It’s Official: Reverse Mortgage Counseling Gets $4 Million of HUD Funding

The Department of Housing and Urban Development (HUD) announced on Thursday that $40.05 million of housing counseling funds will be available for fiscal year 2012, $4 million of which is earmarked for reverse mortgage counseling.

Grants will be awarded competitively to the hundreds of HUD-approved counseling agencies and State Housing Finance Agencies across the nation that offer a variety of services, including pre-application reverse mortgage counseling and foreclosure avoidance counseling.

“The HUD-approved counseling programs this funding will support not only help families make more informed choices about buying or renting, it is crucial in helping thousands of families avoid foreclosure and remain in their homes,” said HUD Secretary Shaun Donovan in a statement. “We fought hard to persuade Congress to restore funding for housing counseling in HUD’s Fiscal Year 2012 budget and I’m pleased that they did so. We will now work to make these important resources available to help families as quickly as possible.”


The department originally asked for $88 million in funding, which the FY 2011 Continuing Appropriations Act completely removed from the budget. In later budget bills, the Senate cut funding to $60 million, and last week, President Obama signed a spending bill approved by Congress that allocated $45 million of housing counseling assistance to HUD.

Out of that money, $40.05 million has now been made available for housing counseling, with the remaining funds meant for training (which will be announced in a future notice of funding availability) and for administrative contracts, according to a HUD spokesperson.

The bulk of the money will go to comprehensive counseling, at $36.05 million, with the other $4 million dedicated to reverse mortgage counseling.

HUD’s most recent prior funding grants allocated $9.5 million to reverse mortgage counseling.

Written by Alyssa Gerace

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  • Finally, the perfect indicator of a potential RM client who will not be able pay their property taxes and insurance is at hand. If you can’t come up with a couple of hundred bucks for counseling, you don’t have a prayer of paying the tax man or your friendly insurance agent.
    The list of all freeloading counseling clients should be made available as part of every underwriting package. I less than half kidding.

    • roxie1,
      You are on the wrong side of this issue. 
      I have had several customers who had no debt on their home but were living in abject poverty because of insufficient monthly cash flow.  For example, here are two such cases.  One in her early 70’s had a house appraised at $550K and the other in her late 60’s had a home appraised at $420K.  Free counseling helped them get to the point where they were receiving tenure payments and they both feel wealthy because they have excess cash monthly which they are saving.  They have gained back their self respect and help others who are less fortunate.  Both have nieces who are their sole heirs.
      Either one of the borrowers would have been thrilled with mandated set asides for taxes and insurance.  They look at those payments with the same fear they did before, lost meals, heat, and in one case, electricity even though now they can easily pay them.  Now both shop monthly at Goodwill for clothes and one for furniture (which they consider a real luxury), get their hair done at least monthly at the cheapest stylist in their respective neighborhoods, and now have reliable transportation.  Oh yes, and they eat three square meals a day.  They were generally reclusive before but are much more outgoing now. 
      Life is much better for them but would not have been so if there were no free counseling available.  They are both very happy and grateful for the HECM program including free counseling.
      It is callous attitudes like those expressed in your comment which gives us problems.

  • Alyssa,

    It seems you are saying that the $4 million will have to be spread between default and pre-loan counseling. 

    Am I right that the HECM counseling grant of $9.5 million did NOT include default counseling?  Have there been any estimates of how much will have to go for default counseling?

    • Yes, from the HUD announcement it looks like $4 million is the total that is going to RM counseling, both pre-application and default. And I believe you are correct: the announcement of the $9.5 million designated the amount for pre-loan counseling with no mention of default counseling.

      • Alyssa,

        There is a very improper term which some counseling agency execs are knowingly and misleadingly promoting and that is the term “pre-application” counseling.  There is absolutely no such thing.  It is and remains pre-case- number-assignment counseling.

        Such promotion shows a tendency by such execs to distort facts to fit their agendas.  I hope those of us who believe that this industry should be factual in all we do will put such language in its place.

      • Alyssa,

        I forgot in my last response to thank you for getting back to me.  Both you and Elizabeth are great at helping us understand the contents of your articles.

        Keep up the good work and thank you.  Have a great weekend.

    • Assuming that the $9.5 million figure refers to the last normal grant year, i.e., the grants that were announced in late 2010, recall that at that point there was no such thing as HECM default counseling.  That effort began in January of 2011 and had its own separate funding stream.

      I believe you are correct in saying that the $4 million in dedicated HECM funding will support both pre-loan and default counseling.  However, it is also important to remember that the $36 million in “comprehensive” counseling funding may be used by agencies as they see fit, and thus may be used to support HECM counseling as well.  Many small agencies receive only “comprehensive” grants and not HECM-specific grants.

