REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

HUD released a 2008 State of Housing Counseling Industry report that at first glance does not show anything earth shattering in the world of reverse mortgages since those in the business and those that have undertaken a reverse know that the counseling is a flawed system. Nothing in life is perfect and this study suggests there are needs in most places for additional funding, for additional properly trained counselors, for quicker turn times, for more clarity in the counseling, cost containment, you know, typical bureaucratic issues. I won’t go into the whole 231 page document but a couple of points stood out that I want to bring up- the lack of alternatives to reverse mortgages as summarized by the report and the possible beginning of a larger shift toward higher income clients seeking information about new money sources.

From the :

Page 110 comments on a small percentage (4%) withdrawling from housing counseling which could be from the need for more of the above, counselors, clarity and costs, the 3 c’s. But Graph 7-13 shows something more telling and its the fact that less than .30% (729 out of 202,795) chose an alternative such as moving or selling the home. AARP spends quite a bit of time telling folks to consider alternatives before considering a reverse mortgage and on page 23 of their publication “” they suggest selling and moving from the home as an alternative to reverse mortgage, along with obtaining supplemental income (ala Medicaid, Medicare), property tax relief, the Agencies on Aging and a combination of all of these to postpone the need for the reverse mortgage. This report shows these alternatives have all but disappeared.

Page 102 in the report suggests a possible increase in more affluent clients seeking housing counseling of some kind.

In the HUD report 9902, agencies are required to report the percent of clients served that fall into the following income categories: less than 50 percent of the area median income (AMI), 50 to 79 percent of AMI, 80 to 100 percent of AMI, and more than 100 percent of AMI. According to HUD’s definitions, people with incomes below 50 percent of the AMI are considered very low income, while people with incomes between 50 and 80 percent of the AMI are low income, and people with incomes between 80 and 120 percent of the AMI are moderate income.

While the following paragraph from the report does not signify drastic shifts it could very note the beginning of a trend where more clients with incomes more than the area median income seek housing counseling for ways to access equity from the home.

Page 104

Over the past 5 years, the income distribution of counseling clients has changed somewhat, with the share of very low income clients declining and the share of moderate income clients increasing. However, the magnitude of the change is not very large. The share of clients with incomes below 50 percent of AMI dropped by 3 percentage points between 2003 and 2007 while the share of clients with incomes above 100 percent of the AMI increased by 3 percentage points.

Tied together, this data proves what reverse mortgage advocates have been saying all along. The reverse mortgage is a suitable and viable financial vehicle to supplement retirement income where other means have diminished or are no longer available. It should be considered sooner than later since it has proven to provide more where there is less.

HUD requires independent Home Equity Conversion Mortgage (HECM) counseling for all reverse mortgage applicants. HECM counselors are required by federal law to provide information on the costs and financial implications of HECM loans, and on alternatives to HECMs that may be available to consumers. An unbiased source, they provide the following:

Have you considered All Your Options?

Have you looked into all your options? Have you seriously explored the other choices discussed on AARP’s website? If not, go and read all the pages listed there. They make you aware you could sell and move into less expensive quarters, you could rent or look for state based services to supplement your living expenses. Right now thats one of the bigger reasons folks are turning to reverse mortgages, their monthly living expenses have surpassed their monthly cash flow capabilities and with state based services also suffering, the reverse is a welcome option for those that qualify.

Are You Eligible?

a) Are you and all other owners of your home at least 62 years old?
b) Does each owner live in the home at least six months out of the year?
c) Is the home a single family residence, duplex, triplex, 4-unit residence, a condominium, or a planned unit development (PUD)?

If you answered “Yes” to questions a, b, and c, then most likely you are eligible. But only a HECM lender can determine for certain if you are eligible for a HECM.

If you answered “No” to question c, you may still be eligible if you live in certain types of manufactured housing, but not if you live in a mobile home. To see if your home is “manufactured” or “mobile” contact your lender.

Could You Get Enough Money?

Could a reverse mortgage give you the amount of money you would need to get from it? Use the to estimate how much you could get from a HECM loan. Here are some things to keep in mind: If you now owe any money on a debt against your home, you would have to pay off the full amount you now owe in order to get a reverse mortgage. But you could use money from the reverse mortgage to do that. For example, if you now owe $20,000 on a home equity loan and could get $100,000 from a reverse mortgage, you could use $20,000 from the reverse mortgage to pay off the home equity loan – which would then leave you with $80,000 from the reverse mortgage.

If you answered “Yes” to the questions above, then you can request a counseling referral via the and your advisor should provide you with a small list of approved counselors. Unfortunately, not all of those listed on the site are still providing all of their services.

Last year there were 107,000 reverse mortgages originated, this year the number of HECMs is on pace for over 110,000. In 2 years, that’s over 200,000 and that’s not including the fallout from those that had intended to qualify for the reverse mortgage but did not for various reasons, such as qualfying values on their homes, title or trust issues or those that decided to stop the process for other reasons. The problem now is the time it takes for someone to get a counseling session scheduled has increased to weeks in some cases and that is causing some consumers to stop the process altogether. These counselors provide more than reverse mortgage counseling, they are also offering all types of housing and credit counseling as well and it doesn’t take much to realize that their resources are completely tapped out. Last year, 264,989 troubled homeowners sought help from federally certified counselors, a 55% increase from the previous year according to a recent .

