FHA Developing Method to Mathematically Determine Reverse Mortgage Eligibility

image The Federal Housing Administration will issue preliminary regulations that would be the first step in developing a method to mathematically determine a borrower’s eligibility for a reverse mortgage said Meg Burns, the director of the FHA’s office of single-family program development in a New York Times article.

The administration recently implemented a new set of standards for HECM counselors which established a roster and testing standards used to qualify counselors.

Counselors will also have to follow a set of protocols to help determine whether a reverse mortgage will help a borrower.  Burns told the NY Times that “We’ll be weeding out the bad counselors going forward.”

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The changes come after a report from the Government Accountability Office, which sent investigators posing as borrowers to 15 reverse-mortgage counseling sessions.  According to the report, none of the counselors covered all the required topics and that some overstated the length of the sessions in records provided to the government.

New Rules for Counselors (New York Times)

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  • I have learned not to believe the accounts of reporters. I admire and respect Mrs. Burns professionally and doubt if she meant that the determination of who will qualify for HECMs in the future will be based solely on numerical calculations. While I hope this will be a determinant, I hope she does not mean it will be the only determinant.

    I believe that Mrs. Burns will follow through and create a system to drum out those counselors who are not performing at reasonable expectations. Although I disagree with Senator McCaskill on many points when it comes to HECMs, she deserves full credit for broaching this subject at her hearings. In this regard, well done Senator McCaskill.

    With the new standards placed on California reverse mortgage counseling as presented at the NRMLA Convention by several speakers, it would be good to hear how HUD will incorporate the expanded responsibilities into their training program. As I heard it, California is not providing any funding in this regard so if HUD is not taking on that responsibility, who will? Maybe more importantly, who in the California state government will be responsible to determine if these new requirements are being met and if not, who is authorized to take appropriate action and what actions are authorized to be taken? In fact I never heard that anyone was authorized to oversee counseling or what penalties there are for the failure of a counselor to cover these matters.

    Could a California borrower or that borrower’s heirs claim that due to a lack of monitoring these new state provisions, the reverse mortgage failed to meet state requirements and, therefore, is invalid? I hope the issues of monitoring and funding are being addressed by NRMLA with California officials including Jerry Brown, our state Attorney General. When new standards are mandated but neither the funding or monitoring (and enforcement) of the mandates are not provided, grave concern should be raised. What penalty or sanction will a counselor or counseling agency suffer if they do not follow the new California rules?

    I apologize for turning this thread into a California discussion but in the years to come, many expect to see these types of mandates being added by more and more state lawmakers in other states.

  • Sometimes, Ms. Burns said, counselors will suggest social service options like Meals on Wheels to alleviate some of their financial difficulties.

    What's next- counselors questioning why someone has the movie package with their cable subscription or why the Cadillac instead of the Malibu? They are going to turn this into a social service program.

  • Counselors also try to convince clients to go with an alternate financial service solution which is in direct conflit with the HUD Counseling guidelines

  • Unfortunately, the counseling situation is going to get a WHOLE lot worse before it starts getting better, and the manifestation of that worsening will be an overall contraction in the HECM market. Fasten your seat belts; it's going to be a rough ride.

