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Federally mandated HECM Counseling is a valuable tool in helping prospective reverse mortgage clients understand the complex nature of reverse mortgage loans and to assure that particular loan they are considering is the best possible solution for their specific financial, health and living situation

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  1. 1. FeDeRally MaNDateD HeCM COuNseliNg is a valuaBle tOOl iN HelpiNg pROspeCtive ReveRse MORtgage ClieNts uNDeRstaND tHe COMplex NatuRe OF ReveRse MORtgage lOaNs aND tO assuRe tHat tHe paRtiCulaR lOaN tHey aRe CONsiDeRiNg is tHe Best pOssiBle sOlutiON FOR tHeiR speCiFiC FiNaNCial, HealtH, aND liviNg situatiON. eFFeCtive HeCM COuNseliNg Results iN MORe CONFiDeNt pOteNtial BORROWeRs WHO aRe BetteR pRepaReD tO Make iNFORMeD DeCisiONs aBOut tHeiR FiNaNCial FutuRe. AnAtomy of A HECm CounsEling sEssion By Robert C. Walther
  2. 2. HECM Counseling Sessions are generally divided into fifteen distinct sections. The following is a brief explanation of each section of a HECM counseling session as provided by a HUD approved Housing Counseling Organization. Gathering Information Experience you In order to properly counsel senior homeowners on the can trust benefits, and options to reverse mortgages it is essential that counseling agencies gather in-depth information concerning the senior’s financial, medical, and housing situations. In particular, counselors will work with the homeowner to develop a budget of their monthly expenses, a general appraisal of their current assets, as well as determining for reverse mortgage their primary reason for considering entering into a title, signing, and settlement Reverse Mortgage. Counselors will also discuss whether the homeowner is considering selling their home in the near future and if the homeowner has discussed his or her intentions with their children or other close family members. TRUSTED REVERSE TRANSACTIONS At this point the counselor will provide the homeowner with the opportunity to include family members, advisors, or trusted friends into the counseling session for their benefit. Backed by the financial strength and stability of First American, Trusted Reverse Transactions can Disclaimers offer you a ready-made solution that reduces closing costs, decreases turn times, and increases At the beginning of the HECM counseling session the customer satisfaction. counselor will provide the homeowner with the disclaimer  Nationwide simplified and discounted fees that the agency has no connection to Reverse Mortgage lenders and funders, the independent and impartial nature of  Your one source for national needs HECM counseling, and the confidential relationship between  Online ordering and tracking 24/7 the counseling agency and prospective HECM borrower. Nationwide network of mobile notaries Further, the counselor will inform the homeowner that  their role as a HECM Housing Counselor is solely to provide  Dedicated staff with extensive experience information and education concerning the HECM product  In-house Advisory Title Officer and its alternatives, not to provide advice on what actions a homeowner should take or which products or alternatives a homeowner should utilize to meet their financial needs. To learn more, call The Reverse Mortgage Process 800.546.4667 or visit The counselor will review with the homeowner the steps necessary to obtain a Reverse Mortgage. The potential borrower will be informed of the decisions they will be responsible to make in the process including their payment plan, type of interest rate, and whether they will escrow property taxes and homeowner’s insurance into their Reverse Mortgage. In addition, counselors will discuss the need for the lender to pull a credit report to check for delinquent ©2009 The First American Corporation  NYSE: FAF federal debts and the need of an appraisal to determine the value of the homeowner’s property and to assess the physical condition of the property for any problems that may impair the homeowner’s ability to obtain a Reverse Mortgage. »
  3. 3. Basics of Reverse Mortgages to maintain property tax and homeowner’s insurance payments, if they choose not to escrow these items with Before reviewing the details and complexities of a HECM their lender. Counselors review the client’s financial Reverse Mortgage it is important for the counselor to insure information and potential loan funds to help the homeowner that the homeowner has a basic understanding of Reverse determine if they will have the resources to meet these Mortgages in general. Counselors explain that a Reverse payments in the future. Mortgage is a loan based on the equity of their home and how a Reverse Mortgage compares to a forward mortgage, Counselors also discuss the benefits and drawbacks of with which most homeowners are significantly more familiar. escrowing these items; particularly, the added interest that Generally, counselors use the “rising debt / falling equity” would accrue by escrowing these items versus the safety explanation to compare reverse and forward mortgages. and peace of mind of not having to make these payments Many homeowners find this an easy way to understand how as homeowners continue to age. Borrowers are educated Reverse Mortgages function. on the requirement that the home remain their primary residence and to maintain the condition of the property Beyond these very basic elements of all Reverse Mortgages to meet government standards. Homeowners are made counselors also review the consumer protection provisions aware of their servicer’s ability and responsibility to make within HECM Reverse Mortgages that often make them these payments on their behalf, from the remaining Reverse an attractive product to older homeowners. In particular, Mortgage proceeds, should they fail to keep these payments clients are informed that they are not required to make any current. In this section of the counseling potential borrowers payments towards the proceeds they receive from a Reverse are made aware of the various actions that could result in a Mortgage or to ever sell their home as long as it remains mortgage default and the loan becoming due and payable their primary residence and they maintain their obligations earlier than otherwise necessary. under the terms of the loan. Further, counselors educate the homeowner on the meaning and benefits of the non- Impact On The Homeowner’s Heirs and Estate recourse limit and