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| California’s governor last week signed a reverse mortgage bill aimed at protecting seniors from predatory lending practices. But industry practitioners say the law, while well-intentioned, is not well-thought-out.Under the new law, mortgage lenders would be barred from taking applications or assessing fees for reverse mortgages until the potential borrower receives a counseling session.
The bill also requires lenders to translate reverse mortgage contracts into the language in which the contract was negotiated. For example, if the contract was negotiated in Japanese, then loan documents would have to be written in Japanese. In addition, the law prevents lenders from making borrowers buy annuities as a condition of obtaining mortgages. A reverse mortgage is a loan that enables homeowners 62 or older to borrow against the equity in their homes, without having to sell the home, give up title, or take on new monthly mortgage payments. A reverse mortgage does not have to be repaid until the borrower moves out of the home permanently, and the repayment amount cannot exceed the value of the home. A reverse mortgage practitioner based in California, who asked not to be identified, lauded the intent of the law but derided its practical application. “One of the requirements is that if a sales presentation is conducted in a foreign language, then all the documentation has to be in that language,” he told MortgageDaily.com. “That’s fine,” he observed, “but it creates a burden on the processing industry. Spanish is an easy example. But what about rare languages?” He explained that processors, underwriters and others down the line would have to be fluent in one or more languages, especially in a state with as diverse a population base as California. He and others in his office discussed the issue and concluded that an English copy of the loan documents might have to be supplied so that the documents could get processed. He also said the counseling requirement is fair but is redundant because many government-granted reverse mortgages, including those most commonly obtained, already have a counseling requirement. But he and other reverse mortgage practitioners have found that having access to counseling and the quality of counseling actually available in connection with the loans leaves much to be desired. “Counseling is an inherently good idea but where is the follow through? Who is going to fund the counselors? Who are they going to be?” he asked. Indeed, that’s a concern voiced by the National Reverse Mortgage Lenders Association when the organization testified in May before the state senate on the bill. Peter H. Bell, the organization’s president, said that many federal reverse mortgages already require counseling and that other reverse mortgages require counseling by “program design.” He said the industry supports the notion of “high quality counseling” but that the solution is not to have HUD-approved counselors work for privately sponsored reverse mortgage products because the HUD counseling network is already “underfunded and understaffed.” Nationwide, in 2005, 43,000 seniors used reverse mortgages. In California, 13,215 reverse mortgages loans were made in 2005 compared to 10,228 in 2004. The bill takes effect Jan. 1, 2007. |
Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.
e-mail Lisa at: [email protected]