  • Sorrry, Meg, but your duties as a Bureaucrat are to help Seniors in the last years of their lives, not to try to exclude them from any Federal program to which they are entitled (A Federal program based solely upon age, home value, and mortgage debt, if any.) For HUD's information, I tell all of my Clients who ask me “Why do I have to talk with a Counselor after you have explained the program so well?” “Because you need, and the Government wants you to have, a third party to also discuss the FHA HECM, to make sure what I am telling you is accurate, I reply. However, the most imoportant reason is, once the interview is completed, you will receive a Certificate as evidence of having finished the counseling; now attached electronically to that Certificate is an FHA Case number which is needed by the Lender to order an FHA Appraisal. Also, I cannot legally bring–or more importantly–you cannot sign the FHA HECM Application until the Counseling is done and a Certificated is awarded. What do they ask, you say? Hell, I don't know. Counselors come in all different kinds; some know what they are talking about, sorry what I'm going to say (and I DO say this) some don't know their ass from third base. You'll just have to endure it and get through it and try to gleem some valuable information from the experience.” I aploligize to my peers for what I'm going to add–but maybe “Meg” and some of her cohorts will read my testimonial material and think twice about qualifying people “mathematically”…….*At 87 years old, Jim helped me with my financial situation. I believe the reverse mortgage was made for me. I only receive funds when I ask for them, such as major home repair. The reverse mortgage has been a lifesaver for me.” ….We had a difficult situation (the 80 year old World War II Veteran is in bad shape with colon cancer and wanted to pass knowing his younger (70) Wife would be able to remain in the home after he was gone.) obtaining it but Jim prevailed and overcome the problems (appraisal value, plus a manufactured home) and now we are free of monthly mortgage payments and what a delight.” “I looked for a reverse mortgage for some time. I was disappointed with four other Companies that I looked into. They didn't return phone calls or visit my home and explain the details. I was very surprised and incredibly fortunate to come across J.N. There is no doubt I made the right decision.”…”Jim, thank you for your diligent efforts you made on our behalf…Since we have gone through this experience only once we have nothing with which to compare it. However, do to circumstances beyond your control, it was an excruciating experience I hope no one else will ever experience. That being said, the reverse mortgage we ended up with, greatly contributable to your expertise and efforts, has freed up a significant amount of monthly monies that makes our “Golden” years more Golden.” While all met the FHA HECM formula for qualification, except for the first client in this list, none of these wonderful and deserving Seniors probably would have been qualified by some “beancounter” Counselor. “Meggie” and her people better be careful with what they create: If it adversely affects deserving Seniors, Congress will be so informed.

  • Oy, oy, oy. Another case of the underinformed spewing their rhetoric on Reverse Mortgage Daily without having knowledge of the topic they are commenting about.

    What Meg explained on our meeting — and has been a topic of ongoing discussion for a while now — is that because we have seen numerous circumstances where a HECM helps a household in the short term, but eventually they can’t pay taxes, insurance and other expenses, so are forced to leave the home anyway. To try to avoid this scenario in the future, HUD will implement a requirement for a financial assessment as paert of loan origination (and as part of counseling) to ascertain that a prospective borrower will be able to meet their obligations for paying taxes, insurance and other recurring expenses, after they get the reverse mortgage.

    This sounds like it makes sense to me.

  • Peter Bell's comments make sense. This method of longer term feasibility presents a common sense underwriting approach, and should meet a basic suitability test.

    Contrary to what a previous poster stated, HECMs are not an “entitlement”, they are a mortgage loan that must be qualified for.

  • The problem, Mr Jackson, is either you don't own (or use) a dictionary or yiou don't know the difference between the words “entitle” and “entitement”
    Please reread the posting: You'll find, perhaps, I listed the three points required to “qualify” for an FHA HECM.

  • Also, as far as Peter (…) (…..) Bell: As if his ilk in Washington D.C. are the only people on Earth who know the truth!!!!!! It continues to amaze me that some people who have never originated an FHA HECM themselves think they are all knowing about the issues of Seniors which cause a need for an FHA HECM in the first place.

  • Mr Nelson-

    “now attached electronically to that Certificate is an FHA Case number which is needed by the Lender to order an FHA Appraisal. Also, I cannot legally bring–or more importantly–you cannot sign the FHA HECM Application until the Counseling is done and a Certificated is awarded”

    One of us is wrong, and I am open to fact it might be me…..WE still order case #'s and we also have client complete application and sign it, we just can't order case number, title, appraisal, credit…do any work on application file…until we have certificate signed by both counselor and borrower.

  • My processor tells me there is a # on certificate (not the FHA case #) that is needed for us to get the actual case number, which we get so that clarifies the first half….

  • How can anyone predict whether or not this senior is going to pay their taxes NOW, much less after the Reverse? Certainly, having no house payments should help free up the money for that very purpose, right? I think we're running dangerously close to “dictating morality” here; in a sense we are expecting HUD counselors to determine whether or not a person deserves or does not deserve a HECM? I smell lawsuits in the future…

    • Hi there. My guess is they will use a homeowner's monthly income relative to their living expenses to make a reasonable determination whether the homeowner is able to remain living there after the reverse mortgage has been put in place. If the answer is no, then a reverse mortgage probably isn't a good choice anyway. Employees at my company routinely do that in a general sense now anyway, by asking the basic question. I doubt credit score will be a factor.

