Obama Signs Spending Bill, Some HUD Housing Counseling Funding Restored Through 2012

Housing counseling funding, including funding for HECM counseling, was approved by Congress late Thursday and was signed into law by President Obama on Friday.

The Transportation, Housing and Urban Development (“THUD”) appropriations “Mini-bus,” bill passed through Congress as a group of appropriations lumped together by the Senate and House. It includes $45 million in housing counseling assistance for the Department of Housing and Urban Development through September 30, 2012.

Under the bill, the grants made available must be awarded within 120 days of enactment, the bill states.

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“America’s seniors, looking to capitalize on their equity wealth to maintain their financial independence will still have access to consumer protections like housing counseling when this bill becomes law,” said H. West Richards, Executive Director of the Coalition for Independent Seniors (CIS).

The counseling funding, which was cut by Congress in a last minute budget deal signed in April, has been a serious concern for reverse mortgage counselors nationwide as they watched their federal funding dry up over the course of the last several months. Many were forced to reintroduce fee-based counseling where they were previously able to waive fees, and for some it also meant raising the cost of counseling overall.

In Congress’s approval of the spending bill on Thursday, it passed by a majority vote of 70-30. A previous Senate appropriations bill included $60 million for housing counseling, while the House appropriations bill included no funding.

The National Reverse Mortgage Lenders Association and Coalition for Independent Seniors have lobbied in Washington for restoration of the counseling funds since they were cut earlier this year.

“This is a win,” Richards told RMD as the bill made its way to the president’s desk. “Keep in mind, the House initially zeroed out all funds.”

Written by Elizabeth Ecker

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  • If the agencies are managed correctly, there is no need for these funds. Why is it that Reverse Vision, BayDocs, etc. are able to operate successfully on $125 per file, but counselors or the agencies they work for can not??  think they get a taste of free, taxpayer money and now say they can’t do without it? Come on! Take $125 paid on the HUD, it’s not that bad and I’m sick of the whining about it! In fact, there are plenty of other agencies out there that don’t get a dime of this federal funding and never have, and they do just fine and provide good service. It’s the 4-5 big ones out there that get taxpayer money that make the noise about this.

    • You have an interesting perspective.  From the point of view of the counseling agency, the problem is not that $125 is not enough.  The problem is that many of our clients can’t afford to pay $125 out of pocket, and many of the rest of them believe that they should not have to pay anything out of pocket.

      I’m not privy to Reverse Vision’s business model, but presumably when they do work, they can reasonably expect to get paid for it.  The counseling agencies, however, are non-profits, and both borrowers and lenders seem to have the idea that we should provide our services for free.  Oddly enough, our landlords, phone companies, etc, expect to get paid every month, so we do have to get funding from somewhere. 

      Many reverse mortgage clients are so low-income that coming up with $125 upfront is a significant hardship for them, so we often are asked to (and would prefer to) waive the fee.  The only way we can do that is to find some other source of funding to pay for the service, and this is where HUD funding is so beneficial. 

      You might say that we should just allow the low-income clients to finance the fee into closing.  However, if only 2/3 of our clients actually end up getting a HECM (and we expect this percentage to go down with the new underwriting guidelines), this means that we will not be getting paid for 1/3 or more of the counseling we do.  Again, HUD funding is invaluable to fill this gap. 

      I personally don’t think that HUD should fund reverse mortgage counseling to the extent of providing free counseling to all borrowers.  If a borrower can afford to pay for it, then I think it’s quite reasonable that they should do so.  I do hope that HUD will be able to continue to fund counseling at a level that allows counseling agencies to serve all clients, not just those who can afford to pay out of pocket. 

      Lenders could assist with making this system work better if they would refrain from telling clients that all borrowers “should” be able to get free counseling.  No one expects that appraisers or title companies will do their work pro bono — why should counseling agencies be different?

      • rmcounselor,

        I am afraid you are living in the past.  If current trends continue less than one-half of all certified counselees will be getting HECMs.

        I do not believe that counseling agencies understand how serious the problem is getting.  NCOA is bragging that the new protocol is working even though Dr. Stucki personally stated in July 2010 at a NRMLA meeting in Irvine, CA that based on NCOA findings lenders should NOT expect a decrease in the conversion rate but rather greater conviction in the decision to move forward.

        Like all who have a background in auditing, glowing claims like those of Dr. Stucki are met with sheer skepticism.  As in most other cases, in the case of the new protocol it was more than warranted. 

