New Counseling Tool Helps Determine How Reverse Mortgages Can Assist Seniors

As part of the new counseling protocols from the US Department of Housing and Urban Development, counselors are required to use the National Council of Aging’s web based Financial Interview Tool (FIT) to create a budget for the client based on their income, assets, debt and expenses.

Using FIT, counselors will ask a series of questions to help the client report income, debt, and expenses to illustrate their current financial situation and determine how a reverse mortgage might assist them in meeting their needs and goals.

“The tool will help the client and the counselor better understand various issues that the client will face in the future and provide a deeper understanding of whether the reverse mortgage will assist the client in aging in place over the long term,” said Sue Hunt, Reverse Mortgage Program Manager for CredAbility.

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The tool is available online (surprisingly) and can be accessed by anyone here.  Through a few key questions, FIT will help you discuss life factors such as declining health, limitations in the home environment, or recent life transitions according to the website. These issues (marked with yellow flags) can affect the financial sustainability of the borrower and make it hard for borrowers to stay at home and benefit from the loan.

FIT provides a summary of these factors, which can help counselors to identify features of a reverse mortgage that might benefit the client, assess the impact of their financial needs on remaining equity over time, and consider other options. The FIT review number reflects the total number of yellow flag issues that were raised during the counseling session. The lower the FIT review number, the more carefully clients should consider a reverse mortgage.

In addition to using FIT, counselors are required to complete a BenefitsCheckUp for clients whose income falls below 200% of the Federal Poverty Level (FPL) or who are disabled.  Using BenefitsCheckUp, counselors can quickly screen more than 1,800 public and private benefits programs from all 50 states and the District of Columbia.

“These benefit programs include tax relief, energy assistance, health care and in-home services, prescription drugs, nutrition programs, housing, and programs for which a client may be eligible, and provide contact information to help them apply for these benefits,” said HUD in the counseling protocol.

The decision to obtain a reverse mortgage is the client’s decision regardless of the budget results according to HUD.  The tool hasn’t been rolled out to HECM counselors, but agencies expect it to be implemented on Sept 11, 2010, along with the other new protocols.

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  • So even though many of the supposed Benefits may be unavailable due to budget cutbacks, if you are below 200% of the FPL you are mandated to submit to it? Yeah, most of my borrowers would have to take it. Makes no sense does it? Especially if the borrowers have shared their financial info with a cpa, attorney or financial advisor and the counselor doesn’t accept the judgment of the professional but trusts the FIT software more.

  • Atare,rnrnI agree with your reply above that these questions have been around for several years. While a program of this nature may help standardize counseling to cover the less financial side of reverse mortgages, it also seems it could easily result in simple “yes and no” conversations which ignore the needs of the individual and impose standardization over judgment and limited discretion.rnrnIf these questions were used in the past then computerization simply means counselors can no longer bypass them which I do not view as necessarily a bad thing. It also means that financial information will have a scoring mechanism attached to it where the only difference in scoring is a one or a zero. Some answers might be more worthy of five flags versus one flag on others; yet there seems to be no allowance for such differences, always a problem with binary scoring where there is weighting. This is not a good thing. rnrnOver the years, in preparing and reviewing income tax returns, it was very apparent how little clients remember about their finances and how unwilling they are to provide such information to strangers or in an unfamiliar environment. It is not the counselors or the computer system which I distrust. It is the reliability of the data going into the system and the results of a binary scoring system. Even in our industry it is surprising the answers one gets when filling out the limited financial information on a Form 1009 versus when one goes over it at the end of the appointment or with the spouse. u201cGarbage in, garbage outu201d is no different in our industry than it is in any other. rnrnIt is not the questions which are being asked which bother me. It is the computerization of live counseling together with the lack of verification of the information counselors receive. It is also the imposition and substitution of the advice of a mandated advisor over trusted advisors. Many seniors do not want to give financial or personal information to strangers, especially if relatives or friends are in attendance as trusted advisors. Unveiling health issues and specific financial information in front of others attending counseling could prove so embarrassing that seniors feel forced to give incomplete or incorrect answers. If others are really going to be encouraged to be in counseling with the seniors, personal questions of this nature should be avoided. Getting that information in a different meeting would be preferred by many. rnrnWhat is the most troubling thought is the idea that these results could at some point be required to be incorporated into underwriting. This over simplified approach to examining the financial ability of a senior is troublesome. Yet if such information exists and somehow it is believed to be relevant, it will not be long before there is a cry that it needs to be used by lenders.rnrnYour brother and friend,rnrnJim rn

