State governor signs 'Cooling Off' reverse mortgage bill

by Rachel.Norvell20 Oct 2014
California Governor Jerry Brown has signed a bill into law that requires California reverse mortgage lenders to provide certain disclosures to potential borrowers during the application process. The new law also includes a waiting period after counseling before a lender can accept the application or assess any fees.

Sponsored and introduced by Jose Medina (D-CA), AB 1700  adds new protections for reverse mortgage borrowers in the state and amends certain sections of California’s Civil Code relating to reverse mortgages.

The new law implements a seven-day cooling off period, prohibiting a lender from taking a reverse mortgage application until one week from the date of loan counseling. It also requires that a HUD-approved housing counselor provide a new reverse mortgage worksheet to the borrower before counseling.

The counselor and the prospective borrower must sign the worksheet and then return to the lender with a counseling certificate.

Paul Fiore, executive vice president of retail sales for reverese mortgage lender American Advisors Group, said the cooling off period will have a "negligible impact" on its overall business. “Our main concern is for the borrower," said Fiore. "In a rising interest rate economy, the borrower may end up with a higher rate of interest by having to wait seven additional days for his/her application to be accepted.”

The law bears similar resemblance to a previous bill, AB 553, Medina introduced in February 2013 that aimed to include a “suitability” checklist for reverse mortgage borrowers during the application process. However, the bill was later removed because officials found that certain requirements in it would burden the lending process.