HUD Notice Asks Serious Questions About Use of Reverse Mortgage Proceeds

The US Department of Housing and Urban Development will publish an advance notice of rule making concerning reverse mortgages and will “ask some serious questions that a lot of people may find disconcerting,” said Meg Burns, Director, Single-Family Program Development at HUD.

Burns spoke at the National Reverse Mortgage Lenders Association’s annual conference earlier this week and said the notice will ask the following questions:

  • Whether or not FHA should prohibit the proceeds to purchase an annuity altogether?
  • Whether or not FHA should limit how the proceeds are used in general?
  • Whether or not FHA should limit the full draw to certain types of needs? 

"We think it’s appropriate to ask these questions because these are the issues the come up all the time with lawmakers," added Burns.  After the notice is published, HUD will be asking for the industry to comment.

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  • Well, if there ever was a time and a mood in the country for everything to be regulated and controlled, perhaps it is now. Along with everything else, of course, the government/regulators should tell me how I can spend my own equity released money.

  • If it takes the Government once and for all time to stop the annuity thieves
    from using FHA HECM funds, so be it: Without a lock on the henhouse, the fox not only smells food, he finds a way to steal it. As far as limiting funds or determing needs, that's going to be pretty hard to do with any common sense. What is appropriate for one Senior may not be for another. As I understand the FHA HECM program, it's designed to allow Seniors the ability to remain in their homes hopefully until we die without having to worry about a mortgage payment and granting us access to some of our home equity. Simple, effective, a Godsend. Maybe if the thieves would start receiving 2 to 5 year jail sentences (and then actually have to serve them in full), preying on a Senior's FHA HECM funds for unscrupuios reasons would stop.

    • jamesanelson,

      Yeah and I have read McCain called a “bogus reverse mortgage peddler” by the Chair of the Florida Democratic Party. Does that name fit you? I doubt it.

      I am not licensed to sell annuities nor have I ever sold one but to read anyone call those who sell annuities to seniors who happen to have a reverse mortgage, “annuity thieves” is to read irresponsible name calling. Annuity sales to seniors are legitimate whether they have a reverse mortgage or not but not every annuity sale to a senior is appropriate, again whether they have a reverse mortgage or not.

      A few days earlier you were the great defender of calling reverse mortgages a “complex financial planning tool”. There is not one annuity sales person I have ever met that did not describe themselves as a financial planner. So lauding this product as a tool in their planning seems like chumming the waters for sharks when defenseless swimmers are in the waters. Forget about your foxes and hens.

      Every financial product has those who abuse it including reverse mortgages. When it comes to annuities it seems like state departments of insurance, FINRA and the SEC are failing all of us by not pursuing prosecution against those who inappropriately sell annuities, especially those who sell annuities for very legitimate purposes. That is where the fault lies. If the prosecution cannot be pursued because of the statute of limitations then the law should be amended to extend it.

  • Maybe FHA should just enforce the rules already made. It is time to put an end to the perpetual horror stories.Time to stand up and defend a great program for seniors… not to dismantle it. How much longer will we allow the press to beat hell out of us? It’s time for NRMLA to throw out members in our industry who continue to break the law.

  • I said before:”The Obamatization of America” More government control. What's next video camera's in their homes? These Tea Parties are starting to sound good!

  • Jim DeMint, Senator from South Carolina recently said this

    DEMINT: I think we are on the edge of a cliff. I just came from a meeting where they are trying to reregulate the whole financial and credit industry. They being the Government.

  • Holy Cow, Mark Judge, after the subprime debacle the credit card
    interest rate and fee thievery and the obnoxious Wall Street bonus payments, I would think any sane mind would welcome such reregulation. (By the way I don't care much a man makes from actually running a company which makes a profit. But the Wall Street thieves (in large part unregulated hedge funds) who buy and sell companies with borrowed money (and pay themselves dididends by mortgaging the assets of the company until the companies themselves are forced into bankruptcy), should be regulated into jail for long prison terms.

    • jamesanelson,

      Hedge funds are regulated. This is not a question of reregulation but rather irresponsible and inadequate regulations. The funds are not transparent and should be.

      Can you point out one significant illustration of what you are describing in your last sentence? It is reminiscent of the movie, “Wall Street,” not the problems that created the current crisis.

      When it comes to absentee ownership, no manager or executive should be allowed to take all profits for their own individual benefit. Your concept would strip away all value from stocks and further erode pensions.

