Hud Takes Actions To Educate Prospective Reverse Mortgage Borrowers

HUD responds to the spike in foreclosures among reverse mortgage properties by dedicated funds to educating counselors and borrowers alike.
The dialogue between reverse mortgage applicants and Department of Housing and Urban Development (HUD) approved counselors is likely to get a little more personal these days. HUD requires prospective reverse mortgage borrowers, seniors who are in or near retirement and are at least 62 years of age or older, to engage in a counseling session with a HUD approved counseling agency to make sure the borrower understands all of the costs and risks associated with a reverse mortgage.
And as reverse mortgages grow in popularity, so too will the governments efforts to keep the terms and procedures of the financial transaction that allows seniors to borrow against the equity theyve built into their homes fair and balanced between both the lender and borrower. In response to a spike in default data among reverse mortgage borrowers released last year, The Federal Housing Administration has announced they will be constructing and distributing written communications that aim to further educate the borrowers.
In a reverse mortgage, homeowners can draw the equity out of their homes via a loan and are permitted to stay in their homes; however, they are required to continue to pay all of the other costs associated with home ownership such as taxes and insurance due on the property. Apparently, that was a provision in the agreement that is speculated to have been overlooked and under-valued by industry watchdogs, as the majority of reverse mortgage defaults were the result of owners neglecting these very expenses.
In addition to releasing these detailed written communications and guidelines, HUD is expected to spend as much as $3 million in funding designated for upgrades and improvements to the efforts of the counseling agencies to help reverse mortgage borrowers who fall behind on their payments. Part of that improvement includes provisions that train counselors to be keen in their consultations to identify signs that the borrower may not fully understand the financial implications of a reverse mortgage.
That includes obtaining and analyzing specific personal information from the prospective borrower that includes their marital and family relations and status, a more robust and thorough look at their finances and expected income, pensions, benefits, etc. and more. Barbara Stucki, vice president of home equity initiatives for the National Council on Aging (a HUD-approved counseling agency), says while having these frank conversations is not a particularly easy or pleasant part of the job, its more necessary now than ever.
"A lot of counselors were initially uncomfortable asking all these questions, but it makes for a much richer conversation about how dependent they are on the loan," Stucki says. If the potential borrower is too heavily reliant on the reverse mortgage loans to cover housing, medical, and lifestyle expenses, converting their home equity into an immediate cash loan may not be the most practical answer.
Stucki recommends homeowners who are considering a reverse mortgage take into account the implicit costs that include their health, age, retirement nest egg, pension, and entitlement benefits and income, and finally how many dependents they are responsible for including themselves.
When weighted together with the explicit costs, including loan origination fees, insurance fees and premiums, monthly household and expenses, as well as the interest rate on the loan, prospective borrowers can then craft a much clearer and more realistic opinion regarding whether or not they should adopt a reverse mortgage.

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