Reverse Mortgage Counseling Helps Seniors Make Informed Decisions

Baltimore, Maryland, July 20, 2015 (Newswire.com) - When older consumers want to remain in their homes but need money to afford expenses, a federally insured reverse mortgage or “HECM” may be the answer.  These loans make it possible for adults age 62 and older to access a portion of their home equity.  However, HECMs aren’t for everyone. They can be expensive, complicated, and may involve risk. When the Consumer Financial Protection Bureau recently examined advertisements promoting reverse mortgages, they found that many include messages that leave out pertinent information, thereby encouraging seniors to acquire a loan without fully understanding the long-term consequences of this choice. Mandatory reverse mortgage counseling by a HUD-certified counselor helps borrowers evaluate if HECMs are truly right for them and avoid being misled.

Why is counseling necessary? Guidewell Financial Solutions reverse mortgage counselor Carmen Jones-Burke says, “The counseling agency is a neutral party with no vested interest in the closing of the loan. Our role is to review the clients’ financial picture and help them look at all the available options. We also help them assess the impact and implications of the reverse mortgage to them. Our goal is to give them a good basic understanding of the loan product, so they can make an informed decision.”

"The counseling agency is a neutral party with no vested interest in the closing of the loan. Our role is to review the clients' financial picture and help them look at all the available options. We also help them assess the impact and implications of the reverse mortgage to them. Our goal is to give them a good basic understanding of the loan product, so they can make an informed decision."

Carmen Jones-Burke, Guidewell Financial SOlutions Reverse Mortgage Counselor

HECM regulations are constantly being refined. To provide accurate, timely information, reverse mortgage counselors must stay current on changes and how they may influence their clients. To that end, Jones-Burke has been closely following two recent rulings, financial assessment and foreclosure for non-borrowing spouses:

• HECM Financial Assessment Requirements

Jones-Burke notes that in the past most people age 62 or older who owned a home with sufficient equity could get a reverse mortgage with no consideration of financial implications. However, when some of these borrowers couldn’t afford to pay their property taxes and homeowner’s insurance (both loan requirements), almost 10% ended up in default. This in turn placed the HECM insurance fund at risk, so HUD stepped in late last year mandating that loan providers conduct a financial assessment before approving HECM loans.

Jones-Burke explains, “Lenders will now evaluate your income, assets, and obligations. They also will review your past payment history. This information will be used to determine if funds need to be set aside. Although this may reduce the amount of money available for your own purposes, it will also help insure you are less likely to face the threat of foreclosure as you grow older.”  

How does this new regulation affect potential HECM borrowers? Some people will not be impacted by the change. Others will no longer qualify. Still others will be required to have a portion of their HECM funds set aside to cover their property taxes and homeowner’s insurance. 

• HECM Non-Borrowing Spouse Change

For several years, the rights and responsibilities of non-borrowing spouses has been a troubling issue for both HUD and consumer advocates.  HECM applicants must be 62 years of age or older. This means younger spouses are often left off the loan application (and taken off the deed to the home) to qualify for a loan.  In the past this led to unfortunate consequences when the borrowing spouse passed away first and their surviving spouses were required to immediately repay the HECM loan in full or face eviction.

In 2012 AARP sued HUD on behalf of several non-borrowing spouses and won. As a result, HUD developed a new rule that took effect on August 4, 2014. Under this rule, if a couple decides to take out a reverse mortgage, the borrowing spouse can list the underage spouse as a “non-borrowing spouse.” This allows the surviving spouse to remain in the home if the borrowing spouse passes away provided a legal right to the property is established via an ownership document or court order. Under this arrangement, the surviving spouse must continue to meet all the requirements asked of the reverse mortgage holder and cannot access any remaining HECM funds.

Although an improvement, this ruling has prompted further HUD criticism, because it only applies to those reverse mortgages taken out after August 4, 2014 and only protects spouses who were married to the borrower at the time the loan was taken out.

To rectify this situation, HUD recently added a provision that now extends the same rights to non-borrowing spouses on loans that originated prior to August 4, 2014 provided certain conditions are met.  

Jones-Burke applauds these changes. She says, “I’ve spoken with attorneys who were struggling to help surviving, non-borrowing spouses avoid double tragedy – the loss of their spouses and the loss of their homes. These new rulings bring hope that multitudes of non-borrowing spouses may potentially be able to remain in their homes.”

The non-borrowing spouse question draws attention to how vital reverse mortgage counseling is. Jones-Burke concludes, “This is one time where knowledge really is power. The more a person understands about the product the less likely they are to be misled.” 

Want to learn more about Guidewell Financial Solutions' reverse mortgage counseling program or schedule an appointment?  Please call 1-866-731-8486 or visit the www.guidewellfs.org. Thanks to a federal initiative, our reverse mortgage counseling sessions are currently free of charge.  This opportunity is open on a first come, first served basis and will be available as long as funding lasts.

Guidewell Financial Solutions is an accredited 501(c)(3) nonprofit agency that helps stabilize communities by creating hope and promoting economic self-sufficiency to individuals and families through financial education and counseling. To learn more about the agency, visit www.guidewellfs.org or call 1-800-642-2227 for financial counseling or coaching.  Maryland License #14-01 / Delaware License #07-01.