse mortgage or assessing any fees.
This bill would enact the Reverse Mortgage Elder Protection Act of
2009. The bill would prohibit a lender or any other person who
participates in the origination of the mortgage from participating
in, being associated with, or employing any party that participates
in or is associated with any other financial or insurance activity,
as provided, except as specified. This bill would also prohibit a
lender or any other person who participates in the origination of the
mortgage from referring a prospective borrower to anyone for the
purchase of other financial or insurance products, except as
specified. The bill would require the lender to provide the
prospective borrower with a list of not fewer than 10 nonprofit
counseling agencies in the state that have been approved by the
United States Department of Housing and Urban Development for
counseling, as provided. The bill would require a lender to provide a
borrower with a checklist specifying issues the borrower should
discuss with a reverse mortgage counselor or, if the borrower seeks
counseling prior to requesting a reverse mortgage loan application,
the bill would require a mortgage counselor to provide the checklist.
The bill would require that the checklist be signed by the
counselor, if the counseling is done in person, and the prospective
borrower, with a copy provided to the borrower. The bill would
prohibit approval of the loan application until the signed checklist
is provided to the lender.
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. This act shall be known as the Reverse Mortgage Elder
Protection Act of 2009.
SEC. 2. 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) According to the American Association of Retired Persons
(AARP) and other senior citizen groups, reverse mortgages are often a
valuable financial tool for senior citizens who are "equity rich but
cash poor." However, senior groups also note that the rapid
expansion of reverse mortgages has been accompanied by aggressive
marketing and reports of abuse, especially when reverse mortgages are
marketed along with annuities, long-term life insurance, or other
financial investment products. Because reverse mortgages erode equity
in what is typically the primary asset of most senior citizens, the
AARP recommends that senior citizens should weigh all alternatives
before considering a reverse mortgage. The AARP strongly advises
against using the proceeds of a reverse mortgage for the purchase of
annuities or other financial investments, since the high cost of
obtaining a reverse mortgage often exceeds any likely returns.
(c) As a number of recent lawsuits and media reports in California
make clear, the inappropriate marketing of reverse mortgages and
ancillary financial products to senior citizens is growing, often
creating substantial loss in personal estates and home equity.
Existing law currently provides little recourse for senior citizens
who ill-advisedly, and without full understanding, purchased an
otherwise legitimate product. In enacting the Reverse Mortgage Elder
Protection Act of 2009, 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 2009 seeks 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.
SEC. 3. 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 without first receiving a
certification from the applicant or the applicant's authorized
representative that the applicant has received counseling from an
agency as described in subdivision (j). 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 borrower. 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. 4. 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, prior to
receiving counseling, lender the following plain
language statement in conspicuous 16-point type or larger:
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
THAT PROVIDES A MEANS OF USING THE EQUITY YOU HAVE BUILT UP IN YOUR
HOME, OR THE VALUE OF YOUR HOME, AS A SOURCE OF ADDITIONAL INCOME
. 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. BEFORE ENTERING INTO THIS TRANSACTION, YOU ARE REQUIRED TO
CONSULT WITH AN INDEPENDENT LOAN COUNSELOR. A LIST OF APPROVED
COUNSELORS WILL BE PROVIDED TO YOU BY THE LENDER. YOU MAY
ALSO WANT TO DISCUSS YOUR DECISION WITH FAMILY MEMBERS OR OTHERS ON
WHOM YOU RELY FOR FINANCIAL ADVICE.
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. The written checklist 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.
(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.
(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.
(2) The checklist 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
shall be provided to the borrower.