National Reverse Mortgage Lenders Association 1400 16th Street, N.W. Washington, DC 20036June 1, 2011Via U.S. Mail, Overnight Delivery and FacsimileSenator Ron S. CalderonChairman, State Insurance CommitteeState SenateState Capitol, Room 5066Sacramento, CA 95814Phone: (916) 651-4030Fax:Re: California Assembly Bill 793 (Eng)Dear Chairman Calderon:We write to express our concern regarding California Assembly Bill 793 (Eng) (AB793).While we support measures designed to protect senior homeowners, we cannotsupport the current bill as drafted as it is too broad and vague and will not provideclear guidance to those in the ﬁnancial services industry regarding allowed orprohibited practices. Further, AB793 will have the unintended consequence ofdictating to seniors when and how they can use their own funds. In this regard, whilewe understand that it is difficult to deﬁne prohibited practices in this area while notchilling legitimate business activity or substituting consumer choice with the judgmentof the legislature, below we outline the following items: (i) the challenges presented bythe bill as currently drafted, (ii) other areas of law already in place, or proposed andpending enactment, that offer similar protections to seniors, (iii) examples of how thebill as drafted could result in both unintended and onerous consequences uponseniors, and (iv) proposals for more reasonable solutions to the issues policy goals tobe served by AB 793. Below, we discuss other laws and regulations which regulate thesame or similar activity that we believe AB793 is designed to address. We also provideexamples of the onerous and unintended consequences to seniors that AB793 wouldeffectuate if enacted as currently drafted. And ﬁnally, we offer suggestions foralternatives that we believe meet the policy goals of AB793, while offering robustprotections to seniors, but not limiting consumer choice or casting a chilling effect onlegitimate business activity.
By way of background, the National Reverse Mortgage Lenders Association (NRMLA) isthe principal nationwide trade association for ﬁnancial services companies thatoriginate, service, and invest in reverse mortgages. NRMLA was founded to enhancethe professionalism of those engaged in reverse mortgage lending, and NRMLA isdedicated to assuring quality and integrity in reverse mortgage lending. Over 90% ofthe reverse mortgages in the United States today are originated, purchased, or servicedby NRMLA members.Further, most reverse mortgages offered today are the Federal Housing Administration(the “FHA”) insured home equity conversion mortgage loan (or HECM). FHA-insuredHECM reverse mortgage loans already have many robust protections in place includingsteps that must be taken prior to the origination of the loan. Indeed, a borrower maynot obtain a HECM unless he or she ﬁrst receives counseling from an independentHUD-approved counselor.Challenges Presented By the Bill As Currently DraftedAB793 as currently drafted provides that “…individuals transacting insurance shall notreceive compensation, commission, or direct incentive for providing reverse mortgageborrowers with a non-casualty insurance product that is connected to or a result of thereverse mortgage“, without specifying or limiting what the “connection to” a reversemortgage might mean. Further, a “noncasualty insurance product” is not deﬁnedunder AB793, but appears to include any insurance product other than title insurance,hazard, ﬂood, or other peril insurance, or other similar products that are customaryand normal under a reverse mortgage loan.Further, AB793 as currently drafted provides that “An insurance broker or agent shallnot participate in, be associated with, or employ any party that participates in, or isassociated with, the origination of a reverse mortgage, unless the insurance agent orbroker maintains procedural safeguards designed to ensure that the agent or brokertransacting insurance has no direct ﬁnancial incentive to refer the policyholder orprospective policyholder to a reverse mortgage lender.” AB793 as currently drafteddoes not clearly specify what procedural safeguards are adequate to ensure the activitypurportedly regulated does not occur.Other Areas of Law Already Providing ProtectionsThe provisions authorizing the HECM program, Section 255 of the National HousingAct regulate and prohibit the offering of other ﬁnancial services products in connectionwith HECM loans.1 No person involved in the origination of a HECM reverse mortgageloan may be associated with another ﬁnancial services or insurance company thatoffers other ﬁnancial services products unless safeguards and ﬁrewalls are established.The FHA has issued guidance on these measures and has indicated plans to issue1 12 U.S.C. § 1715z-20.
