California, the nation’s hot spot for reverse mortgages, has enacted legislation specifically aimed at [tag]reverse mortgage fraud[/tag].

According to the Contra Costa Times, Gov. Arnold Schwarzenegger signed into law SB1609 as summarized below:

Existing state and federal law regulate the activities of financial institutions. Existing state law defines and regulates reverse mortgage loans and provides a disclosure notice that a lender must provide an applicant, which informs the applicant that a reverse mortgage is a complex financial arrangement and advises the applicant of the wisdom of seeking financial counseling before entering the agreement.

This bill would prohibit a lender from requiring the purchase of an annuity as a condition of obtaining a reverse mortgage loan. The bill would prohibit a reverse mortgage lender or a broker arranging a reverse mortgage loan from offering an annuity to the borrower or referring the borrower to anyone for the purchase of an annuity prior to the closing of the loan or before the expiration of the borrower’s right to rescind. The bill would, among other things, require a lender to refer a prospective borrower to a housing counseling agency for counseling, as specified, prior to accepting a final and complete application for a reverse mortgage or assessing any fees, and would prohibit a lender from accepting a full and complete application for a reverse mortgage loan or assessing any fees without receiving certification, as specified, that the borrower had received this counseling. The bill would make changes to the disclosure notice provided to an applicant for a reverse mortgage and would require a lender to provide a specified list of independent loan counselors.

Existing law requires any person engaged in a trade or business who negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean in the course of entering into specified contracts to deliver to the other party, prior to the execution of a contract or agreement, a translation of it in the language in which it was negotiated.

This bill would include contracts for reverse mortgages within these provisions. The bill would require a lender to ensure compliance with these provisions in the case of brokered loans.

Impetus for the legislation came from Shirley Hochhausen, a Community Legal Services attorney in East Palo Alto, who had seen the devastation caused by reverse mortgage scammers to her clients.

Interestingly, the legislation was not not endorsed by the National Reverse Mortgage Lenders Association (NRMLA). According to testimony from NRMLA:

[tag]Reverse mortgages[/tag] offer an important choice and benefit to senior homeowners. Reverse mortgages do not give rise to the perceived abuses that Senate Bill 1609 is intended to address. The principal reverse mortgage product being offered in the United States today is comprehensively regulated by the federal regulations that authorize such loans. Other products adhere to similar safeguards. In that regard, abusive practices that might occur in connection with reverse mortgages have already been addressed by a comprehensive federal regulatory scheme and industry standards for best practices.

Hopefully the new legislation is more than window dressing and will provide seniors with real protection against fraud.

Social tagging: Reverse Mortgage Pitfalls > Reverse Mortgage Scams

A Few More Related Articles of Interest:

HUD Takes Aim at Reverse Mortgage Fraud

Reverse Mortgages and the Deficit Reduction Act of 2005

California Reverse Mortgage

Review of “The Reverse Mortgage Advantage”

California Reverse Mortgage Lenders