California RM originators with insurance license dodge a bullet

Changes to California AB 793 may allow insurance licensed reverse originators to keep working in both professions

As much as we might complain about lawmakers, the beauty of politics is the slow process of hearings and amendments. Yesterday the lawmakers in a California subcommittee committee amended (radically changed) the proposed addition to California’s Insurance Code (Assembly Bill 793) which is less harsh and frankly more realistic in its approach. In the first draft, the bill would have prevented anyone with an insurance license from participating, in, being associated with or employing any party that participates in the origination of reverse mortgages. I guess having drinks after work with an insurance-licensed friend would be out of the picture. Seriously, many reverse originators in California would have been forced to relinquish one license or the other.

The bill now has a provision that almost mirrors the existing “firewall” stating that if you hold both licenses, you cannot financially profit  from the sale of any insurance product to a reverse mortgage borrower  (casualty products are OK), and there must be ‘procedural safeguards’ against what we call cross-selling. The bottom line, if your hold an insurance license and originate reverse mortgages in California you’re in the clear for now, just act ethically and don’t cross-sell. The bill still must pass through committee in it’s final form and then go to the State Senate where future changes could be made. It strange how many state laws end up duplicating existing federal regulations in the end. You can read the full bill here and see the status here. We’ll keep you updated on any future changes.

What are your thoughts? Comment below…

10 comments

Bill Trask April 5, 2011 at 11:07 am

While this is a more realisitic result, it still leaves us with the possibility of ineffective firewalls. Brokers and Lenders must continue to set company policies and procedures that prevent cross-selling to seniors. However, unless effectively communicated, tested, monitored, and then driven into a P & P revision cycle, a company relies solely on the integrity of its originators. We all hope to hire originators with integrity, and the overwhelming majority of originators posses this essential trait. Unfortuntely, there isn’t litmus test for integrity we can incorporate into the hiring process and we still need effective policies and procedures imposed on all for the benefit of a few.

Reply
admin April 5, 2011 at 11:09 am

Bill,

Very well put. In the end it is the industry and lenders who must effectively “police” their own.

Reply
John R April 5, 2011 at 11:35 am

and so far, the Mortgage Industry is DAILY showing their own lack of integrity… ie US BANK V IBANEZ, WELLS FARGO BANK V LARACE which can be viewed here …
http://4closurefraud.org/2010/09/02/us-bank-v-ibanez-wells-fargo-bank-v-larace-appellees-amp-appellants-briefs-to-sjc/

Reply
Jack Tenold April 5, 2011 at 11:45 am

I thought the dual-licensing prohibition was an FHA thing. How can California override the Federal law in this instance?

Reply
admin April 5, 2011 at 11:58 am

Jack,

Federal law doesn’t prohibit duel licensing, but only requires a ‘firewall’.

Reply
James E. Veale, CPA April 5, 2011 at 12:37 pm

I have a slightly different view of the bill and where it is in the process.

It is not that clear that any bullet has been dodged. We are in the initial process of seeing a bill being passed by the Assembly. It can be amended again at any point in the process even back to the way it was. Once it is through the Assembly (if it gets that far) it then must be processed through the Senate. Once again, the bill can be amended. Then if the Senate passes a bill, any differences between the Assemby and Senate versions must be dealt with; otherwise, neither bill can become law. If after going through that process, the bill is as it reads, then our infamous Governor must sign the bill into law. If the bill after all of that “democratic” (actually republic) process is as it reads now, one could say a bullet has been dodged.

This bill does not change the portion of the California Civil Code dealing with reverse mortgages. It would change the California Insurance Code. If it is put into law, it would require insurance companies to do much of the same things as reverse mortgage companies are required to do here in California in order to avoid violating the draconian reverse mortgage cross-selling rules found in California Civil Code Section 1923.2(i).

Even under the original bill, no one is required by law to relinquish any license. HOWEVER, insurance licensees could not have produced insurance and also be employed to originate reverse mortgages. Under either proposal, an insurance licensee can produce insurance and originate cash out forward loans which would accomplish the same “evil” purpose, financed purchases of insurance (as if that does not happen).

The bill before amendment would have gone beyond NMLS licensees as it would also have impacted NMLS registrants as well. Normally the Commissioner of Insurance who has a lot to say about California Insurance law does not want to cross swords with the federally chartered financial institutions. This fact alone might have spurred on the need for change.

Reply
admin April 5, 2011 at 12:50 pm

Jim,

Good points. You are correct that we have only dodged the initial bullet as the lawmaking process is not complete. One possibly result for insurance licensees would be companies requiring their agents to sign a code of conduct saying they do not or will not originate reverse mortgage loans or if they do that they agree not to sell insurance products to them. While not specifically requiring a release of one license or the other, the end effect if the bill was enacted as the first draft, originators with an insurance license would have to abandon any future insurance production or sales. In 2005, in the wake of cash out refinances being used to fund universal life insurance, many companies added the clause the agent had to check confirming the proceeds were not from home equity or a mortgage loan.

Reply
Bill Peters April 5, 2011 at 12:42 pm

Bill Trask is right, and I don’t know how people are going about creating their “firewalls”. Or testing and maintaining them. As someone who has held previously held mortagge and life and health insurance licenses, I can only think of three ways to document no cross-selling or shared compensation, but all three require some otherwise unusual levels of cooperation and communication ( and privileged information non-disclosure) between the banker/lender/broker and the insurance entities involved. Bringing someone on who would know how to do this and to regularly cross-check is a step that originating and/or lending entities may have to accept, but it does represent a new complinace cost.

Reply
Bill Peters April 5, 2011 at 12:44 pm

Nice “Matrix” graphic, by the way.

Reply
joni April 5, 2011 at 1:16 pm

Please remember, just because a person has an insurance license doesn’t mean it’s being actively used. I had a california insurance license since 2001 that was required when working in the death care industry. This license is limited to funerals only but issued by the state of california insurace department.. I haven’t used it in 10 years but if I decide to get out of the morgage business,and go back to that career, I don’t want to go through the test or the cost again if it’s not nessicary. I think the law would be unfair to tell citizens, what license we can have and not have at one time…I also have an Real Estate license that I don’t use but is up to date. With jobs so scared these days, one should keep all options open. Besides, California must have 4 different signing documents disclosing over and over again cross selling is against the law. Either your an honest person or you’re not.. and if not, they shouldn’t be selling anything to the pulblic. I’d like to think there’s more people in our business that enjoys helping seniors have a better quality life than those who is just making a living selling reverse mortgages…

Reply

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

HECMWorld.com uses cookies to improve user-experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Cookies View Policy

DON'T MISS OUT!
Subscribe To Our Newsletter
Be the first to get latest Reverse Industry updates and exclusive HECMWorld.com content straight to your email inbox.
Your information will never be shared.
close-link