additional guidance. In the issued guidance, the FHA advised that mortgagees mustnot condition a HECM mortgage on the purchase of any other ﬁnancial or insuranceproduct, and should establish, consistent with the HECM statute, ﬁrewalls and othersafeguards to ensure there is no undue pressure or appearance of pressure for amortgagor to purchase another product of the mortgage originator or mortgageoriginator’s company.The California Civil Code also contains restrictions on offering other ﬁnancial servicesproducts in connection with all reverse mortgage loans, including FHA-insured HECMloans, as well as conventional or private loan programs.2 However, unlike the federalrules, it is not clear that any California agency has authority to issue regulations underthese California Civil Code provisions. In any event, no such agency has issued anyfurther guidance since those provisions were last amended several times over the pastfew years.3 Such rule making, if and when forthcoming, presumably would be subjectto public notice and a comment period.Further note that in response to the FHA directive that ﬁrewalls and other safeguardsto ensure there is no undue pressure or appearance of pressure for a senior reversemortgage borrower to purchase another ﬁnancial services product, we note thatNRMLA has established best practices for its own members in the area of the offeringof other ﬁnancial services products in conjunction with reverse mortgages.4We also think it very important to note, that in proposing further regulations to amendand augment Regulation Z provisions under the federal Truth-in-Lending Actregarding reverse mortgages, particularly the provisions on offering other ﬁnancialservices products therewith, the Federal Reserve Board adopted many of the conceptsoutlined in the NRMLA Ethics Advisory opinion.5 One overriding principle of the EthicsAdvisory Opinion, and the proposed rule under Regulation Z, is that such directivesprovide clear guidance on how to proceed in an area that is difficult at best to deﬁne.Examples of Unintended and Onerous Results upon SeniorsIf a senior obtains a “noncasualty insurance product” from an insurance agent severalmonths after obtaining a reverse mortgage, is such activity in violation of AB793 asthat bill is currently drafted? This is not clear. Note, business persons do notnecessarily object to regulation, however, business persons do object to regulation2 See Cal. Civ. Code § 1923.2(i).3 See Cal. Senate Bill 1609 (2006) and Cal. Assembly Bill 329 (2009).4 See NRMLA ETHICS ADVISORY OPINION 2009-1, Ethical Offers of Other Financial andInsurance Products and Services (June 16, 2009), found at http://www.nrmlaonline.org/App_Assets/public/d27c71a2-0c0a-41e6-a824-9af0bcfaa14b/Ethics%20Advisory%202009-1%20FINAL%20VERSION.pdf5 See 75 Fed. Regis. 58539 (Sept. 24, 2010).
that is unclear, has a chilling effect on legitimate activity and has the effect of allowingdeﬁcient activity to persist in the marketplace where some might “compete based oncompliance” where the law is not clear.Thus, AB 793 as currently drafted, could be read to prevent a senior from obtaininganything other than a “noncasualty insurance product” after the senior obtains areverse mortgage, with no time limit. Therefore, a senior with $100,000 in a moneymarket account, and obtains a reverse mortgage, may be precluded from purchasing along term care policy to help ﬁnance the seniors healthcare needs or a single premiumlife insurance policy to facilitate an estate plan. We do not believe this is the intent ofthe legislation, but could reasonably the effect if AB 793 isn’t clariﬁed.More Reasonable SolutionsAs an alternative to broadly prohibiting any “association” with no deﬁnition of non-casualty insurance product along with a safe harbor procedural safeguard that isundeﬁned, we believe the following would adequately address the policy concerns atwhich AB793 is aimed. The bill could provide that no individual sales person canrequire a senior to purchase a reverse mortgage in order to obtain a more clearlydeﬁned other than non-casualty insurance product , and that no individual salesperson can receive direct compensation from direct involvement in a reverse mortgagetransaction.Alternatively, the bill could provide a cooling off period, after consummation of areverse mortgage transaction, during which a senior could not obtain a more clearlydeﬁned other than non-casualty insurance product.Again, however, as noted above, if a senior chose to obtain an other than non-casualtyinsurance product with proceeds separate from those deriving from a reversemortgage, and such other transaction meets other applicable laws, we do not believethat it is the intent of the California legislature to dictate how a senior uses theirseparate funds for all time after receiving a reverse mortgage.For the foregoing reasons, we respectfully request that California Assembly Bill 793 beamended to provide clear guidance while achieving important policy objectives, whilenot limiting consumer choice or chilling legitimate business activity. We appreciateyour time and attention in this matter. Please do not hesitate to contact us if you haveany questions or require any additional information.Very truly yours, Peter H. Bell
President and CEO, National Reverse Mortgage Lenders Association202-939-1741 cc: Honorable Mike Eng, CA State AssemblyJames A. Brodsky, Weiner Brodsky Sidman Kider PCJames M. Milano, Weiner Brodsky Sidman Kider PC