  • Jim,rnrnI believe your assertion that ” … when it comes to counseling there is absolutely nothing the lender can rely upon to reduce the risk of loss in reputation, from litigation, or in any other way” is too categorical. We can all learn from each other’s domain. But we need an open mind.rnrnLending, including reverse mortgage lending, is overweighted in left- brain skills and severely underweighted in right-brain insights. FIT questions are designed to bring right-brain insights and perspective to the evaluation and decision-making process. This is a seismic innovation in reverse mortgage lending. As HECM insurer and lender of last resort, HUD is smart to mandate the FIT/BCU process. It is 21 years overdue. It is all about risk-management in the age of Dodd-Frank and resource constraints.rnrnThanks, brother!rnrnAtarern

  • Jim,rnrnIt is comforting that this is a preliminary comment. The FIT questions have been in use via the NCOA network since 2007. They have been tested repeatedly in HECM counseling sessions, and they have been well received, according to authoritative sources at NCOA. rnrnAlthough they are a required part of the new HECM counseling regime, smart lenders and originators will gain competitive advantage from embracing, studying, understanding, and applying the FIT questions in the prospect interview phase of reverse mortgage origination. rnrnFrom the comments on FIT on RMD, considerable misconception exists about it in the reverse mortgage lending community. To promote understanding, I intend to begin a new series “FIT for Reverse Mortgage Lenders” soon.rnrnAs always, I learn from your insightful comments.rnrnThanks,rnrnAtarern

  • The new FIT as part of the new & improved counseling protocol will do little, if anything, to prevent borrowers from being unable to meet their ongoing financial obligations such as taxes & insurance. I found this ironic since the outcry of T&I defaults has been substantial and Barbara Stucki mentioned this as just one of the areas the FIT was to address?nnThe question is how can you address T&I when the FIT never asks just how much one spends on these items? There is no substantial cash flow analysis spelled out in the FIT or BCU.nnAnother concern is the mandated BCU for those at or below 200% of the Federal Poverty Level (FPL). I would venture to say this will impact the majority of our borrowers. One issue with the BCU is that you are asking prospective borrowers to share more financial information than they do with their CPA, attorney or financial advisor.nnNo longer can we say a HECM is not based on one’s “credit” as it appears a “forensic” analysis of one’s finances may be required. Seniors: open up and say “ah” for the doctor.

  • Last year GAO heavily criticized counseling. The FIT and BCU programs along with over 140 pages of protocol appear to be designed to standardize counseling in order to deflect that criticism. rnrnIt seems that those who are interested in providing social care for seniors have taken over counseling as part of the reverse mortgage origination process. Their concept of a suitable financial plan for seniors is reflected in the programs and the scoring. They somehow have concluded that these programs are superior to the advice and individualized plans of attorneys, CPAs, CFPs, medical advisors, and other professionals.rnrnFor those who believe that the foregoing is simply an overreaction then consider the consequences James Veale describes in his comment above about refusing to answer even one question in the FIT portion of counseling; fully participate in the FIT protocol or be refused a counseling certificate. rnrnEven if a senior provides notarized and witnessed documents verifying that the senior has met with a CPA, CFP, elder law attorney, MD, gerontologist, psychiatrist, psychologist, private case worker, social worker, priest (rabbi, minister, or nun), and the local Indian Counsel, nothing, absolutely nothing will excuse a senior from participating in FIT that is if the senior wants a counseling certificate. It doesn’t even matter if the senior met with three or more of each of these professionals. rnrnIs this a wholesale delegation of counseling to the NCOA??? It sure has the feel of it.rnrnNow consider, in places like here in California, those getting proprietary reverse mortgages will face this same counseling methodology. I do not doubt that wealthier seniors will find this insulting. Not even counselors are permitted to exercise their judgment and common sense; all are subject to an unproven program called FIT!!! rnrnNow it is time to shut up for: “All hail FIT!”

