FHA Acting Commissioner: “Housing Counseling Works”

In prepared testimony delivered by Acting Federal Housing Administration Commissioner Carol Galante, Galante urged a House Financial Services subcommittee to consider the importance of housing counseling and funding restoration—including reverse mortgage counseling—in the context of the greater housing crisis.

“Housing counselors are a crucial source of assistance for distressed homeowners,” Galante stated in testimony before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity, noting the thousands of reverse mortgage borrowers who received housing counseling in fiscal year 2011.

“Distressed homeowners working with a counselor are nearly twice as likely to receive a mortgage modification,” Galante said. Additionally, she cited National Foreclosure Mitigation Counseling Program findings that that borrowers in foreclosure were 70% more likely to get up to date on payments if they received counseling.

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Despite the loss of funding for housing counseling in fiscal year 2012, Galante said HUD is working to address concerns and enhance speed and accountability.

Through a plan to streamline the process and reduce the time frame for funds to be received by counseling agencies to no more than 180 days, HUD has made strides toward using funds in the same fiscal year that they are appropriated.

Additional improvements include earlier publication of the housing counseling NOFA; streamlined application for high-performing agencies, shorter timeline for obligation of grants, and other changes.

View the full testimony.

Written by Elizabeth Ecker

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  • Here is a direct challenge to counseling leaders. 

    How is counseling before application a better consumer protection?  It would seem that counseling after application would give counselors the complete information about the proposed transaction that is not available or can be delayed until after counseling.

    When is “THE MOST” teachable moment for a senior?  Is it before application?  Or is it before ever reading or hearing much about a reverse mortgage?  To say it is just before application is nonsense.  By then many seniors have gone to a seminar, watched a DVD, read an article, talked with friends and family, talked with several originators, etc.  While it may be “A MORE” teachable moment, it is definitely not “THE MOST” teachable moment.

    Counseling has some very mystifying concepts it promotes.  One of them is the FIT report.  How ridiculous that report really is.  It is time for the myth and the report to find the round file.

  • Ideally, consumers would receive counseling before AND after application, but if I had to pick one, I would choose before.  My favorite situation is where the  homeowner has already done some research, talked to a lender at some length, and has some idea what the parameters are and what they want. 

    Clients with no background at all often need help even building a framework to hang the RM concepts on — which is fine, but takes longer.  Clients who have been thinking about it for awhile often have gotten past the basics and are beginning to consider the implications of their decisions, which is where counseling can be very useful. 

    The reason I would want the counseling before application is that I frequently see clients who have signed an application and have no idea what they signed. This is not a rare event at all — it happens about 40% of the time in my client population.   I ask if they have applied for a fixed rate loan and they have no clue.  I ask if they were told they would be taking all of the loan proceeds immediately after closing and they don’t know.  In many cases, they have in fact signed an application for a fixed rate, lump sum loan, without having any idea that this could have consequences for them. 

    We spend a lot of time going over what that would mean, particularly for those who receive and rely on public benefits such as Medicaid, but also for those who really don’t need all the money in a lump sum.   Often they were not told that there was another option, or they were not told enough to understand what a creditline is and how it might work for them.  In cases like this, the client would have been better served by having counseling before application, which might have allowed the originator to send the appropriate paperwork the first time instead of having to redo it.

    I would hope that most loan originators would do a better job of educating their clients than the example I described above, but as long as some out there are not doing careful education before application, then the counseling needs to play that role.

    • rmcounselor,

      A friend of mine is both HECM originator and notary (only notarizing those loans he has no compensation from, other than as the notary).  He went to one closing where the senior ask him if the HECM had such and such terms.  As a notary he is not supposed to answer those questions.  My friend looked at the doc and gulped deeply.  The docs were for a fixed rate HECM but the borrower was telling him it was adjustable rate.  My friend was now in the horrible position of knowing a critical answer but not being able to say anything; so he called the originator to answer the questions.  In the next two hours he called the originator eight times but each time ended up in voice mail.  He asked the applicant what he wanted to do and the applicant told him to go home.

      Later that afternoon the originator called my friend yelling at him about leaving the closing before the loan was closed and how that could cost him $16,000.  As he began to curse, my friend told him to look on his phone at how many calls he had made in that two hour period.  The originator blew up saying if he had just waited 15 more minutes he would have been playing on the side of the course
      where his cell worked.  Calming down the originator asked why the closing was postponed. 
      When my friend told him the question, the originator went ballistic saying how did my friend know the difference between a fixed rate and
      adjustable rate anyway.  He told my friend that the loan was exactly what the senior had applied for and besides that the originator knew what was best for the senior.  Exasperated the originator told my friend he would have his job as his delaying the closing would end up reducing his
      originator comp by at least $10,000 if not more.

      When the notary reported the incident to the company he works for, the manager told him the originator had just called him and the manager complimented the notary for not just hanging up
      on the originator.  The manager apologized to the notary, gave him two jobs to replace that job, and told the notary that the notary company would no longer provide notaries for this originator, period.

      It is obvious what the originator was doing.  The applicant was not legally blind but had problems seeing.  He did not have a lot of education.  His work career had emphasized use of his hands over use of his mind.  Counseling had occurred before app.  So you tell me, would the borrower have had
      better consumer protection by having counseling before or after application.

      My concept is to optimize consumer protection, not the best time for education or anything else. Even if consumers can get the best education, receive the best financial risk assessment, and find some of the best programs from BCU by getting counseling before app, if consumer protections diminish as a result then all of the necessities are next to worthless.

      It seems when it comes to consumer protections, counseling has lost its way in favor of other things.

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