        It is hard if not impossible to believe that the restructured information segment of counseling is causing the dropout rate to increase.  That is coming from the financial risk assessment segment.  So from your position what is contributing to the dropout rate?

        As to the size of the amount granted by Congress to counseling, it may not be significantly helpful as much of it will be going for other programs than HECM and is almost one-third of the amount requested

      • It doesn’t seem to occur to those on this forum that some of the “losses” that take place after counseling are a GOOD thing.  Not everyone who makes it to counseling really should be getting a reverse mortgage! 

        What Dr. Stucki really should have said was, “Yes!  The dropout rate WILL increase.  More borrowers will learn that other options may be better for them and will choose to pursue those options, and lenders should be happy about that!”  If counseling is doing its job, then yes, absolutely, some people will decide against the reverse mortgage option.  That’s the whole point.  If everyone ends up making exactly the same decision they would have made without counseling, why bother? 

        To some degree, more thorough counseling and financial assessment might have headed off the default crisis that is about to cause major havoc in this industry.  I am not claiming that anyone can completely prevent defaults, and of course the housing/economic downturn and other factors have contributed.  However, if counselors had been really dealing rigorously with the borrower’s likely capability to meet their property charge obligations, it might have helped reduce the number of defaults. On the other hand, if many of those folks had concluded that a reverse mortgage was really not the right answer, and decided to sell the house and move to senior housing, the lending community would have been howling about the “counselee dropout rate” years ago.

      • rmcounselor, 
         
        I must have hit a very raw nerve.
         
        You write: “If counseling is doing its job, then yes, absolutely, some people will decide against the reverse mortgage option.”    For years the qualified counselee dropout rate has exceeded 30%; the dropout rate following case number assignment has exceeded 27% by itself for the last three fiscal years.  When did a significant minority of qualified counselees not drop out of the program?  
         
        You go on to state: “It doesn’t seem to occur to those on this forum that some of the ‘losses’ that take place after counseling are a GOOD thing.  Not everyone who makes it to counseling really should be getting a reverse mortgage!”  Who ever declared anything different?  It is the extraordinary growth in the dropout rate which is being very strongly challenged.
           
        For years many originators in explaining HECMs also have prospects drop out long before counseling.  Some prospects thought HECMs were a social program with no repayment requirement; others thought there wanted nothing to do with accrued interest which compounds; others thought the maximum principal limit was the value of the home.  Some even dropped out before 2010 because they thought there would be no payments including taxes and insurance.   For years besides discussing the requirement to pay taxes and insurance in meetings with prospects and in seminars, I wrote an article in excess of 700 words per issue that went into the homes of over 200,000 senior Californians.  At least six issues per year discussed property tax and insurance payment requirements.  My wife and I also had a weekly radio program where each week we reminded thousands of listeners that a reverse mortgage required the payment of property taxes and insurance.  On several radio shows and in several articles I discussed alternatives to reverse mortgages going into significant detail.  I also know I was not the first or the only originator who presented these things clearly to prospects; most of those I knew did and do.
         
        It is utter nonsense that all counseling was bad before 2010 and failed to discuss tax and insurance payment obligations or alternatives to reverse mortgages.  It is also nonsense that before 2010 no one ever heard about alternatives to the program or failed to explain other options.   
         
        Even AARP has concluded that the HECM program has had an inordinately high satisfaction rate.  So why do you believe that the dropout rate should increase so dramatically?  Why should improved counseling result in an unrealistic higher dropout rate?  If counseling improved, there is also the possibility that dropout rate could have gone down.  Dr. Stucki could have been right, except for FIT.

  • I don’t believe I ever said that all counseling was bad before 2010, nor did I say that counselors completely neglected discussion of property charge obligations or alternatives. 

    However, I am a counselor, and I also train counselors, and if you’ll pardon me, I am much more familiar than you are with what actually happens in counseling sessions.  I know for a fact that many very competent counselors were somewhat complacent about the tax/insurance issue for years — we discussed it, but we didn’t put a lot of emphasis on it.  After all, there had never been a foreclosure for a tax/insurance default in the history of the program. 