      A greater problem in the current crisis that has yet to be fully played out is the impact of derivatives. These barely regulated financial instruments have resulted in immense losses so far with more yet to come. Since so few understand them, their newsworthiness has all but died out. As of yet, Congress has only played around with them and with the Administration pushing health care and other issues, it seems as if they will never receive the attention they so have richly earned.

  • jamesanelson

    I agree wholeheartedly agree with you there. Unfortunately my fears lie in the other areas of reregulation that will be done by this administration.

  • They already have the client sign that it's against federal regs to buy an annuity with the first draw. They can't treat senior like they are idiots, even though some of them are. I always tell my clients not to take a lump sum from their Home Equity Reverse Mortgage unless they are paying off a large debt, however I usually joke that if they want they could put it all on “00”. It's their money isn't it. I do agree that the rip-off artists should go to jail. More regulation will only be one more nail in the coffin.
    <Ahref=”http://www.fhareversemortgagesofsouthflorida.com>reversemortgagessouthfloridaFHAhud

  • Amen to that! Crooks need to face the consequences of their action. Limiting a homeowner’s access to home equity proceeds is the first step along a very slipppery slope.

  • dduck ,oldtimer & james
    You are all just so right….what a terrible cycle this great Country has fallen into…Now the government wants to control how seniors spend their released equity.
    Jamesanelson- you are right as well. If it takes the government to stop the annuity thieves from using HECM funds incorrectly then so be it….but the last time I checked you needed an insurance license to sell annuities not a mortgage license.
    Why is without a doubt the noblest segment of the mortgage industry being labeled for something that we are not responsible for? Talk about misguided..Is HUD going to send someone to the national Insurance Tradeshows to tell them to stop these unethical practices?????
    And once again, I have searched and searched and cannot find more than a few examples on record of this ever happening! Hundreds of thousands of reverse mortgage transactions in the last few years and we get tagged with this incredibly negative label for something a small handful of insurance agents perpetrated! (Probably with a very small hand full of mortgage people as well)
    And here is the worst part…Where is our voice in this? Why aren’t the big boys yelling the same things as us little guys??? How about a little help here…
    And here’s my parting thought…if they have the audacity to actually pass legislation to limit what a senior can do with the proceeds from a reverse mortgage then they damn well better pass the same legislation for every cash out refinance, for people above the age of 62, in the forward world as well…That’s the part of the mortgage world that you can still qualify for 80-90% cash out…
    As I said before what a terrible terrible cycle we have become embroiled

    • Michael,

      I think you need to read your comment. It is far too reactive. You are an industry leader, not a rookie or some cranky old man.

      Many in Congress are concerned that they are backing insurance on a product that could backfire. They get nervous every time someone, like you, describes this product as a “complex financial planning tool” or whatever you and Jim Veale are calling it this week. They are reminded of how the government had to bail out AIG from its insurance obligations on various exotic “financial planning” products.

      What are we making the HECM program? Three years ago, less than 50% of borrowers took all of the proceeds at funding; now over 90% do. FHA is now more in the business of insuring home values than providing insurance so that seniors can stay in their homes.

      Why do you of all people confuse HECMs with all reverse mortgages? At the moment this is a HECM issue; please do not push lawmakers into finding ways to restrict the use of proceeds on other reverse mortgage products as well.

  • I am confused on the comments that Meg Burns is making. Is she saying that these are appropriate questions to ask the seniors? This is ridicules, seniors have every right to do whatever they want to with this money and the government needs to stay out of it, period! This is not FREE money, it is a LOAN which has to be paid back and always is, sometimes with the help of MI which they pay for up front and every month.
    I am volunteering right now to head up a committee to research EVERY inappropriate RM that has been done and has been reported as well as verified. We need to show HARD FACTS to these law makers so that we can call them out. Enough talk, we need action! I want to find out every RM that someone reported that was done unscrupulously, for the wrong reason, and/ or illegally. I want to find out who the person was who did it and what punishment was handed out. I want to post these results against all RM that have been done and see what the percentage is. We need to start doing things on our own instead of waiting for NRMLA or anyone else to help us. Please let me know if anyone wants to help and can offer advise as to where to start. This is my lively hood and I am very proud and passionate about what I do, anyone else what to help?

  • I have said it before and I will say it again!

    It ALL boils down to two issues:
    1: SUITABILITY
    2: ACCOUNTABILITY

    If Counselors were to ask Consumers “WHY ARE YOU GETTING A REVERSE MORTGAGE” and were required to document the Consumer’s response (word-for-word) on the Counseling Certificates, the industry would have addressed both SUITABILITY and ACCOUNTABILITY.