  • Iluvrms,
    I agree. I can not think of any way to determine if a senior is going to be able to pay their property taxes and insurance 5-7 years down the line? In many cases we are eliminating mortgages which saves thousands. Who knows how any senior is going to spend in the future. Looking at credit is not always a sign especially (in my opinion) for seniors. They are facing many issues with their health and other issues the most of of us don't have to deal with. If we are going to look at credit to qualify its a mistake and will eliminate a ton of future HECM's. Many seniors come to get a HECM after their credit is already in a bad state.

  • Just goes to show me, Mr. Judge, when one gets to thinking he is so damn smart, someone smarter shows me my ignorance. I guess I spent too much time years ago selling “Gleem” toothpaste for Procter abnd Gamble. Mr. Hamilton, I'm not really sure what the facts are now; recently, I had a case delayed because the Counselor didn't forward the Certificate number to the lender. I just have always been told the Senior Client MUST get the FHA required counseling completed BEFORE I ask a Client to sign and date an FHA HECM Application. Great thing about RMD SOMEONE out there knows a lot more about the FHA process than I do. I'm the first one to admit: My forte isn't the paperwork. It's dealing honestly with Seniors and their real financial needs.

    • Jamesanelson

      No worries, I have been known from time to time, especially in a debate or intense conversation, to use an incorrect word. I just thought you might have wanted to know. I hear people say things like ” they were like two peas in a pot” and I think, “why hasn't someone told them it is pod, not pot”. I know I would want someone to let me know if I was using thre wrong word.

      In regards to needing the counseling certificate before the client signs the hecm application, I have not been doing it that way and it has not been an issue. My understanding is that the only things you cannot do before counsel is pull their credit and order appraisal and title.

  • I am pretty darn sure that the rule is you can't spend any of the client's money prior to recieving a signed counseling cert. I know I have heard of cases where a large lender pays the appraisal fee allowing them to order the appraisal prior to counseling, but then again rumors spread quickly.

    Hopefully someone will clarify this.

  • For Mr Nelson-

    From Financial Freedom Underwriting Guide.

    8.10.c. Activities Allowed Prior to Counseling
    Updated 02/21/08
    For all products, the following activities are allowed prior
    counseling:

  • Thank you, Mr. Hamilton: My only question would be about the date of the document. A lot can change in a year and a half. Are those statments still
    effective today? And this is a Guide from a private Company; is there something similar from HUD/FHA?

    • Mr Nelson-

      Here's the link from HUD:
      http://www.hud.gov/offices/adm/hudclips/handboo

      C.The lender may complete the borrower's application before referral, however, the lender can not charge the borrower for this service if the borrower does not choose to attend a counseling session or apply for a HECM after counseling. The lender can not begin the process of ordering a property appraisal or any other action that would result in a charge to the potential
      borrower until the borrower has received counseling, and the lender has received the counseling certificate from the borrower.

  • Thank you, Mr. Hamilton: This is indeed definitive; however, to whom does the term “referral” apply? I assume the Counseling Agency but, than again, I've learned not to trust assumptions (especially when this dummy is doing the assuming!) Also, what “service” or they describing–the taking of the application by the Loan Originator?. It would seem to me the simplest step is to not do anything other than talk with the potential client until after the FHA HECM Counseling session is completed and a Certificate is issued.
    What is your position, please?

    • In context, the term referral means to the counseling agencies.

      As far as “lender may complete the borrowers application” goes, it is just that. We have applicant sign and date all loan application documents and disclosures (and leave copies of all of these for them) , and collect from applicant the tax, insurance, current mortgage bills, and proper id.

      As an originator who only works face to face, this gives the applicant all the items they would want to have handy for reference when they do the counseling and, in most circumstances, it saves me a second home visit.

      Signing all the disclosures also serves as further program education.

      We stress that this file will “just go in a drawer” and nothing will happen until we receive the counseling cert from the borrower.

  • Very interesting, Mr. Hamilton. I, too, believe in face to face, except where distance makes it impossible and the borrower insists on working with me.
    I guess I place more emphasis upon the importance of the competion of the Counseling session by the Client than you do. I strongly feel if the Senior will not go through the Counseling process, one is just wasting his time.
    No use creating “files” for the “drawer” unless they will get used, in my opinion.

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