    In the last couple of years, and especially since January, many of us have had our eyes forcibly opened to the seriousness of this problem.  Talking to elderly homeowners who thought that they had been promised a secure place to live for the rest of their lives, and who are now facing the real possibility of foreclosure, is a searing experience for those who have been through it.  Counselors who have done HECM default counseling have had a huge wake-up call and are now really trying to confront borrowers with the reality of what they will be obligated to do after closing.  Even those who have not done this kind of counseling are becoming more aware of the issue, though there is still a lot of work to be done in that area.

    It used to be that when a borrower with a $1200/month income and no assets came to see me, I would caution them, and fear for them, because I could see that the first major repair that came along would be a huge problem, as would a sudden increase in homeowner’s insurance, or the loss of a spouse.  Now I do more than fear for them — I try to help them make a plan for how they will save the money for their taxes and insurance.  I encourage them not to blow all the loan proceeds on that kitchen upgrade or screen porch that they’ve been wanting, but to save some of the money for the heating system that they are going to need in the next few years.  I talk to them very seriously about the other housing options that may be available and I try to help them identify resources in their area.  That’s what I mean by a rigorous approach to obligations and alternatives.  All of this takes time, by the way, so the counseling agencies that say they are spending 45-60 minutes/session are not doing it, I guarantee you.  The FIT helps with that because it raises some of these issues and forces the counselor to at least ask the questions, even if they don’t always pursue it in depth.  However, I don’t believe that the FIT is responsible for the increased dropout rate that you keep referring to.  (By the way, in my own practice, I see no increased dropout rate post-counseling and pre-appraisal.  Nearly all the new dropouts are coming because of low appraisals.  Others’ mileage may vary.)

    As for alternatives, I can tell you that it’s been a struggle to get reverse mortgage counselors to take the alternatives piece of our job seriously.  Unless the counselor has experience in the aging services sector, they probably do not have a good grasp of all the different programs that are available, and if they are doing nationwide phone counseling it is near-impossible to have a clear understanding of programs in all 50 states.  BCU has been very helpful in raising counselors’ awareness of these options, and I’m sure has made a difference in the number of clients who leave counseling with at least one concrete thing they could do, other than a reverse mortgage.

    I could go on, but you get the idea.  I think that the new protocol was extremely helpful in providing mandatory, detailed, and specific requirements for topics that had to be covered in counseling.  The old standards were aspirational and somewhat general, and they were widely ignored.  To the extent that counselors are actually doing what the protocol says, they are now doing a MUCH more thorough job than many were doing in the past.  If there actually is an increased dropout rate (an assertion of which I remain unconvinced until I see data), then I would put it down to counselors actually doing their jobs, and counseling working as it is meant to work.

  • rmcounselor,
     
    I am very surprised by the way you portray counseling before 2011.  I never knew counseling like that.
     
    In 2004 before I was an originator, I attended counseling with the widow of a close friend of mine.  The counselor was very pointed about taxes and insurance.  He asked the widow if she was paying property taxes to the county collector to which she said yes.  He then asked if she paid her insurance to the insurance company directly to which she again said yes.  He then told her that nothing would change with a HECM and she needed to budget for those payments just like she had in the past.
     
    In the following year our broker encouraged us to attend counseling with borrowers.  Although the counselors asked who I was, the first two counselors did not object.  It was not until the third such session that the counselor told two of us to never attend another counseling session again.  Shortly thereafter it was made clear that attendance was not acceptable conduct for an originator.  In the first of those two sessions, the counselor went overboard explaining the need to pay all property related costs and keep up with basic maintenance requirements.  The second counselor just told the counselee that payments of taxes and insurance were required and would not be paid for them.
     
    Our broker was quite serious about the issue in 2005.  Apparently one of our two lenders called and warned that some borrowers were not being told about their insurance and tax obligations.  Late that summer, while in an application meeting near Big Bear Lake, the broker and his daughter joined us.  Unbeknown to me, the broker knew our prospects years ago from church.  He asked them if I had let them know about their obligation to pay taxes and insurance.  They merrily told him not only had I shown in the docs where that obligation is stated but I had told them about it on the phone when we were first making the appointment.  He responded:  “It is always good to know someone is doing what I tell them.”
     
    Over the years I have taken comfort in knowing that if our originators did not cover the topic of taxes and insurance, counselors would.  It is alarming how you paint things.  Fundamentally it sounds as if the HUD IG got it right.  It is no wonder AARP questioned and questions the adequacy of counseling as a strong consumer protection.  As a CPA, real estate broker, and less than 7 year originator, your statements are bothering.

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