GAO: HUD Needs to Improve Oversight of Reverse Mortgage Counseling

A new report from Government Accountability Office (GAO) found that the Department of Housing and Urban Development’s internal controls do not provide reasonable assurance that counseling providers are complying with HECM counseling requirements.

As part of the GAO’s examination, they participated in 15 HECM counseling sessions and found that while the counselors generally conveyed accurate and useful information, none of the counselors covered all of the topics required by HUD, and some overstated the length of the sessions in HUD records.

The report notes that while HUD has several internal controls designed to ensure that counselors convey the required information to prospective HECM borrowers, the department has not tested the effectiveness of these controls and lacks procedures to ensure that records of counseling sessions are accurate. Because of these weaknesses, some prospective borrowers may not be receiving the information necessary to make informed decisions about obtaining a HECM. 

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According to the Washington Post, HUD spokesman Brian Sullivan said the reverse mortgage program has more safeguards, such as required counseling, than do private home loan programs. "These existing consumer protections have contributed greatly to the success of the [reverse mortgage] program, which has provided financial security to several hundred thousand seniors," he said.

The GAO also investigated reports of misleading marketing of reverse mortgages and while there have been few reported HECM marketing complains, GAO’s limited review of selected marketing materials for reverse mortgages found some examples of claims that were potentially misleading because they were inaccurate, incomplete, or employed questionable sales tactics.

According to the report, the FTC, Federal Reserve, OCC, OTS, FDIC, and HUD all reported receiving few HECM marketing complaints from calendar year 2005 through 2008. FTC officials said they received 50 complaints related to reverse mortgage marketing in this period, out of more than 4 million complaints in their database.

In defense of HUD, HECM counseling has been extremely underfunded, but the GAO fails to mention that HUD has had limited access to funds needed to improve counseling.

Reverse Mortgages: Product Complexity and Consumer Protection Issues Underscore Need for Improved Controls over Counseling for Borrowers

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  • Yes, there are some less than adequate HECM counselors out there but there are more outstanding ones. The new testing requirements should help. However, many of the questions on the test are not realistic for the knowledge that counselors need. Therefore, many counselors are failing the test. Some test questions address Homekeeper which does not even exist any more. Most lenders could not answer those questions. Some test questions address TALC. Why would a counselor know anything about TALC? That is a lender issue. Typical case of no nothings interfering with a system that works pretty well.

  • Yes, there are some less than adequate HECM counselors out there but there are more outstanding ones. The new testing requirements should help. However, many of the questions on the test are not realistic for the knowledge that counselors need. Therefore, many counselors are failing the test. Some test questions address Homekeeper which does not even exist any more. Most lenders could not answer those questions. Some test questions address TALC. Why would a counselor know anything about TALC? That is a lender issue. Typical case of no nothings interfering with a system that works pretty well.

  • This comment is not a condemnation of the HECM origination process. Even though the process is flawed, it has the strongest and best consumer protections in all of the mortgage industry (and perhaps in any other industry). However, that does not mean it should not and can not be improved. As a former auditor, I applaud the GAO study and its report. Here are just a few comments on the article and some replies to other comments.

    It is not up to GAO to defend HUD. It is the job of GAO to test a premise and report the findings.

    The premise GAO tested is that HUD counselors are meeting HUD minimum requirements during counseling sessions. The result was mixed except that no counselor presented all of the required topics.

    While it is correct to say that 15 samples is not representative of a population of well over 120,000 counseling sessions that are expected to occur in this year alone, it is fair is to say that 15 errors in a quantitatively measured compliance test is horrible even if the sample size had been more reasonable and representative. Yes, my opinion assumes the selection process was reasonably unbiased and those evaluating their counseling experience were fair, honest, and reasonable in their findings. But let’s not underplay these results; they will not simply go away.

    When a consumer is paying $90 to $125 for one-half to one hour’s worth of counselor’s time (and at times far less), it is disheartening to hear that some want the TALC portion of the counseling exam removed because it is too hard and it is somehow just a lender issue. When properly understood and explained, this form brings to light what other forms do not. For example and despite its questionable term and credit line payout assumptions, the TALC schedule clearly demonstrates that the percentage cost of a reverse mortgage should drop over time. It also demonstrates that seniors should generally avoid this loan if the entire term of the loan is expected to be less than 2 years. In most cases it also demonstrates how no (or at times low) appreciation impacts the actual percentage cost to the borrower and the benefit of a non-recourse debt.

    In conclusion, counselors need to do better and increase their knowledge and skills. HUD needs to find a way to monitor counseling sessions through proper sampling techniques. Too many originators find the current counseling system far too comfortable since it does not properly challenge their competence. To have counselors forced to do better is healthier not only for counselors but also for prospects, borrowers, originators, lenders, FHA, the HECM program, and the American taxpayer. The best news is that these findings help HUD understand where counseling needs improvement and if HUD continues to test the counseling process and evaluate those findings, the whole HECM experience can become an even stronger and more reliable system for obtaining the information seniors need to make their HECM decision. The vast majority of us have done well to date but the GAO study proves that we all can do better.

  • This comment is not a condemnation of the HECM origination process. Even though the process is flawed, it has the strongest and best consumer protections in all of the mortgage industry (and perhaps in any other industry). However, that does not mean it should not and can not be improved. As a former auditor, I applaud the GAO study and its report. Here are just a few comments on the article and some replies to other comments.rn rnIt is not up to GAO to defend HUD. It is the job of GAO to test a premise and report the findings. rnrnThe premise GAO tested is that HUD counselors are meeting HUD minimum requirements during counseling sessions. The result was mixed except that no counselor presented all of the required topics.rnrnWhile it is correct to say that 15 samples is not representative of a population of well over 120,000 counseling sessions that are expected to occur in this year alone, it is fair is to say that 15 errors in a quantitatively measured compliance test is horrible even if the sample size had been more reasonable and representative. Yes, my opinion assumes the selection process was reasonably unbiased and those evaluating their counseling experience were fair, honest, and reasonable in their findings. But letu2019s not underplay these results; they will not simply go away.rnrnWhen a consumer is paying $90 to $125 for one-half to one houru2019s worth of counseloru2019s time (and at times far less), it is disheartening to hear that some want the TALC portion of the counseling exam removed because it is too hard and it is somehow just a lender issue. When properly understood and explained, this form brings to light what other forms do not. For example and despite its questionable term and credit line payout assumptions, the TALC schedule clearly demonstrates that the percentage cost of a reverse mortgage should drop over time. It also demonstrates that seniors should generally avoid this loan if the entire term of the loan is expected to be less than 2 years. In most cases it also demonstrates how no (or at times low) appreciation impacts the actual percentage cost to the borrower and the benefit of a non-recourse debt.rnrnIn conclusion, counselors need to do better and increase their knowledge and skills. HUD needs to find a way to monitor counseling sessions through proper sampling techniques. Too many originators find the current counseling system far too comfortable since it does not properly challenge their competence. To have counselors forced to do better is healthier not only for counselors but also for prospects, borrowers, originators, lenders, FHA, the HECM program, and the American taxpayer. The best news is that these findings help HUD understand where counseling needs improvement and if HUD continues to test the counseling process and evaluate those findings, the whole HECM experience can become an even stronger and more reliable system for obtaining the information seniors need to make their HECM decision. The vast majority of us have done well to date but the GAO study proves that we all can do better.rn

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