Tuesday, May 24, 2011

Reverse Mortgage Counseling - A "Teachable Moment" for Financially Vulnerable Older Homeowners

Authored by Barbara R. Stucki, Ph.D., Vice President, Home Equity Initiatives, National Council on Aging

Role of HECM reverse mortgage counseling in building elder economic security

Ensuring financial security can be challenging in times of economic uncertainty. As they search for solutions, older homeowners are realizing that they many need to tap home equity to fill financial gaps. Some are deciding to take out a reverse mortgage. With little guidance, however, they are unsure about whether these loans are appropriate to manage cash flow and stay independent.

Today, nearly all reverse mortgages are HUD HECM (Home Equity Conversion Mortgage) loans. Under this government program, all potential borrowers must meet with one of the 800 independent, HUD-approved counselors who offer assistance in person or by phone. The goal of this counseling is to educate and empower older homeowners to make their own decision. Reverse mortgage counselors look at the person’s entire situation—from a budgetary, health, and lifestyle perspective—to see whether this financing option can help them to age in place. HUD requires counselors to discuss:

• Client goals for using a reverse mortgage.
• Life factors that could affect their ability to stay at home and benefit from a reverse mortgage.
• An overview of different reverse mortgages and loan features.
• The  amount of money that may be available and how much this loan could cost.
• Other housing, services, and financial options that could help them meet their goals.

For clients with incomes under 200 % of poverty, the conversation must include a BenefitsCheckUp® screening, so that they are aware of public programs that can serve as a supplement or alternative to a reverse mortgage. HUD also requires counselors to send each client a customized review of different loan options and costs, the National Council on Aging (NCOA) Use Your Home to Stay at Home booklet, and other consumer information about reverse mortgages, In addition to their counseling certificate.

Immediate threats to funding the HECM counseling program

Congress defunded the HUD Housing Counseling Program in the fiscal year2011 federal budget, including about $11 million for reverse mortgage counseling. As a result of these cuts, all seniors who are considering these loans will soon have to pay an upfront fee for counseling. This is a significant change from recent HUD policy, where counselors could only charge clients with incomes under 200 % of poverty if they decided to take out a reverse mortgage, at the time of loan closing.

The fiscal year Y2012 federal budget could restore funding for the HUD Housing Counseling Program. However, in these times of fiscal belt-tightening, nothing is certain. NCOA, housing counseling agencies, and other organizations are working hard to ensure continued funding of this critical program. It is vital that  older Americans  get unbiased information, ideally before they talk to a lender, so they do not misuse the home equity they have spent a lifetime to accumulate.

Improving Counseling

For many older people, it is no longer a question of if they will tap home equity, but rather when and how. Home equity can augment a person’s  income to meet basic expenses. With limited savings, older homeowners can also use this asset to cope with unexpected health and household expenses. For many seniors, these decisions are driven by the need to manage growing consumer debt.
A reverse mortgage, when used appropriately, can be a powerful tool for many older adults to remain economically secure and independent. However, there are many unresolved issues and unanswered questions, on how best to use these loans to assist financially vulnerable older homeowners who struggle to remain at home. We can improve reverse mortgage counseling and loans by:

• Increasing the knowledge base – More research is needed to evaluate the benefits and risks of products and polices, and to develop safer and more effective solutions for seniors.
• Increasing accessibility to consumer education– The Aging Services Network should become a focal point for reverse mortgage education. Policymakers, senior advocates, and financial planners also need to broaden the conversation from “reverse mortgages” to “how to appropriately unlock home equity.”
• Strengthening consumer protections and products – HUD, aging organizations, and the industry should work together to find ways to reduce loan costs, improve loan products, and advance public policy, especially for frail and impaired elders, and those with modest value homes.

NCOA is working to foster these collaborative partnerships to make home equity work better as a financing option and enhance the economic security of older homeowners.

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