  • Atare,

    It has always been my understanding that counseling addresses issues including u201csoftu201d issues that originators (financial type or not) might not otherwise address. That is one of the numerous benefits of counseling. So I really do not understand how the FIT program improves this situation unless it insures standardization.

    My focus is purely on the FIT program and the FIT program alone. Only the FIT program is mandated for all prospects. The BCU (Benefits CheckUp) program is only mandated for those not meeting an income test (and of course, those who voluntarily agree to go through it).

    To be clear, except for the issuance of the counseling certificate, when it comes to counseling there is absolutely nothing the lender can rely upon to reduce the risk of loss in reputation, from litigation, or in any other way. The lender has no more actual defenses or protections from improved counseling protocol — unless the lender can review and make use of the work product of the counselor which is not the case. Lenders, who rely on these improvements in cost savings moves through relaxing controls or standards, do so to their own detriment.

    However, the proper development and use of improved protocols could have additional benefits beyond those counseling currently provides not only to lenders, borrowers, prospects, investors, but even ultimately to FHA itself. However, those benefits will be very difficult to trace, track, document, verify, and substantiate for many years to come, if then.

    Now is the time to bring up concerns about the FIT, the BCU, and other protocol improvements before their implementation on September 11, 2010.

  • I know I am not one of you people doing RMs, but as a financial planner, I find the FIT questions to be partly ridiculous. It is another attempt by “well meaning” people to second guess/regulate/ and yes be a “Big Brother”. I was particularly amused by the “risk alerts” some of which were the VERY REASONS some seniors SHOULD utilize an RM. nTo really do a proper evaluation of prospects “fit” for an RM, would almost require the combined skills of an accountant, elder-care lawyer, financial planner and a geriatric nurse/doctor. The counselors may well do their best, but, come on, this is not fair to them or the senior if the counselor is also a judge and jury on whether one “qualifies” for an RM. Your industry, in a way is a canary in the coal mine, since all financial products could be “regulated” like the RMs. I’m far from being a tea party type, but the government is going too far on this one. (It wouldn’t be so bad if the government were a better manager; witness the twin monsters Fannie and Freddie.)

  • Not a fan of FIT. Think counseling is the wrong place for determining financial fitness for a loan. However, I do think that all potential borrowers should consider declining health, limitations in the home environment, and life transitions whenever they are making financial determinations regarding their largest asset. That is one part of FIT I do agree with and think it is right and proper for counselors to be the ones to discuss it with the borrowers. It is something I touch on with applicants when we discuss how long they plan on living in their homes, but if the counselor can provide statistical data to the seniors regarding these points, it could be very helpful.rnrnBenefitsCheckUp is also a very helpful tool. However, I have found that many state and local programs are underfunded in these days of unstable fiscal health on the state and local levels.

  • Some real risks in reverse mortgage lending are shrouded in the “non-financial” issues seniors face every day. “Soft” issues that financial types normally do not think about in evaluating a senior for a reverse mortgage. For example, a reverse mortgage prospect that has been in and out of hospitals over a couple of months may suggest a borrower who may not be able to meet the residency requirement of the loan. It may also indicate a borrower who could quickly deplete their reverse capacity and default on property taxes and homeowner’s insurance.rnrnFIT questions are designed to uncover these issues early in the process. It is a tool for better prospect/counselor (as well as prospect/loan officer) conversation. It will help lenders manage litigation, reputation, and financial risks associated with reverse mortgage lending.rnrn For a primer, see my conversation with Dr. Barbara Stucki,chief of Home Equity Initiative at the National Council on Aging (NCOA) in the May 2010 issue of The Reverse Review (www.reversereview.com).