    Yes, let’s use the COUNSELORS to clean up our industry. The “concept” of required counseling is extremely wise regulation, but the current “quality” of counseling renders this concept practically useless. I do agree that the quality of counseling has dramatically improved and is quickly rising to a professional level, but we need to address SUITABILITY and ACCOUNTABILITY if we want Consumers to truly view our industry as professional and honorable.

    My Suggestions:

    Counselors should be REQUIRED to issue a certificate that reflects the Consumer's answer to the question “WHY ARE YOU GETTING A REVERSE MORTGAGE”, regardless of what that answer is.

    If the consumer did not answer the suitability in a manner that indicates clear understanding, the Lenders/Brokers would be wise to re-educate and then send them back through counseling to obtain an ADDITIONAL certificate to document their new understanding of “WHY AM I GETTING A REVERSE MORTGAGE”.

    Each and every counseling session should result in a certificate and it should be required that Lenders/Brokers maintain all certificates (for sessions within 6 months of application) in their permanent files.

    No one should be denied a loan based upon their answer to this question.

    My Conclusion:

    Quality HECM Counseling is the solution!

    If a lender/broker dare provide an unsuitable loan, this would make it easily documentable. If the loan is truly unsuitable, the courts will be able to hold irresponsible advisors accountable and indemnify Consumers.

    Not only would this expose incompetent advisors but it would also protect honorable ones that find themselves defending accusations invented by uneducated aggressors.

    Now I ask… What do HUD’s proposals address that this protocol doesn’t solve?

    Let's not throw practicality out with the “bath water”!

    Travis De Renzo
    http://www.HECM.net

  • Just heard this

    Reverse Mortgage Lenders Fear 2nd Cut
    National Mortgage News | Friday, November 20, 2009

    It said that the FHA is expected to make another cut in “Principal Limit Factors” on reverse mortgage loans shorty after Thanksgiving

  • I for one, am simply amazed that we are even debating if the government should or should not tell anyone how they can spend their own money legally ?

    Is it just me our am I in some bad dream ? What’s next ?

    Maybe we should put the same restriction on a cashout forward loan or a Heloc ?

    Maybe we should put some restrictions on where you buy a home ? maybe we should put some restrictions what you use a credit card for ?

    Maybe we should restrict people on government health care from being able to purchase tobacco or alcohol or Hot Fudge Sundays ( unless they meet weight standards ).…

    What’s next …

  • Reverse Mortgage Lenders Fear 2nd Cut

    National Mortgage News | Friday, November 20, 2009

    Print Email Reprints Feedback

    Still bristling from the Federal Housing Administration's decision in September to cut “principal limit factors” by roughly 10% across the board on Oct. 1, reverse mortgage lenders are now bracing for another haircut, probably around Jan. 1.

    After meeting with FHA Commissioner David Stevens before the start of the Nov. 18-20 National Reverse Mortgage Lenders Association's annual conference in San Diego, the trade group's president, Peter Bell, seemed resigned to the FHA's reducing the factors in the matrix used to determine what percentage of a property's value is available to the borrower. The factors depend on the borrower's age and the loan's interest rate; for example, a 62-year-old borrower with a 5% interest rate can now borrow up to 56.2%.

    Bell said Wednesday that his members would not be pleased. “This whole thing with risk management has ruffled a lot of feathers,” he said.

    Changes in the matrix are dictated by the Office of Management and Budget's reading on house prices, which have been declining in most places. Announcement of a further reduction in factors is expected shortly after Thanksgiving.

    “It's really a new day in Washington,” Bell said. “Evidence-based decision-making drives the process now.” A survey by his trade group of the loans booked year-to-date by the three largest reverse mortgage portfolio lenders indicated that, had the Oct. 1 changes been in effect for the entire year, one out of five borrowers would not have qualified because their equity available would have been less than what was still owed on the property.

    • Eric,

      I was at the presentation that NMN is describing and unless I missed something they never said a further reduction is expected. They did say it's a possibility but no one ever said it was expected.

      • Thanks for the info, we can hardly afford that right now. I think we are all hoping that we can actually get some of the reduction we lost in October, back.