The borrowers must now pay for the counseling, it used to be paid for by the lenders but no longer. The costs cannot exceed $125. Some agencies offer free counseling, some offer a lower fee if paid upfront but almost all allow for the client to pay for the counseling at closing by using the proceeds from their reverse mortgage funds. All agencies are different so contact them to find out their policies. Getting the appointment with the counselor is still the biggest headache in this process and as mentioned above, it stops some from proceeding and its hard to explain away that issue.

Reverse mortgage advisors are to provide the client with a suitable number of HUD approved counseling agencies for their clients but not be involved in setting the appointments for the client. Some advisors will give their client a list of 3 agencies to call and will sit with the client during the setup of the appointment to make sure they are being properly taken care of. The counseling could take place in the counseling office or it can be done over the phone. Most take the phone counseling but the face to face counseling provides the client with a better understanding of their options and processes. After a successful completion of the counseling they are provided with a counseling certificate. That certificate goes to the broker or lender they have selected to do business with and then the lender secures an FHA case number based on that required certificate. Then and only then can any real processing begin on the client’s loan. They can’t order appraisal, inspection, title or anything until counseling is completed and the case number is secured. Some folks don’t realize there are many checks and balances in the process to protect the homeowner.

In 2006 we posted an article that they were in the process of updating the system.

HUD is not the only group to acknowledge the system may be failing some.

The recent signing of the HOUSING AND ECONOMIC RECOVERY ACT OF 2008 (HR 3221) by President Bush puts into motion something that has been long in the making and that’s a modernization of FHA rules for reverse mortgages. Some of the changes facing potential reverse mortgage clients are an increase in the national lending limit from the individual county limits now in place. Folks in some parts of the country will see their lending limit rise from as low as $200,160 to an anticipated $417,000 and that’s good news for those with home values over their county lending limits since any equity access was determined from the lower of the appraised value or the respective county lending limit. In many cases where the reverse mortgage was to utilized to pay off an existing forward mortgage there wasn’t enough cash access to pay off that mortgage and the borrower either had to come to the table with money or look for alternative methods which often led to selling the home and in a down market, that’s neither easy or fun.

Another change is with the origination fee, currently capped at 2% of the lesser of the appraised value or the county lending limit. The new bill will keep the 2% up to $200,000 but cap the origination fee at $6000 which is more than $1200 less than some of the highest fees where county lending limits were as high as $362,790. In that case, 2% of that amount would have resulted in an origination fee of $7255.80.

Higher lending limits combined with lower origination fees are great for those seniors whose circumstances have them looking at ways to increase their monthly cashflow without making risky investments in a roller coaster stock market.

Some new additions to the bill are for folks in co-ops and those looking to use the reverse mortgage as a finance tool to help them purchase a home, most likely in a downsizing event. Currently, only New York co-op owners are able to secure reverse mortgages because of their prevalence. There are other pockets of the country with co-ops and this will be a relief for those co-op owners as other means of financing have disappeared as most boutique programs are no longer available. In the event someone wants to downsize from a larger, more expensive home, the ability to purchase a home using a reverse mortgage is also a welcome addition. As an example, someone in a $400,000 home can sell the home, take a portion of the proceeds for purchase of a less expensive home, say $200,000, and instead of putting up the entire value in cash, they can put down a small portion, in this example, half of the value and finance the other half and not only do they eliminate monthly mortgage payments, they keep a larger portion of their cash in their pocket and in this market, cash is king. Instead of having $200,000 left over from the sale of the home, they now have $300,000 and no monthly payments as long as they live in the home. That’s also great for those that don’t currently qualify for a regular mortgage because of bad credit or insufficient fixed monthly income as those programs have gone the way of the other boutique programs once offered by most forward lending brokers.

Some other features are a prohibition against requirements to purchase additional products as a condition for HECM eligibility such as annuities or life insurance policies. That is good news as the recent negative information about reverse mortgages has been because of this very practice. Folks short on cash flow that need a reverse mortgage should not have their money tied up in any annuity, be it immediate or deferred. The reverse mortgage provides more cash flow with less restrictions than the annuity could anyway in most situations where monthly cash flow is short. Another mention is about a study to determine consumer protections and underwriting standards for HECMs which will help to insure that purchase of any additional products by a consumer is appropriate for the consumer.

We like the new changes, they are consumer protection focused and open up opportunities to help save some homeowners from increasing monthly payments on their forward mortgages that were having a harder and harder time making that increased payment amount and the homebuying function is a great tool for credit challenged or those looking to downsize into more affordable housing.