  • I may be a lonely voice among originators but I am personally perplexed by the new FIT protocol. With all due respect to the NCOA, I believe that many of the questions requiring financial information are not only poorly designed but the way they are written could lead to duplication of information. It was surprising that FIT does not require gross monthly expenses broken down by the type of expense paid.

    It was very strange when clicking onto the Privacy Policy button at the bottom of the FIT webpage all that came up was a privacy policy for the Benefits CheckUp portion of the website. It was also very disconcerting to hear at the NRMLA Road Show last Thursday in Irvine that if a senior refuses to answer even one of the FIT questions no matter what the question or the reason, the counselor must withhold the certificate of counseling completion.

    It was also disappointing to see that much of the emphasis was based on gross income and not on projected net monthly cash flow. This comment is very preliminary; however, over the next few weeks, I hope to be able to provide a more thorough analysis.

  • I may be a lonely voice among originators but I am personally perplexed by the new FIT protocol. With all due respect to the NCOA, I believe that many of the questions requiring financial information are not only poorly designed but the way they are written could lead to duplication of information. It was surprising that FIT does not require gross monthly expenses broken down by the type of expense paid.

    It was very strange when clicking onto the Privacy Policy button at the bottom page that all that came up was a privacy policy for the Benefits CheckUp portion of the website. It was also very disconcerting to hear at the NRMLA Road Show last Thursday in Irvine that if a senior refuses to answer even one of the questions no matter what the question or the reason, the counselor must withhold the certificate of counseling completion.

    It was also disappointing to see that much of the emphasis was based on gross income and not on projected net monthly cash flow. This comment is very preliminary; however, over the next few weeks, I hope to be able to provide a more thorough analysis.

    • Jim,

      It is comforting that this is a preliminary comment. The FIT questions have been in use via the NCOA network since 2007. They have been tested repeatedly in HECM counseling sessions, and they have been well received, according to authoritative sources at NCOA.

      Although they are a required part of the new HECM counseling regime, smart lenders and originators will gain competitive advantage from embracing, studying, understanding, and applying the FIT questions in the prospect interview phase of reverse mortgage origination.

      From the comments on FIT on RMD, considerable misconception exists about it in the reverse mortgage lending community. To promote understanding, I intend to begin a new series “FIT for Reverse Mortgage Lenders” soon.

      As always, I learn from your insightful comments.

      Thanks,

      Atare

  • Some real risks in reverse mortgage lending are shrouded in the “non-financial” issues seniors face every day. “Soft” issues that financial types normally do not think about in evaluating a senior for a reverse mortgage. For example, a reverse mortgage prospect that has been in and out of hospitals over a couple of months may suggest a borrower who may not be able to meet the residency requirement of the loan. It may also indicate a borrower who could quickly deplete their reverse capacity and default on property taxes and homeowner's insurance.

    FIT questions are designed to uncover these issues early in the process. It is a tool for better prospect/counselor (as well as prospect/loan officer) conversation. It will help lenders manage litigation, reputation, and financial risks associated with reverse mortgage lending.

    For a primer, see my conversation with Dr. Barbara Stucki,chief of Home Equity Initiative at the National Council on Aging (NCOA) in the May 2010 issue of The Reverse Review (http://www.reversereview.com).

    • Atare,

      It has always been my understanding that counseling addresses issues including “soft” issues that originators (financial type or not) might not otherwise address. That is one of the numerous benefits of counseling. So I really do not understand how the FIT program improves this situation unless it insures standardization.

      My focus is purely on what improvements the FIT program and the FIT program alone provides counseling. Only the FIT program is mandated for all prospects. The BCU (Benefits CheckUp) program is only mandated for those not meeting an income test and those who choose to voluntarily agree to go through it.