the protection that it provides for their heirs and estate. Counselors will disclose to the potential Reverse Mortgage borrower that depending on the housing market and Finally, in this section counselors will review with other factors there is a great likelihood that there will be homeowners the factors that determine the proceeds less equity remaining in their property after repaying the they will be eligible for including the age of the youngest Reverse Mortgage than they currently possess. Counselors borrower, the expected interest rate on the loan, and their also re-address the non-recourse limit, and the important home’s appraised value. protection this provision grants to their heirs and estate. Finally, prospective borrowers are advised of the basic HECM Eligibility Requirements timeframe their heirs will have to sell the property and/or repay the loan, and that any equity that remains following Counselors will review with the prospective Reverse the repayment of the Reverse Mortgage remains with the Mortgage borrower the basic eligibility requirements for heirs or estate. receiving HECM Reverse Mortgages. Potential borrowers will be informed of age, deed, and primary residency Impact On Public Benefits and Tax Implications requirements, as well as the requirement for the property to be free of liens or that all liens are paid in full at closing. In many scenarios there is a possibility that the loss of public Counselors discuss the requirements for property eligibility benefits like Supplemental Security Income or Medicaid including the types of dwellings that are permitted and the could end up creating financial harm for Reverse Mortgage requirements for property conditions prior to closing on a recipients. It is important that homeowners understand how Reverse Mortgage loan. to manage and maintain their public benefits after attaining a Reverse Mortgage. Homeowners are counseled on the Borrower Obligations fact that proceeds received from a Reverse Mortgage are not considered income for most government-sponsored In order for a Reverse Mortgage to be a successful and programs. As well as the potential risk of losing these public beneficial endeavor for a homeowner it is essential that they benefits by accruing too much money in their bank accounts understand and meet their obligations after receiving a loan. or other assets. Prospective borrowers are informed of Counselors inform the homeowner of their responsibility ways to utilize the line of credit option with their Reverse 16 16
  4. 4. Mortgage to ensure that they do not have an excessive amount of income in their bank accounts at the end of the month when eligibility for public benefits is determined. Strategically Concerning potential tax consequences, homeowners are informed that since reverse mortgage proceeds are not thinking... considered income by the federal government and they are not taxable. However, many homeowners assume that the interest accrued on their reverse mortgage qualifies as a tax deduction as is often the case with a traditional forward mortgage. Counselors work with homeowners to explain that interest is not deductible until the reverse mortgage is repaid. Homeowners with complicated tax scenarios are advised to speak with tax specialists who have the expertise to advise potential Reverse Mortgage recipients on their tax options and tax implications for their heirs and estate. Fixed Interest Rate vs. Adjustable Interest Rate Reverse Mortgages One of the most important and confusing decisions that potential borrowers must make concerning the acquisition of a Reverse Mortgage is whether to get an adjustable or fixed interest rate loan. Homeowners are advised of the various parts of a HECM interest rate including the index, margin, and mortgage insurance premium. Homeowners are lead through examples to illustrate how these three factors determine the overall interest rate they are charged and how the interest rate affects the amount of loan proceeds they will receive Strategically thinking during the course of the loan as well as the amount they will companies rely on ReverseVision be responsible to repay when the loan comes due. Homeowners are made aware of the payment plan limitations of fixed rate Reverse Mortgages when compared to adjustable rate mortgages. Counselors also review with potential Freedom of Action borrowers typical adjustable and fixed rate Reverse Mortgage ReverseVision is supported by more interest rates at the time of counseling. These rates are reverse mortgage lenders than any referred to later on in the counseling session when reviewing other software, giving customers the possible Reverse Mortgage proceeds, amortization tables, maximum freedom of action. and Total Annual Loan Cost percentages. Independence Reverse Mortgage Costs As an independent technology company For many homeowners the major perceived drawback to ReverseVision gives its customers the attaining a Reverse Mortgage is the upfront costs of the loan. highest flexibility and independence to By explaining the various costs of HECM Reverse Mortgages grow their business. homeowners are able to make educated decisions about whether a Reverse Mortgage is a wise financial decision for them. Counselors review the major loan costs consisting of the Servicing Fee Set Aside, Lender Origination Fee, Upfront ReverseVision Inc. 3310 Pollock Place • Raleigh, NC 27607 » Reverse Mortgage Insurance Premium, the standard (919) 834 0070 • loan closing costs, as well as the interest rate charged May 2009 17 17