      • I think that question was asked of Meg Burns during the Q&A part of the NRMLA session she spoke in and the answer was that no, there would be no going back to the original principal limit. NRMLA is supposed to have the general sessions on video on their website and both the Meg Burns and the session with the special officer to the Office of the Inspector General would be good to view, especially if you wonder Meg is letting us know about the proposed questions. The OIG is investigating cases that will curl your toes. And they appear to be legion.

      • I recieved this email from Peter Bell today in response to my question about another reduction, good news and thanks Peter!

        A possible further PLF reduction next Oct. 1 was discussed at the annual
        meeting, but was misreported by a reporter there as happening around January
        1.

        If it is to happen, it would be part of the FY 2011 budget, so it's
        premature to do anything. We'll have to wait until we see the Administration's
        budget proposal first. That's not due out until late January or early February.
        Right now it is purely speculation, based on an expectation that the 2011 budget
        will project a further deterioration in home values.

        Looks like we are safe for now.

  • Good day,

    This could be the straw that broke the camel's back. The past year has been nightmare for our industry. We have been battered in the news, battered by legislators and just about every uneducated source you can imagine. We have had more regulatory changes from underwriting to appraisals to trying to regulate predatory lending.

    Seniors and the industry have faced rising margins and reductions in the principle limit. We have also experienced more foreclosures amongst seniors that we have ever seen, I know in my lifetime anyway.

    Now HUD wants to tell a senior what they can do and can't do with their own money. Who do they think they are. This is a major slap in the face for seniors. They might as well say to a senior, “You don't have the mental capability of knowing what to do with your money”. This needs to be stopped, I hope AARP and NRMLA will read what I have to say along with everyone else who has commented on this latest move.

    It appears that this administration through its agencies want to eliminate the Reverse Mortgage industry. This move by HUD infuriates me and it should infuriate all of you. What have we evolved into? The Reverse Mortgage has always been sold on the basis that this is a program that is regulated to protect the senior but it is a program that the senior can do what ever they want to do with the money they get. It was always a program that gave our seniors their dignity back and their long lost dreams come true.

    Everything is changing, the Reverse Mortgage is becoming none of these things to seniors anymore. We need to stop all these regulations coming out at us like bullets from a gun. This is destroying the HECM program and reverse Mortgages as a whole. I could go on and on about this but my colleagues, we need to get moving on contacting AARP and NRMLA. We need some strong lobbying on this one. Lets not drop the Ball my friends!

    John A. Smaldone

  • Well Everyone,

    It’s unfortunate that it takes such bad news to unite us…but it appears we finally have a subject that the great majority of us agree on…
    Now the question is, as an industry, what is our best next step?

    • Michael,

      Let's see I count about 15 different aliases in this thread. 15 is hardly representative of the industry as a whole.

      In the last 20 hours, exactly how many volunteers from the other 13 have you raised up?

      Where is NRMLA in all of this? It seems as if they represent the industry. You are a NRMLA member, why ignore NRMLA at the start? What is their counsel in all of this? Most likely the 650 attendees at the NRMLA national convention are more representative of the views of the industry than we 15 or so?

      NRMLA already has done much of the legwork you are contemplating. Why not run with what they have already?

      While not expecting much hope for progress with 13, I for one will be looking for reports on your progress. I hope it works although it looks like there are some real differences of opinion among the 13, already.

  • The amount of misinformation in this thread of comments is truly startling. While many commenters complain about all of the uninformed, ignorant critics of reverse mortgages, there are as many comments placed on here by industry participants who are wholly misinformed and reacting to hearsay and rumors. Some of what gets stated here is outright irresponsible.

    This chain was triggered by a report of Meg Burns comments at the NRMLA Annual Meeting. What Meg told us is that, as part of implementing the “anti-cross selling” provisions of HERA, the Department will soon be publishing in the Federal Register a Notice of Proposed Rule Making asking for input on a number of questions before it develops a Proposed Rule. Included in questions to be asked in the Notice will be questions on how to control inappropriate cross sales.

    Because the HECM program was enacted by Congress to help seniors stay in there homes and pay basic living expenses and costs of maintaining their homes (go read the statute and the accompanying reports when the program was first enacted in the late 1980s, some have raised the question whether it is appropriate for the FHA guarantee to be used on loans that are taken out to pay for discretionary items other than medical and home maintenance expenses? it is a legitimate question. What is the legislative intent of the program? What did Congress expect it to do when they created it?