      To be clear, except for the issuance of the counseling certificate, when it comes to counseling there is absolutely nothing the lender can rely upon to reduce the risk of loss in reputation, from litigation, or in any other way. The lender has no more actual defenses or protection from improved counseling protocol — unless the lender can review and make use of the work product of the counselor which is not the case. Lenders, who rely on these improvements in cost savings moves through relaxing controls or standards, do so at their own detriment.

      However, the proper development and use of improved protocols could have additional benefits not only to lenders, borrowers, prospects, investors, but even ultimately to FHA itself. But now is the time to bring up concerns about the FIT, the BCU, and other protocol improvements before their implementation on September 11, 2010.

      • Jim,

        I believe your assertion that ” … when it comes to counseling there is absolutely nothing the lender can rely upon to reduce the risk of loss in reputation, from litigation, or in any other way” is too categorical. We can all learn from each other's domain. But we need an open mind.

        Lending, including reverse mortgage lending, is overweighted in left- brain skills and severely underweighted in right-brain insights. FIT questions are designed to bring right-brain insights and perspective to the evaluation and decision-making process. This is a seismic innovation in reverse mortgage lending. As HECM insurer and lender of last resort, HUD is smart to mandate the FIT/BCU process. It is 21 years overdue. It is all about risk-management in the age of Dodd-Frank and resource constraints.

        Thanks, brother!

        Atare

      • Atare,

        I agree with your reply above that these questions have been around for several years. While a program of this nature may help standardize counseling to cover the less financial side of reverse mortgages, it also seems it could easily result in simple “yes and no” conversations which ignore the needs of the individual and impose standardization over judgment and limited discretion.

        If these questions were used in the past then computerization simply means counselors can no longer bypass them which I do not view as necessarily a bad thing. It also means that financial information will have a scoring mechanism attached to it where the only difference in scoring is a one or a zero. Some answers might be more worthy of five flags versus one flag on others; yet there seems to be no allowance for such differences, always a problem with binary scoring where there is weighting. This is not a good thing.

        Over the years, in preparing and reviewing income tax returns, it was very apparent how little clients remember about their finances and how unwilling they are to provide such information to strangers or in an unfamiliar environment. It is not the counselors or the computer system which I distrust. It is the reliability of the data going into the system and the results of a binary scoring system. Even in our industry it is surprising the answers one gets when filling out the limited financial information on a Form 1009 versus when one goes over it at the end of the appointment or with the spouse. “Garbage in, garbage out” is no different in our industry than it is in any other.

        It is not the questions which are being asked which bother me. It is the computerization of live counseling together with the lack of verification of the information counselors receive. It is also the imposition and substitution of the advice of a mandated advisor over trusted advisors. Many seniors do not want to give financial or personal information to strangers, especially if relatives or friends are in attendance as trusted advisors. Unveiling health issues and specific financial information in front of others attending counseling could prove so embarrassing that seniors feel forced to give incomplete or incorrect answers. If others are really going to be encouraged to be in counseling with the seniors, personal questions of this nature should be avoided. Getting that information in a different meeting would be preferred by many.

        What is the most troubling thought is the idea that these results could at some point be required to be incorporated into underwriting. This over simplified approach to examining the financial ability of a senior is troublesome. Yet if such information exists and somehow it is believed to be relevant, it will not be long before there is a cry that it needs to be used by lenders.

        Your brother and friend,

        Jim

      • Jim,

        I'll call you later in the week to continue this conversation.

        Peace,

        Atare

  • Not a fan of FIT. Think counseling is the wrong place for determining financial fitness for a loan. However, I do think that all potential borrowers should consider declining health, limitations in the home environment, and life transitions whenever they are making financial determinations regarding their largest asset. That is one part of FIT I do agree with and think it is right and proper for counselors to be the ones to discuss it with the borrowers. It is something I touch on with applicants when we discuss how long they plan on living in their homes, but if the counselor can provide statistical data to the seniors regarding these points, it could be very helpful.

    BenefitsCheckUp is also a very helpful tool. However, I have found that many state and local programs are underfunded in these days of unstable fiscal health on the state and local levels.

