What is a Reverse Mortgage?

• A reverse mortgage is a home loan allowing seniors to draw on their home equity without having to make payments while they are still living in their home. Instead, the mortgage is repaid after the homeowners die, move or sell their home. It is a non-recourse loan, which means neither the homeowners nor their heirs will ever be responsible for loan repayment beyond what can be repaid from the sale of the house.
  
  

Original Legislation

• Congress authorized the Federal Housing Administration to insure reverse mortgages for home owners aged 62 and older through a demonstration project legislated in 1987 and begun in 1989. It expanded the program in 1990 and made it permanent in 1998. Lenders use the FHA loan because, unlike any other reverse mortgage, it is government insured. If the house does not appreciate enough to repay the loan, the government guarantees it will provide the bank with the difference.
  
  

California SB 1609

• California Senate Bill 1609, The Elder Abuse Prevention in Reverse Mortgages, signed into law in 2006, requires seniors to receive financial counseling from a Department of Housing and Urban Development-approved counselor before applying for a reverse mortgage. It also requires lenders to prepare loan documents in the language in which the mortgage was negotiated and prohibits lenders from requiring borrowers to purchase annuities as a condition of the loan. The legislative intent was to help seniors clearly understand the loan terms and prevent lenders from requiring borrowers to buy unrelated financial products as a condition of getting the loan.
  
  

California AB 329

• California Assembly Bill 329, The Reverse Mortgage Elder Protection Act, which was signed into law in 2009 and went in effect January 1st, 2010, strengthened the 2006 law by preventing any person participating in selling a reverse mortgage from also selling the borrower other financial and insurance products. It did this by requiring the lender to provide the borrower with a list of 10 HUD-approved counselors and by prohibiting loan approval until a checklist signed by the financial counselor is provided to the lender.