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California: Leading The Way In Reverse Mortgage Protections

California: Leading The Way In Reverse Mortgage Protections

Recently, the governor of California, Arnold Schwarzenegger

, signed the Assembly Bill 329 into law. This law contains many statutes which serve to protect seniors entering into a reverse mortgage. Commonly referred to as the elder protection act of 2009, this law serves as an additional protection for seniors in order to ensure that they understand the reverse mortgage process and are entering into the agreement willingly.

One important safeguard that this law institutes is that the client receives an "Important Notice to Reverse Mortgage Loan Applicants." This notice must be in 16-point type and emphasizes the complexity of the financial transaction. Basically, this statement discloses that a reverse mortgage is a loan against the equity in their home and that the applicant will be required to sign binding legal documents. This notice must be given to an applicant before attending loan counseling.

The most innovative safeguard signed into law with this bill is the checklist. This checklist must be given to the client by the loan originator before attending counseling and lists specific topics that should be covered during the counseling session. If the client receives counseling before talking to a lender or loan originator, the counselor must provide the client with this checklist. The checklist is a way to "conspicuously alert" the client of all things that they should know. Written in at least 12-point font, the checklist must cover at least seven specific topics and must be signed by the counseling agency and the borrower and returned to the lender along with the counseling certificate.

Many seniors' loan originators may go over the topics addressed by the checklist, but this is an additional safeguard to make certain that no one gets taken advantage of by an unscrupulous loan specialist. Some topics that are discussed are how early termination of the loan by moving out of the home may affect the total annual loan cost of the mortgage, how the borrower's financial needs may be met without obtaining a reverse mortgage, and the potential consequences of purchasing any other financial product with the loan proceeds. The other four provisions relate to the borrowers ability to pay for other necessities such as home repairs, taxes, and insurance and the borrower's potential ability to pay for things such as assisted living if their equity is depleted by the reverse mortgage. California: Leading The Way In Reverse Mortgage Protections


These laws are leading the way in new protections that will help guarantee that seniors are not taken advantage of during their pursuit of a reverse mortgage. It seems as though many of the negative stories surrounding this product have to do with a lack of education. This law will help this problem by facilitating that education. Although California is the first state to implement a policy such as this one, they certainly will not be the last.

by: Anne Johnson
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California: Leading The Way In Reverse Mortgage Protections