      The grants as announced will go a long way toward making free counseling available to those who truly need it.  I see no reason why higher-income borrowers should not pay for their own counseling, just as they pay for all the other loan-related services that are required. 

      • rmcounselor,

        So what are your conclusions about the specific HECM allocation of the Congressional appropriation?  Is it sufficient?  How much will be needed for default counseling vs. pre-assignment counseling?

        Most of us agree with you that seniors should pay for counseling UNLESS they truly cannot afford it.

      • The answer to your question is “It depends”.  If the big intermediaries go back to a model of “free counseling for all” then it probably is not enough.  If they continue to manage funds more conservatively, offering free counseling to those in greatest need, financing counseling fees for those who will have sufficient loan funds available, and charging fees to those who can afford an upfront fee, then it will probably be sufficient.

        There are some funny dynamics in the world of the counseling intermediaries, which, for those who may not know, are umbrella agencies like MMI, NFCC, and NCOA, which have smaller affiliate agencies under them that actually provide the counseling services.   The intermediaries compete with each other for counseling referrals, just as lenders compete for potential applicants.  As a result, there is an incentive for the intermediaries to offer free counseling to all as a way to obtain market share.   Government funding rules also provide an incentive to spend all the money within the fiscal year, since agencies typically cannot count on being able to roll it over to the next year.  Thus there is a disincentive to manage funds conservatively, only using them for clients who really need it.  As a result, there tends to be a boom-and-bust cycle, where agencies may conserve funding for part of the year, and then madly try to spend as much as possible as the fiscal year draws to a close.

        If ways could be found to break up this pattern, then the budgeted funding would go a lot farther and be spent more sensibly. 

      • rmcounselor,

        Thanks for the input. 

        Government rarely enters into contracts which are designed to conserve costs.  This is why groups like the Tea Party have gained such influence.

  • No matter what Alyssa finds, the situation for needy borrowers and their potentially negative impact on counseling does not portend for a healthy financial situation for counseling agencies this fiscal year.  HUD needs to charge a “per HECM FHA endorsement fee” which lenders can pass on to borrowers.  If it is $100 that would provide about $6 million in additional funding this fiscal year alone per some estimates of how many HECMs will be endorsed this fiscal year.  That would barely put counseling funding above its level for last fiscal with no consideration for default counseling but at least it would do that.

  • Counseling can be greatly streamlined with little loss in quality.  To demonstrate how impersonal counseling is becoming, some seniors are receiving their HECM information through a conference call of up to thirty participants.  Much can be done to trim counseling.
    For example, why not offer information through the Internet with testing.  It would have uniform content.  Not all counselees would want this but for them a higher fee should apply.
    Financial risk assessment could be cut way back by providing a list of the questions which will be asked in that session, thus reducing wasted time for counselees gathering the needed information.  Also why do counselors have to input BCU information?  Why not just have counselors go over the BCU results with counselees?
    If Congressional leaders do not thing counseling needs that much funding despite all the new lobbying efforts that says a lot.  HUD needs to find ways to reduce the time involved after all time is money.

    • I’m a little unclear — are you saying that impersonal, internet-based group counseling is a GOOD thing?  I also wonder where you get the data to support your statement that  “counseling can be greatly streamlined with little loss in quality”.  I personally disagree with you very strongly, but I believe that neither you nor I have any real population-level data on the quality of counseling and how that correlates with outcomes for clients.  It would be wonderful if someone could do a study on how counseling
      processes and modalities affect clients’ grasp of the reverse mortgage
      product and its implications for their lives, but I don’t believe that
      study has yet been done.

      There have been customer satisfaction surveys done, by AARP and others, but please note that “satisfaction” is not the same as “quality”.  Asking clients how satisfied they are with their counseling experience tells you nothing about how much they learned, and since they mostly have only one experience of counseling, they have no idea what they missed.  Over the years, I have had occasion to do counseling with a number of people who had previously received phone counseling and, because my state requires in-person counseling, then had to go through counseling again.  Initially, they mostly reported being “satisfied” with the 5-20 minute conversation they had with that nice young lady on the phone.  However, in the course of what I consider a real counseling session, they showed that they did not understand that the reverse mortgage had to be paid back, had no idea that they were exhausting the equity in their homes, didn’t know whether they were applying for a fixed or adjustable rate loan, didn’t understand that this choice could affect their vital benefits, etc.  After we were done, they expressed amazement at how much more they had learned in the second session.  I would argue that their initial “satisfaction” level told me nothing about the effectiveness of counseling.

