HUD Seeks to Find Balance in Reverse Mortgage Counseling Sessions

As HUD labors over changes to its counseling requirements for reverse mortgage recipients, questions persist about what expanded role the government – and by decree, individual private lenders – will play in attempting to ensure, or perhaps, even guarantee, that seniors fully understand all aspects and ramifications of the deal they are making.

“Strengthening objectivity requirements is absolutely key,” says Daniel Fenton, senior housing director for Money Management International (MMI), a non-profit counseling agency. He notes that “the devil is in the details” when it comes to striking the right balance between too little and too much counseling intervention. "HUD’s new HECM counseling protocol appears to strike a reasonable balance by requiring counseling agencies to use their judgment to assess level of understanding, but providing an objective assessment tool for counselors to use to evaluate understanding. In this way,” he goes on, “judgments are not simply subjective counselor opinions as whether someone should get a [counseled] certificate. 

Does that turn counselors into gatekeepers? “In a sense, yes,” Fenton replies. “However the rationale guiding counselor’s decisions has been clearly prescribed by HUD and will be based on observable facts rather than the personal views of any particular counselors."

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HUD also is mulling the issue of how much responsibility lenders should have in assessing a senior applicant’s financial situation. Should they, for example, ultimately say whether borrowers have the capability to meet ongoing obligations after getting a reverse mortgage? Under one proposal floating through various state capitals, loan officers would have to conduct a “financial assessment” of every borrower to review his or her monthly income, assets and recurring expenses.

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at nmorse@morsecommunications.com

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  • Great job, Mr. Morse.

    As to financial capability, most loan officers should be reluctant to accept this new function. Some of the question will be: How is the information to be gathered? Will it be required to be verified either to bank statements or borrower generated checking information? Is it simply something that the borrower will be required to submit as part of the loan or perhaps before counseling? Will the originator be required to gather it, summarize it reporting on the type of data from which it was prepared, and perhaps even conclude on certain aspects of the data summarized? What responsibility will underwriting have in all of this?

    As a CPA, this is outrageous. Holding an active CPA license means I can issue auditor’s reports, accountant’s letter reports, reports on agreed upon procedures, etc. The question is at what point will providing a loan now have aspects to it that will be found to be the providing of accounting services such as a compilation service?

    I have hated seeing this become an issue both in AB 329 and SB 660 here in California. Fortunately, both bills have been amended to delete these kinds of imperatives. I hope HUD does not adopt such standards.

  • I've lost two homeowners recently due to the revised counseling requirements. Both didn't like the counselor asking personal financial questions (since income requirements aren't considered for Reverse Mortgages; like with Forward Mortgages). One of the two homeowners was furious and cursed the counselor. He didn't curse me, but said he's going to review the entire situation with his Attorney, and I might be hearing from his Attorney.

    And I thought originating Reverse Mortgages 5 years ago was tough ….

  • Sounds like a guaranteed way to get sued. A guaranteed win for the senior … if there ever is a doubt later, they have a free option to get compensated by suing.

    • Sorry, I don't think financial planners want this burden either. It sound more like a CPA function (to verify the lender's ability to pay what???????????).
      Keep your Errors of Omission premiums paid up, because someone, somewhere is going to be unhappy (most likely the heirs, since the senior can't back you up from the grave).

  • I suppose one option might be to have the borrowers complete a HUD-designed document outlining their income and expenses, and attesting to its accuracy. Without adequate disposable “cash flow” (assuming the reverse mortgage is in place) they might not qualify. This of course would open a new can of worms with regard to mispresentations. Another problem would be redocumenating this after receipt of appraisal and final loan amount determination. It might be better to use it as a borrower's decision tool and disclosure only, rather than for qualifying purposes (since I believe the issue is borrower disclosure and understanding rather than loan-loss related issues).