    All Meg said was that they might raise some of those questions in the course of seeking input from those concerned about the operation and use of the HECM program. If RMD readers feel that funds from a HECM shouyld be available for any use whatsoever, you will have the opportunity to submit comments to that effect. If others feel that, as Congress stated in enacting the program, it is to be used for necessary expenses, they will be able to make those comments. All HUD is looking to do is generate public discussion on the topic. That's an appropriate role for the Department as steward of the program.

    As far as another principal limit factor reduction, what was discussed at the Annual Meeting was that once the Office of Management and Budget develops its projections for what might happen with home prices in the next federal fiscal year (October 1, 2010-September 30, 2011), if they feel that values will continue to decline, there might need to be further adjustments to the program. Such adjustments could come in a number of ways, i.e. further principal limit reductions, higher MIPs, limiting the number of loans that could be made, raising the eligible age, etc. From what we saw earlier this year, reducing the PLFs seems to be the most attractive option to HUD. However, this is all speculation at this point. In the end, it will all depend on whether home values stabilize or continue to decline.

    By the way, I have had several legislative staffers and regulators tell me that they read the postings on this RMD site and when they see the tone, the anger and, most of all, the amount of the misinformation and misunderstanding voiced here by folks who are supposedly knowledgeable reverse mortgage industry insiders, it makes them very nervous about who participates in the HECM program.

    • Peter,

      Thank you for taking the time to respond to these posts, as you can see I did post your response you sent me regarding the principle limit reduction that was printed on AmericanBanker.com. I agree with some of what you say in regards to the anger tone that comes across on here but if this bothers some of your staff you can imagine how it bothers individuals that are on here, the ones that have to answer to the seniors, OUR customers, about all of the negative media, and the “Angry and Misinformation” that is out there from the politicians like Senator Claire McCaskill, I would think that is what should make you, the legislative staffers and regulator more nervous than what is written on here. I can tell you that rarely a day goes by that I do not have to answer questions and concerns because of these statements.

      Yes we do get a little riled up but I believe that is brought out because of the passion we have for this industry. I will venture to say that a very high percentage on here are on the origination side of this industry and we are the ones on the front lines directly dealing with the customers that all of these questions, new guidelines, restrictions, and laws that are continuously being implemented effect. I do not intend to speak for everyone on here or in general, but it does seem like we, the originators, are constantly being attacked and characterized as a bunch of crooks trying to swindle every senior citizen out there, who is by the way incapable of making any rational decisions without the help and assistance of the federal government. I am not here to argue with you or rile up the village and march on the castle with pitch forks and torches, I want to work with you and others to make sure that this product is there to help as many of our seniors as possible, but when someone like Meg Burns comes out and states that HUD is going to ask these questions because this is what the lawmakers are asking about, I get nervous. After seeing what the lawmakers like Senator McCaskill are doing now and what some of their attitudes are regarding this industry and how we are portrayed by people of influence like John Dugan, “While reverse mortgages can provide real benefit,” he said, “they also have some of the same characteristics as the riskiest types of subprime mortgages—and that should set off alarm bells” how can I not.

      Peter, we all appreciate and applaud the work that you and NRMLA have done and continue to do, but I believe that what this thread has brought out in people is that we get more than a little tired of what we perceive as “Knee Jerk” reactions to inaccurate and unsubstantiated reports from journalists, media and lawmakers who seem to be more interested in selling newspapers, magazines, and votes than taking the time to talk to “The Many” seniors who have taken out Reverse Mortgages in the last few years, ones that are happy with them and not just the “Few” that may or may not have been taken advantage of. Or take the time to talk to many originators, go on a few appointments and actually learn how they work! If they do not have time, then they should not be out there writing articles and making laws.

      I think we would all like to see a comprehensive list of all the cases of abuse that have been reported, investigation results, and the punishment to any individual or firm that was handed out. This way we can see why all of these changes, laws and guidelines are coming into effect, and why they are justifiable. If this can be proven I do not think anyone would then oppose these changes as ones that are needed. The problem is what we have all seen, or rather what we have all NOT seen is many, if any, cases that support all the accusations and these changes. Senator McCaskill is from the show me state, well Show Me!

      Again, I am not here to go into a rant and I agree that there is no need for hostility; I think we all just want to know that what is going on is JUSTIFIED. It seems that a lot of these changes are redundant to guidelines and laws that are already in effect, they just need to be enforced. This is the industry that we have all chosen to make our livelihood in and do not want to see it over regulated to the point where it will become difficult to get anything done.

      Eric Meehan

      • Eric,

        Thank you for your thoughtful response. I think you have done a very good job of expressing what many of us feel. Again, thank you.

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