  5. 5. on the loan. Once homeowners have an understanding of and in comparing it to other options that may be available to the purpose and necessity of these costs they are better them. prepared to make a fully informed decision. Once the appraisal is complete the lender can give final and accurate Financial Planner and Annuity Disclosures Reverse Mortgage costs to the borrower. Counselors inform clients that they are never required to Payment Plan Options meet with a financial planner or estate planner in order to obtain a Reverse Mortgage and that any costs associated The way in which a Reverse Mortgage recipient receives with these services are not normal or customary. If a client their proceeds can be one of the most important factors informs a counselor that they were forced to pay to meet in whether or not they are satisfied with their decision to with a financial planner prior to counseling, the counselor obtain a Reverse Mortgage. A potential Reverse Mortgage will provide the client with information to report this abuse applicant must determine the best possible payment plan to their local HUD housing office. or combination of payment plans to meet their current and future financial needs. If a potential Reverse Mortgage applicant is planning on obtaining an annuity with the proceeds from a Reverse Counselors review the four payment plan options: lump sum, Mortgage the counselor will discuss the potential drawbacks tenure, term, and line of credit. Counselors work with the of annuities in connection with Reverse Mortgages and prospective applicant to assist them in determining which other options that are available to the client. If the client is factors are most important to their financial well being considering an annuity the costs and benefits of the annuity and which payment plan options best meet their needs. will be included in the Total Annual Loan Cost projections Many homeowners enter counseling sessions unaware provided to the client. of the options available to them and prematurely decide to take lump sum payments regardless of their financial, Options To A Reverse Mortgage housing, and personal goals. This portion of the education often allows them to see the inherent security of options An essential element of Reverse Mortgage counseling is like tenure payments and the potential benefits of the line educating homeowners on the options available to them. of credit option due to its continual growth. Homeowners Under no circumstance is it the counselor’s job to pressure are also advised of ways to combine payment plans like a homeowner against receiving a Reverse Mortgage in favor tenure or terms payments with existing income streams like of another option, any more than it is their responsibility annuities or pensions. Many homeowners are also pleased to pressure a homeowner into a Reverse Mortgage. It is, to hear of their ability to change their payment plan later in however, critical for homeowners to understand all the life for a marginal fee. options that are available to them to ensure they make the best possible decision on their own behalf. It is important IBIS Review (Reverse Mortgage Analyzer) to note that some options may be available to some homeowners and not others, and that counseling sessions Counselors will review IBIS printouts detailing the possible are often tailored to meet the specific needs of the client funds a client may be eligible for from a Reverse Mortgage as based on the information gathered during the intake process. well as an estimation of the costs of the Reverse Mortgage both initially and over the course of the loan. Counselors will In general, the benefits and drawbacks of the following review the benefits and drawbacks of fixed and adjustable options are discussed with homeowners during a HECM interest rates based on the current index and margins Counseling session: Selling their current primary residence available. Counselors will walk clients through potential and downsizing into a more affordable home or other living amortization schedules on the different loan types they facility; Deferred payment repair loans for homeowners in are considering. Counselors also review Total Annual Loan need of property repairs; property tax deferral programs; Cost calculations, which are given for two years into the governmental benefits like SSI, Medicaid, and other county, future, the client’s life expectancy, and 40% beyond the state, and federal programs that could be of benefit to the client’s life expectancy at a home appreciation of 0%, 4%, homeowner. Homeowners are given in depth explanations of and 8% for the interest rate, and payment plans that the each program, as well as contact information to obtain these prospective borrower is currently considering. This section services in their area. of the counseling is essential in helping a potential applicant understand the true cost of a Reverse Mortgage over time 18 18
  6. 6. Referrals One of the most important services provided to homeowners Operationally during the HECM counseling session are referrals to organizations and programs that may be able to assist the homeowner in overcoming financial, personal, or medical thinking... problems that are contributing to their need to attain a Reverse Mortgage. In many instances these referrals work best in combination with another option, like a Reverse Mortgage, not in place of any other particular service or product. For instance, homeowners may have drug, alcohol, gambling, or health issues that lead them to spend excessive amounts of their income or savings in unproductive or unnecessary ways. In many cases the money received from a Reverse Mortgage will only exacerbate these problems and within a relatively short period of time the homeowner may again be experiencing financial hardships. Unfortunately, homeowners may have used up their largest asset, their home, and now have no other options to secure their financial future. Alcoholics Anonymous, Narcotics Anonymous, Gamblers Anonymous, local Area Agencies on Aging, AARP, Senior Job Bank, National Council on Aging, Social Security Administration, and Meals on Wheels Association of America are just some of the resources counseling agencies refer homeowners to on a daily basis. By understanding the content covered in a counseling session Loan Officers are better prepared to assist their clients through the Reverse Mortgage process and to understand the essential role that the HUD certified counselors play within Operationally thinking that process. In the most productive situations the motives of Loan Officers and HECM Housing Counselors are the same: companies to provide prospective Reverse Mortgage borrowers with the best possible service with an end result of the best possible rely on ReverseVision outcome for the prospective borrower. Meeting the individual needs and interests of each homeowner is the only way to Increased Productivity ensure the positive public perception of the Reverse Mortgage industry. ReverseVision is a powerful collaborative software that increases productivity. Contributor: Ryan Smart / Consumer Credit Management Role-based business rules ensure Services Inc. quality and improve efficiency. ROI (Return on Investment) ReverseVision fair pricing model guarantees a quick return on investment, increasing profitability. ReverseVision Inc. 3310 Pollock Place • Raleigh, NC 27607 (919) 834 0070 • May 2009 19 19