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Department of Redundancy Department – Reverse Mortgage Legislation


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Department of Redundancy Department – California Reverse Mortgage Legislation

Reverse Mortgage LegislationUPDATED Dec 7th,: See proposed bill here.
Today many states have a new hobby, OK let’s call it their pet project more reverse mortgage legislation. The California Senior Legislature, which by the way is not a government body, but rather a non-partisan political group whose members are elected by California seniors has said reverse mortgage transparency is one of their top ten goals for 2012. Before you tune out not living in the sunshine state keep in mind California often sets the agenda which other states follow.



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  1. Part of the problem is that much of the Reverse Mortgage (RM) decision process is based upon forward-looking assumptions. When reality occurs and proves certain assumptions incorrect then people become disenchanted. We presently have the tools to illustrate the assumptions (amortization schedules, et al). We’ll never have the tools to guarantee assumptions. Perhaps we can replace the redundant disclosures with a simple caveat stating that the risk of “assumptions” built into RM decisions is borne by the borrower. We can also emphasize this in the Origination and Counseling phase as well. Then, if a disgruntled RM borrower looks back and has complaints the question is: is the perceived problem due to changed circumstances (assumptions vs. reality) or lack of disclosure from the outset (poor counseling)? The answer to this question will point to the responsible party.

    • Perhaps we “have the tools to illustrate the assumptions (amortization schedules, et al)” but we never definitively say what those assumptions are. That is the biggest flaw in our financial related disclosures. For example, hardly any originator or counselor can say what assumptions are used in the TALC schedule when the borrower takes the line of credit. Few have any idea about how HECM tenure or term payouts are determined.

      While it is understandable that you, like the rest of us, want “a simple caveat stating that the risk of ‘assumptions’ built into RM decisions is borne by the borrower,” such caveat may result in just the opposite effect of what you might think. For example in California and Minnesota, most lending transactions demand the level of care to be that of a fiduciary towards the borrower. A fiduciary cannot escape responsibilities by having the borrower simply waive them. Most judges would be more than a little irritated by such blatant flouting of the law. In questionable areas, judges might apply the law to the greatest measure possible based on such obvious attempts by lenders to reduce their responsibilities to the borrower. In cases of fiduciary responsibility, “why wave the red flag at the bull?”

  2. In 2009 the same group proposed a change to federal law to make HECMs available for manufactured homes built BEFORE 1976. The group has special legislative powers but only to introduce bills into the California Legislature and Senate. It is funded in part through a questionable check off box on California income tax returns, simply “identified as the ‘CA Fund for Senior Citizens’.” It is empowered to propose both state and federal law.

    What Shannon cited is its statements in support of its latest state proposal. Here is what the actual bill for this year proposes:



    The organization wants face-to-face counseling on all reverse mortgages and such cost to be financed through borrower costs. Notice they do not address how those who dropout will pay.

    No doubt these individuals are well intended but most are those we would identify as senior consumer advocates. While face-to-face counseling is generally preferable, why should it be mandated? Because of many other concerns, it is face-to-face origination which should be required.

  3. if they keep it up the banks will have what they want,,, no L. O.s . that will do R. M.s ,,,,
    why do people over 62 become stupid and cant think anymore ???????? i guess i havent caught that kind of bug yet im only 75,,,,,,,,,,,cliff

    • No, Cliff, you are wrong. (LOL)

      I remember how my teenage kids would treat me like I knew absolutely nothing in my forties. How could I, I didn’t think of rap as music? (Of course, I was about the same with my parents.)

      When I turned 62, I found out those (even those much older than I am) who serve in government and as senior advocates are just like my teenage kids. They absolutely know you and I have lost the ability to think, reason, and choose with any measure of common sense.

      Age does take a toll but that toll is generally misunderstood by those who supposedly are so desperately trying to earn their living “helping” us.

  4. Pardon Shannon, but Florida is the Sunshine State.

    I agree that seniors aren’t given enough credit. They’re often seen as feeble, out of touch folks who need protection, but most of them can out walk, run, hit, bowl, golf and likely outthink me. In fact, it’s not just seniors. The government won’t stop until every citizen, regardless of age, is a member of a protected class (see Dodd-Frank) because it is clear to them that we are unable to navigate our way through life without more laws. (Shakespeare was right. Kill all the lawyers.)

  5. I don’t know about you, but most of the clients I see our way OVER-counseled by their attorney, CPA, financial planner, children, son-in-law, next door neighbor, AARP and government mandated media reported scare tactics. Once we get them counseled and get the FACTS confirmed they experience a sense of relief. Most comment that the other people whispering in their ears had only outdated or rudimentary info about reverses and they are so glad that what I’ve told them has been verified by independant counseling. and BTW, haven’t yet had someone go for face-to-face counseling even though I have an agency less than 10 miles from most of my clients. CA has so many things it needs to fix; hopefully they’ll stay away from our agency and fix some bigger problems than face to face HECM counseling.

  6. I think it’s important to remmeber in all this that we need to focus on, adapting and overcoming. As with all the new legislation we have seen over the past 3 years we have to find a way to win. Lets all keep our eyes on the prize, helping seniors access equity in their homes so they can fulfill there financial needs and goals in their retirement years.

    It’s their equity and they should be able to do with it what they please, whether thats leaving it to their heirs or using it to provide for their needs in the here and now.

    Great job informing us Shannon! Thanks to all those joining the story by commenting, engaging in the story goes a long way to helping this Industry continue to grow.

  7. Much as the thought of a “womb to the tomb” nanny state repulses me, there are many who actually want to abdicate the need to make decisions and fend for themselves. I still believe they are in the minority but we have allowed their voice to be amplified by those who would benefit from taking advantage of their timidity.

  8. Mr. Bochner,

    There are few prospects I have met with who have consulted (meaning paid a fee) with any attorney, CPA, or CFP about a reverse mortgage. Most have never darkened the threshold of the office of a CPA or CFP.

    While I realize many of these professionals are biased against reverse mortgages, it is rare that any senior has come to such professionals as a paying client to gain guidance based on their specific facts and circumstances. There is almost a prejudice against these professionals in our industry which blinds us to the change in the attitude many of these professionals are taking. Holding onto such bias can greatly harm the small but significant changes we are seeing.

    Children, less educated “financial planners,” and others are a different story.

  9. Mr. Hiatt,

    Your point is well taken about distractions; however, there are issues which require attention. Face-to-face counseling is one of those rare issues. Right now it is premature to get worked up over it here in California but it is a good idea to know its impact in other states.

    I fully support face-to-face counseling for all seniors no matter where they live IF 1) counseling is available within reasonable driving range of the home (no more than 10 miles from the home), 2) there is in-home counseling for the handicapped and others who cannot leave home because of medical issues, and 3) there are sufficient counselors so that all face-to-face appointments could be handled within fourteen days of request. The problem is California does not have that kind of counseling availability. Without that, the face-to-face requirement would mean unnecessary lost business and possible financial disruption for a significant portion of prospects. Beyond that with emerging technology, face-to-face counseling could become less and less crucial but that is obviously open to question.

    As of yet the warning is premature but if the California legislative branch picks up the proposal, it will be of the greatest interest for all of those doing business in our great state to take proactive steps to respond especially in light of overall falling industry endorsements. The time needed to respond would hardly be noticeable.

    So for right now time, invested is premature and I need to get back to work.

    Timing is everything. Good points!!!

  10. hi to all at i thought i had sent this newyears eve but it didnt send so i have sent it again good luck for 2012 to you all
    – matt

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