Below are some frequently asked questions and answers about reverse mortgage counseling. In addition to these FAQ’s, we have questions and answers focusing on other reverse mortgage topics:

Reverse Mortgage Basics

Reverse Mortgages and Taxes

Reverse Mortgage Rates and Fees

Questions From Visitors

If you have questions about reverse mortgages not included here, you can use the form at the bottom to submit it! We’ll do our best to get you a prompt and accurate reply.

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Reverse Mortgage Counseling Questions and Answers

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Since Reverse Mortgage Information started, we have maintained state-by-state directories for both reverse mortgage lenders and reverse mortgage counselors. The directories have been kept on static web pages meaning that anytime a lender or counselor wished to be added or wished to change their listing, they would have to go through the cumbersome process of sending us an e-mail and wait for staff to manually make the change. Also, it with this format it was not possible for users to search listings by company name, location, etc.

We recently moved the directory listings to a new searchable platform that allows users to add or modify their own content. In addition, the new platform makes available a wide range of new features to enhance listings:

At this point, we have moved the information from the old directories to the new platform. If you wish to enhance or modify your listing, you will need to determine which type of listing best meets your needs and complete a simple registration to receive a login password.

We hope this new directory platform better serves our visitors as well as the listed organizations. Here’s a general sample of what a directory listing might look like:

As reported by , HUD recently issued basically eliminating the requirement for potential borrowers to have a face-to-face counseling session prior to getting a HECM reverse mortgage:

FHA will now allow prospective HECM borrowers the option to meet face-to-face with the lender and/or HECM counselor or to participate in loan origination and counseling activities by telephone….Prior to this change, HUD HECM loan origination procedures, (required) that prospective HECM borrowers must make every effort to meet face-to-face with either a housing counseling agency approved to provide HECM counseling or a mortgage lender approved to originate HECM loans.

In the letter, HUD states its policy change was motivated by the fact that face-to-face counseling can be “a hardship for some prospective HECM borrowers, particularly those living in rural areas or with limited mobility.” We suspect, too, that the surge in HECM applications in the last several months has overwhelmed available counseling resources in many parts of the country.

We fear that many potential borrowers will choose to forgo a face-to-face meeting not because its truly a “hardship” but, rather, because it’s a “hassle”. Its possible that some busy counselors and/or lenders might not protest too strongly if a borrower chooses to go this route. But we think borrowers would be wise to insist on a face to face meetings with both counselor and lender, whenever physically possible.

Reverse mortgages have always been tricky to understand and counterintuitive to the way people think. In recent months the confusion and complexity has multiplied. The HECM variations alone (HECM 150, HECM 125, HECM 100, fixed or variable rate, monthly or annual, etc.) have grown exponentially and are just too confusing to be adequately understood by getting a bundle of papers in the mail and reviewing them over the phone. Add to this the vast number of non-HECM options, and it’s not hard to see the potential for information overload leading to hasty, imprudent decisions.

Be aware that the HUD letter also includes this important statement:

All HECM lenders and counselors should have the capacity to conduct face-to-face interviews with all prospective HECM borrowers and must routinely offer to conduct face to-face loan applications or counseling respectively (emphasis added).

As a borrower, consider it your right to have face-to-face meetings with counselors and/or lenders and do not take this right lightly or squander it in the name of expediency.

The [tag]U.S. Department of Housing and Urban Development[/tag] ([tag]HUD[/tag]) – overseer of the popular HECM reverse mortgage program – recently released a new aimed at clarifying Home Equity Conversion Mortgage (HECM) counseling requirements.

In the letter (2006-25), HUD references some recently publicized cases of reverse [tag]mortgage fraud[/tag] and makes it clear it expects HECM counselors to take an active role in educating consumers about how to avoid [tag]reverse mortgage fraud[/tag] schemes.

Preventing Mortgage Fraud Against HECM Borrowers

It has come to HUDs attention that HECM borrowers are increasingly becoming targets of mortgage fraud scams. HUD has learned of a recent fraud scheme involving loan officers originating HECMs and arranging to keep the HECM borrowers loan proceeds. In one case the loan officer arranges for the title company to pay the loan proceeds through two checks. One check is sent to the senior and the other is kept by the loan officer. In another case loan officers are convincing seniors that a standard procedure in the HECM origination process is to sign over the loan proceeds to the loan officer for future disbursement to the HECM borrower. In these cases the loan officer may make a few payments but then keeps the balance of the funds. In an effort to warn HECM borrowers of these potential fraud schemes, HUD advises HECM counselors to discuss the potential of mortgage fraud with their clients. Counselors are to explain the standard ways in which HECM borrowers can access their loan proceeds. Counselors should warn clients against signing over their funds to loan officers or other parties involved in the mortgage transaction. While this type of fraud does not happen in the majority of HECM transactions, HUD believes it is important to educate prospective HECM borrowers about how to avoid becoming victims of fraud schemes (emphasis added).

We’ve previously written about some of the reverse mortgage fraud cases HUD references in Mortgagee Letter 2006-25 and recommend that borrowers educate themselves about these cases and the techniques being used by reverse mortgage scam artists.