Guidance on California’s “Cooling Off” Period

The California Department of Business Oversight (DBO) recently issued an Interpretative Letter regarding the cooling off period for reverse mortgage application processing as governed under the California Civil Code. In the Interpretative Letter, the DBO provides guidance regarding whether a lender may take a reverse mortgage loan application prior to the expiration of the seven-day cooling off period after a borrower receives counseling, pursuant to California Civil Code section 1923.2(k), as well as providing guidance on whether there are specific documents that must be signed by the borrower prior to taking an application.

The Interpretative Letter provides that a lender may perform any of the following activities before the expiration of the cooling off period:

  1. Explain the reverse mortgage to the prospective client
  2. Order a credit report to perform a preliminary credit review of the borrower’s financing obligations;
  3. Discuss whether the prospective borrower is eligible;
  4. Provide information regarding the fees and charges associated with the reverse mortgage;
  5. Describe the potential financial implications of a reverse mortgage loan for the client;
  6. Provide the borrower with copies of the mortgage, note, and Loan Agreement;
  7. Use automated valuation models (AVMs) to perform a preliminary estimation of the value of the property; and
  8. Order a preliminary title search.

The prohibition on processing the application means, among other things, that a lender may not order an appraisal, title search, or FHA case number, before a potential borrower completes the required counseling and the cooling off period expires.

A counseling certification must be signed by a borrower prior to a lender receiving a final and complete application, and other documents must be provided to a borrower before a lender may accept an initial application.

Download a full copy of the letter.