Reverse mortgages: lender notice requirements.

Under existing law, a "reverse mortgage" means a nonrecourse loan secured by real property if the loan provides cash advances to a borrower based on the equity or the value in a borrower's owner-occupied principal residence, the loan requires no payment of principal or interest until the entire loan becomes due and payable, and the loan is made by a specified licensed or chartered lender. Existing law requires the lender to prominently disclose in the loan agreement any interest rate or other fees to be charged during the period that commences on the date that the reverse mortgage loan becomes due and payable, and that ends when repayment in full is made. Existing federal law authorizes the nonborrowing spouse of a reverse mortgage borrower to exercise an option, sometimes referred to as a mortgagee optional election (MOE) , to further defer the due and payable status of the reverse mortgage upon the death of the borrower, upon meeting specified conditions. This bill would prohibit a lender from making a reverse mortgage loan on a principle residence without informing the borrower, and nonborrowing spouse, as defined, of the opportunity for a nonborrowing spouse to exercise the option described above to permit that spouse to remain in the residence following the death of the borrowing spouse, upon the satisfaction of specified conditions. The bill would, for a reverse mortgage entered into on or after January 1, 2018, prohibit a lender from initiating a foreclosure on a principle residence after the death of the borrowing spouse unless the notice requirements regarding the option were met and the nonborrowing spouse was given the opportunity to exercise the option.