Without Funding, Will HECM Counseling Requirements Change?

With funding for the Department of Housing and Urban Development’s counseling programs eliminated for fiscal year 2011, the industry is waiting to see whether or not it will impact the agency’s beefed up HECM Counseling Protocols.

Put into place last year, the new HECM protocols established more robust counseling requirements that must be met.  These include a range of changes, including counselor requirements, new information that must be distributed to borrowers, as well as the introduction of the Financial Interview Tool and Benefits Check Up tool.

Developed by the National Council on Aging (NCOA), the FIT is designed to help prospective borrowers consider the immediate financial needs and long-term challenges that can make it hard to stay at home and benefit from a reverse mortgage.  Counselors are required to use the tool with prospective borrowers as a way to look at factors that could affect a senior’s stay in the home and their level of dependence on the loan funds.

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While NCOA told RMD it received a small amount of support for the tools through HUD’s HECM counseling grants, without the funding from HUD, the future of how the tools isn’t yet clear.

“NCOA feels strongly that counselors continue to use these important tools to help potential borrowers consider the long term financial challenges, including ongoing property taxes and insurance payments, that they face in taking out a reverse mortgage,” said Barbara Stucki, vice president for home equity initiatives at NCOA in an email.

As RMD has reported in the past, the new HECM counseling protocols have increased the average time per session and therefore, costs of providing the service has gone up according to counseling agencies.  In February, HUD lifted the $125 fee cap on HECM counseling to allow agencies to determine the appropriate fees charged for their services.

Discussions with HUD are underway on what sort of impact the loss of funding will will have on the FIT and BCU tools, but no definite answers have been given.  “[We] strongly urge HUD not to remove these new mandates,” said Stucki.

President Obama’s FY 2012 budget includes a $88 million request for housing counseling and the budget will soon begin its way through Congress.  Yet, even if Congress provides the funds, HUD said there will likely be a lapse in funding after October 1.

Whether or not HUD will scale back some of the new protocols to lower the cost of counseling isn’t clear.  HUD did not respond to RMD’s request for comment at press time and other industry sources say it’s too soon to tell.  The reality is that with more robust counseling requirements and less funding, something has to change.

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  • Like the slogans of 60’s anti-war protests —- “FIT, no!!! It must go!!! Decouple BCU now!!!”

    FIT and BCU as part of counseling destroy the effectiveness of the most crucial parts of counseling. Most seniors desiring HECMs cannot effectively learn or respond in marathon sessions. It is far more important that seniors understand and have their understanding reinforced about HECMs (including their understanding of their covenant obligations through counseling) than it is for counseling to try to inefficiently and ineffectively weed out the 4% who might possibly go into default over tax and insurance payment issues. Then there is the barrier of the cost of counseling.

    No one is addressing the fact that sufficient financial data can be gathered at the time of application for counselors to use in counseling when speaking with APPLICANTS about taxes and insurance issues. It is utterly disgusting that what is not being addressed is the need to beef up counseling to address the use of funds and appraisal scams in light of the mess that was recently unveiled in the alleged Ponzi scheme on Staten Island and some other less publicized abuses related to inflated appraised values and nonexistent but allegedly appraised improvements.

    Counseling does not need social engineering such as the addition of BCU. While condemning its addition to counseling, this comment is by no means a condemnation of BCU itself. The vast majority of HECM borrowers need BCU but counselors should not be administering it; they should be strongly recommending it. To be clear, however, FIT should be scraped. Congressional counseling funding should not be the vehicle to pay for BCU both for HECM prospects as well as other seniors. BCU should stand or fall on its own. I would hope Congress would see its value and fund it on its own.

    FIT belongs in the garbage heap while BCU should be uncoupled from counseling. Forget the “most” teachable moment concept and get back to basics. Application should come BEFORE counseling so that the data needed by counselors can be gathered and supplied to counselors. This way there will be an actual budget created rather than something makeshift or nothing at all. This same data can then be evaluated in underwriting to see what help borrowers might need in keeping their covenant to pay related real estate tax and insurance obligations both in full and on time as those obligations become due and payable.

    So in conclusion, HUD should seek a pragmatic approach to counseling that makes the application come first and expands the application process to include budget data and limited asset and liability information. Most, if not all, of FIT should be eliminated and BCU permanently decoupled from counseling. This would not only reduce the time required for counseling but it also would make counseling more effective and efficient at a lower cost.

    • The_Cynic,

      Yeah, it seems like the whole idea about holistic whatever it was called, was more of an excuse for social engineering than a real improvement to counseling. Counseling needed improvement and it seems to have gone in that direction BUT where do FIT and BCU fit into that picture?

      I agree with the idea that counseling cannot do much as to helping seniors take care of paying tax and insurance in full and on time while underwriters can do something to help even if that means a set aside requirement for a small percentage of borrowers. Counselors need to talk about these issues and if a budget will help in that process, then gathering some additional financial information during application in the same way as forward originators do that should not be a problem.

      Several counselors have expressed their displeasure about dealing with prospects before loan originators. A prospect recently called one of our originators to say that the counselor was very complimentary over how prepared the senior was for counseling. That originator has the habit of meeting with prospects to explain the program so that when the prospect goes into counseling they have questions to bring up and they can get to the information they need rather than wading through basics. The counselor told the prospect that she was the most prepared to get a HECM than anyone she had ever worked with in RECENT memory.

      The reports I have received about BCU has been mixed but it is not a bad idea. I agree with you about FIT and seniors should be encouraged to get information about other benefits but should that come as part of counseling? Forget about social engineering. Let’s get back to counseling fundamentals and save seniors from paying for more than they need in order to understand a reverse mortgage and what their advantages and detriments are. All of the other stuff seems to make counseling less effective; they are unnecessary and costly. This is an era of cutting back on unnecessary things. FIT and BCU are unnecessary additional costs.

  • Excellent comments and suggestions all Cynic.

    The only thing to add would be a mandatory sit-in to a counseling session in the presence of a senior homeowner by a HUD and NCOA official to see the effect of one of these 2 hour marathon sessions. As the homeowners eyes glaze over and their head begins to nod, NOW comes the FIT to determine whether their mental accuity is sufficient to determine if a reverse mortgage is the right method to get their hands on their own money, to eat, pay bills and visit the doctor of their choice.

    Poor decisions both to add these protocols to the fundamental understanding of the HECM program. The assumption that all seniors over 62 are senile is disrepectful and insulting to our senior homeowners who don’t deserve this demeaning treatment… let alone pay for it.

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