  • The HUD Strategic Plan FY 2006 – 2011, Pg 67 about HUD's Office of Policy
    Development and Research (PD&R) – Bullet – Predatory lending, States, “PD&R
    will continue it's analysis of the subprime lending market to help policy makers
    distinguish between legitimate subprime lending activity that helps to expand
    homeownership opportunities for low-income and minority families, and predatory
    lending that takes advantage of these families.”

    There is no mention of protecting the senior community and homeowner doing
    a REFI with an Option ARM Loan. or other Subprime loan. Many seniors lost
    their homes due to foreclosure by the Lender. No Counseling required.

    I agree with James, Rainmand and Bill..

    Counseling is a must but I am concerned about new possible HUD requirements
    and the added liabilities that may pass through to the reverse mortgage industry.

  • Mr. Fenton is dead wrong thinking that counselors (of all people) will be able to “decide” what's best for the senior in front of them! Who are they to make that decision! It's too much power. Counselors will feel like they can pass judgement on any senior and will have the power to keep them from getting this product? Why can't people just understand that only a doctor has the expertise to decide whether someone is competent to make their own decisions? Just because someone is old, does NOT mean they don't have the right or the faculties to make any financial decisions they wish with their property! Even if they want to blow the whole thing on a trip, it's THEIR RIGHT and their money. I sure would hate to have some idiot counselor tell me what I can and cannot do!

  • “the rationale guiding counselor’s decisions has been clearly prescribed by HUD and will be based on observable facts rather than the personal views of any particular counselors.” — When has HUD ever prescribed anything clearly?!?!?

    The vast majority of counselors I have encountered have four primary objectives. First is to get the fee, then conduct the steps of the counseling process, then issue the certificate and lastly move on to the next client. Lest we forget, virtually all counseling is conducted via phone. What possible “objective assessment tool” or “observable fact” would allow a counselor to determine understanding via a counseling session conducted by phone and many times from half-way across the country.

    These strategies are simply continued knee-jerk reactions to the age old sub-prime arguement. It helps garner votes but little else.

  • My aunt went to a nonprofit agency in Central NY that is associated with Neighborwork America and was told she had to bring her income information with her to a counseling appointment. The counselor “Rosemarie” told her it was necessary to get a certificate. My aunt intended to apply with a local bank and was told by her counselor that the program was a “better deal” at another bank. I thought the program was the same bank to bank as it is regulated by HUD. My aunt was asked what the funds would be used for and she innocently replied to pay off debt and do home repairs. This nonprofit agency told my aunt that the reverse mortgage was not for her and the next thing I know, my aunt is applying for a homeimprovement loan with this nonprofit! She now has additional debt of $6000 to be paid, still needs additional cash and has to start the process of counseling and applying for a reverse mortgage all over again. I found out later that the counseling could have been done by AARP over the phone. This would have save my aunt alot of time and hassle. This goes to show you that counseling needs to be regulated stronger by HUD and shouldn't be done by fly-by-night nonprofits that push their own agenda on the elderly.

  • My aunt went to a nonprofit agency in Central NY that is associated with Neighborwork America and was told she had to bring her income information with her to a counseling appointment. The counselor “Rosemarie” told her it was necessary to get a certificate. My aunt intended to apply with a local bank and was told by her counselor that the program was a “better deal” at another bank. I thought the program was the same bank to bank as it is regulated by HUD. My aunt was asked what the funds would be used for and she innocently replied to pay off debt and do home repairs. This nonprofit agency told my aunt that the reverse mortgage was not for her and the next thing I know, my aunt is applying for a homeimprovement loan with this nonprofit! She now has additional debt of $6000 to be paid, still needs additional cash and has to start the process of counseling and applying for a reverse mortgage all over again. I found out later that the counseling could have been done by AARP over the phone. This would have save my aunt alot of time and hassle. This goes to show you that counseling needs to be regulated stronger by HUD and shouldn’t be done by fly-by-night nonprofits that push their own agenda on the elderly.

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