Victory! California Governor Signs Reverse Mortgage Protection Bill, AB 1700 (Medina)

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By Consumers Union on Tuesday, September 30th, 2014

Today California Governor Jerry Brown signed AB 1700 (Medina), a first-in-the nation bill, that will put important information in the hands of Californians while they are considering a reverse mortgage.  Ensuring a fair reverse mortgage marketplace is a Consumers Union priority.  We are very pleased to share this good news with you.

If you’ve been considering a reverse mortgage, have you ever wondered if there was “something more” to them than all of the good things the celebrity spokespersons say about them? With all the hype, how would you know if a reverse mortgage is right for you?  From what many consumers have told us, this is no easy task.

When you consider the complexity of the product and the ads touting only the benefits, it’s hard to know that there really can be a downside if someone gets a reverse mortgage that isn’t right for them.  Despite all of the positive ads, the reverse mortgage marketplace is not all roses. According to the most recent statistics available, as noted by the Consumer Financial Protection Bureau (CFPB), there are currently more than 54,000 reverse mortgages in default.  This represents 9.4% of active HECM loans, as of the end of February 2012.

AB 1700 will put in place a much needed reality check for Californians considering reverse mortgages.  To help borrowers make informed decisions about whether a reverse mortgage is a suitable choice for their individual circumstances, AB 1700 requires reverse mortgage sellers to give prospective borrowers a self-evaluation worksheet, to be completed before the existing mandatory counseling session.  The worksheet flags five possible pitfalls for reverse mortgage borrowers.  These include:

  • What could happen to others living in a home with a reverse mortgage when the borrower dies or moves out.
  • Whether the borrower has sufficient assets to avoid a reverse mortgage default by keeping up with homeowners insurance, property taxes, and home maintenance.
  • The importance of fully exploring other options to a reverse mortgage.
  • Dangers of using a reverse mortgage to fund the purchase of other financial products.
  • The possible impact a reverse mortgage may have on a borrower’s eligibility for government assistance programs.

The AB 1700 self-evaluation worksheet is not just another disclosure.  Instead, it is designed to guide the senior through a thoughtful and active process to consider potential borrowing consequences and risks that are ignored in the ads and may not be mentioned by sales persons.  It allows the senior to consider these issues before the counseling session, in the privacy of their home and can serve as a guide to confer with family members, advisors or other professionals.  Since counseling sessions are typically short, the worksheet can help promote an efficient counseling session by focusing on issues that the senior may have pre-identified.

Because reverse mortgage decision-making is a big deal and involves a number of complex issues, before committing to a loan every senior should have the opportunity to fully contemplate the possible negative consequences in a meaningful way.  It’s only fair and prudent.  AB 1700 further protects consumers by prohibiting a lender from taking a reverse mortgage application or assessing any fees until seven days from the date of the loan counseling.

Consumers Union applauds Assembly Member Jose Medina, the California Legislature and Governor Jerry Brown for their leadership in making this possible. When the new law goes into effect in 2015, we hope Californians shopping for a reverse mortgage will be part of an improved marketplace that values their right to know and respects their right to make an informed choice.

If you are considering a reverse mortgage, read our June 13th blog for tips.

Do you have a reverse mortgage story you’d like to share?  Please tell us now.

 

 

 

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