  • I know I am not one of you people doing RMs, but as a financial planner, I find the FIT questions to be partly ridiculous. It is another attempt by “well meaning” people to second guess/regulate/ and yes be a “Big Brother”. I was particularly amused by the “risk alerts” some of which were the VERY REASONS some seniors SHOULD utilize an RM.
    To really do a proper evaluation of prospects “fit” for an RM, would almost require the combined skills of an accountant, elder-care lawyer, financial planner and a geriatric nurse/doctor. The counselors may well do their best, but, come on, this is not fair to them or the senior if the counselor is also a judge and jury on whether one “qualifies” for an RM. Your industry, in a way is a canary in the coal mine, since all financial products could be “regulated” like the RMs. I'm far from being a tea party type, but the government is going too far on this one. (It wouldn't be so bad if the government were a better manager; witness the twin monsters Fannie and Freddie.)

  • Last year GAO heavily criticized counseling. The FIT and BCU programs along with over 140 pages of protocol appear to be designed to standardize counseling in order to deflect that criticism.

    It seems that those who are interested in providing social care for seniors have taken over counseling as part of the reverse mortgage origination process. Their concept of a suitable financial plan for seniors is reflected in the programs and the scoring. They somehow have concluded that these programs are superior to the advice and individualized plans of attorneys, CPAs, CFPs, medical advisors, and other professionals.

    For those who believe that the foregoing is simply an overreaction then consider the consequences James Veale describes in his comment above about refusing to answer even one question in the FIT portion of counseling; fully participate in the FIT protocol or be refused a counseling certificate.

    Even if a senior provides notarized and witnessed documents verifying that the senior has met with a CPA, CFP, elder law attorney, MD, gerontologist, psychiatrist, psychologist, private case worker, social worker, priest (rabbi, minister, or nun), and the local Indian Counsel, nothing, absolutely nothing will excuse a senior from participating in FIT that is if the senior wants a counseling certificate. It doesn't even matter if the senior met with three or more of each of these professionals.

    Is this a wholesale delegation of counseling to the NCOA??? It sure has the feel of it.

    Now consider, in places like here in California, those getting proprietary reverse mortgages will face this same counseling methodology. I do not doubt that wealthier seniors will find this insulting. Not even counselors are permitted to exercise their judgment and common sense; all are subject to an unproven program called FIT!!!

    Now it is time to shut up for: “All hail FIT!”

  • The new FIT as part of the new & improved counseling protocol will do little, if anything, to prevent borrowers from being unable to meet their ongoing financial obligations such as taxes & insurance. I found this ironic since the outcry of T&I defaults has been substantial and Barbara Stucki mentioned this as just one of the areas the FIT was to address?

    The question is how can you address T&I when the FIT never asks just how much one spends on these items? There is no substantial cash flow analysis spelled out in the FIT or BCU.

    Another concern is the mandated BCU for those at or below 200% of the Federal Poverty Level (FPL). I would venture to say this will impact the majority of our borrowers. One issue with the BCU is that you are asking prospective borrowers to share more financial information than they do with their CPA, attorney or financial advisor.

    No longer can we say a HECM is not based on one's “credit” as it appears a “forensic” analysis of one's finances may be required. Seniors: open up and say “ah” for the doctor.

    • So even though many of the supposed Benefits may be unavailable due to budget cutbacks, if you are below 200% of the FPL you are mandated to submit to it? Yeah, most of my borrowers would have to take it. Makes no sense does it? Especially if the borrowers have shared their financial info with a cpa, attorney or financial advisor and the counselor doesn't accept the judgment of the professional but trusts the FIT software more.

  • So even though many of the supposed Benefits may be unavailable due to budget cutbacks, if you are below 200% of the FPL you are mandated to submit to it? Yeah, most of my borrowers would have to take it. Makes no sense does it? Especially if the borrowers have shared their financial info with a cpa, attorney or financial advisor and the counselor doesn’t accept the judgment of the professional but trusts the FIT software more.

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