      Regarding BCU, if counselors are not going to collect and input the BCU data, who do you think is going to do it?  Is that mystery person going to do it for free and are they collecting that information for some other purpose anyway?  Otherwise transferring the responsibility saves neither time nor money. 

      • rmcounselor,

        Actually, counseling can be much better handled than it is today. 

        For example, it could be presented in several forms rather than one size fits all.  A good video presentation with the ability to retake specific sectons would be a great addition for younger more computer literate seniors.  A group session might be ideal for some.  One on one counseling might be best for others.  No matter what though, one on one testing should remain mandatory.

        It is utter nonsense that someone needs to hold the hand of all seniors to do BCU.  I am older than 62 and did it all by my “little own” self.  I have lots of senior friends who can do it as easily if not more so.  This is not 1986 when few had PCs with access to the Internet. 

        Then there is the originator who must now gather financial assessment information anyway.  Why not have them make sure it gets done before the financial risk assessment portion of counseling?  In December 2011, your “mystery” person argument is now a dead issue.  Beside that there are many resources and people available for free to help with the process, including senior community centers, community colleges, senior groups at church, and many other “mystery” sources such as younger relatives, trusted advisors, and friends.

        This is not 1986 and I am not as completely helpless on the Internet as my mother and father.  Do you see what most of us under 80 are capable of today? 

        Yes, a significant few will need help but they are the exception not the rule.  This is 2011 and the average age of HECM borrowers is dropping.

        Last time I checked the only “mystery” thing related to counseling was the testing done by the HUD OIG and even the HECM information portion of counseling did not fare so well.  Excuse my anger but your bias against those over 62 and younger women is a little annoying.

        Even face-to-face counseling is not “flawless.”  It can be very helpful and it can be real overkill; it all depends.

  • Dear Critic,
    You have missed my point, entirely.
    In the new world of qualifying potential RM clients as if they are applying for a forward mortgage, the 2 borrowers you noted would probably be rejected for a RM out of hand.
    You indicated that they had poor cash flow. Strike one. Maybe they decided to eat instead of sending in their insurance or tax payments on time. Strike two. They need the RM to solve their problems. Strike three.
    When I sold RMs, there was no financial qualification. In fact, most clients could never qualify for a forward loan because their present situation was not good. The old saying that you can get a loan unless you need it applies.  RMs were pushed by the government precisely because  they kept clients in their homes and not in state-financed institutions at taxpayer expense.
    The world has now changed as we try to pick those who will not default. Your clients are lucky to have gotten in before the enlightenment.

  • Here’s the total counseling appropriation, HECM allocation, loans produced, year-by-year:
                TOTAL APPROP       HECM Allocation  
    2012   $44 million                $ 4 million
    2011   $  00                           $   00                          73,131 loans
    2010   $ 73 million               $ 9.5 million              79,106 loans            *Economic Stimulus Funding
    2009   $ 60 million               $ 8 million                 114,692 loans          *Economic Stimulus Funding
    2008   $ 50 million               $ 4 million                 112,154 loans
    2007   $ 44 million               $ 3 million                 107,558 loans
    So, in effect, aside from the aberration of the economic stimulus years, the funding available for this year is consistent with years past. In fact, the last time we had $4 million available for HECM counseling was in 2008, when 112,154 loans were insured. Many would welcome that outcome this year.
    In such a tight budget environment, I would venture to say that we have successfully preserved our priority.

    • Mr. Bell,

      Considering that by most objective standards, the endorsement level for this fiscal year will not even be 60% of the endorsments for fiscal year 2008, you are right on point.

      The only question which remains is how much of the $ 4 million will be needed for default counseling?  No doubt, all of that counseling must be paid from either donations to the counseling agencies or portions of the $4 million appropriated by Congress.

      As usual, your input on these matters is quite helpful. 

      • Default counseling is being paid for from a variety of sources and is not enitrely dependent upon the specific allocation for HECM counseling. Agencies are funded in a number of ways, including various categories of HUD funds, funding from other federal agencies, state funding, local support and charitable contributions. (In fact, reverse mortgage professionals who are concerned about the availability of counseling might want to think about contributing to local counseling organizations in your year-end gift giving.)

        Counseling agencies scramble to fulfill their mission and keep up with paying their bills in any environment. Right now, the demand for their services is greater than ever and, while overall support for counseling has increased in recent years, it has not done so steadily enough or consistently enough to keep up with the demand. Nevertheless, the counseling community will  make the best of it, as they have tried to do for years.

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