May 26, 2024

Bucks: Plan Cuts Reverse-Mortgage Counseling

One casualty of the latest federal budget deal: Funds for counseling older Americans seeking reverse mortgages, or loans that let those 62 and over tap their home equity.

The latest proposal for the current fiscal year, which is scheduled for final votes in Congress imminently, cuts $88 million from the Department of Housing and Urban Development’s budget for loan counseling programs, including for reverse mortgages, a HUD spokesman confirmed Thursday. Some $9 million of that total is reserved for reverse mortgage counseling, which helps borrowers understand the benefits, costs and risks, of such loans, says Barbara Stucki, vice president for home equity initiatives at The National Council on Aging.

The cuts mean that unless groups like the NCOA, which use HUD grants to offer the counseling free to potential borrowers, can raise other funds, they will have to charge for the service. The counseling is mandatory under federal regulations, so borrowers would still have to get it before getting their loan. But they may have to shell out their own money, Ms. Stucki says.

Funds for counseling remain available through September, Ms. Stucki says. Because of a HUD budgeting quirk, NCOA and other such outfits actually are financng current counseling sessions with money from the prior federal fiscal year budget. So cutting the money out of this year’s budget, which is fiscal 2011, actually stops the flow of funds for the next fiscal year, which starts Oct. 1.

Peter Bell of the National Reverse Mortgage Lenders Association says it’s unlikely any effort to restore the funds will succeed at this point because “this bill is moving way too fast.” The move, he said, “has taken everyone by surprise,” since overall funds for housing counseling had recently increased due to the fallout form the housing crash.

The upshot is that borrowers are likely to have to pay for counseling. HUD does allow its approved counseling agencies to charge fees — previously they were capped at $125, but that limit was recently lifted, says Mr. Bell. But agencies getting HUD grants generally don’t charge for it. In fact, the agencies can’t charge certain low-income borrowers, so it’s unclear how those applicants will receive counseling unless the counseling agency eats the cost.

Lenders themselves are prohibited from financing counseling, since they have an incentive to make the loan. It’s possible that the counseling fee could be rolled into the loan, if the borrower ultimately ends up getting one. But Ms. Stucki says she doesn’t think that’s such a great idea; the whole premise of counseling, after all, is that some homeowners shouldn’t borrow the money in the first place, and won’t complete an application.

Counseling for reverse mortgages is especially important because they are marketed to people 62 and older, who are vulnerable to wrecking their nest eggs if they run into trouble with the loans. Unlike a home equity loan, where you have to pay the money back, with a reverse mortgage the bank pays you, either in a lump sum or in monthly payments. Once you no longer live in the home, you or your executor (if you’re dead) sells it and pays the bank back.

Advocates for the elderly have been lobbying hard for better and broader reverse mortgage counseling. A case in point: Recently, the loans have been a subject of a lawsuit brought against HUD by the AARP Foundation and others because some older borrowers who weren’t listed on the loan documents ended up in foreclosure proceedings. After their spouses died, they were unable to get a new loan in their own name, or sell the house for enough money to pay off the loan. Requiring both spouses to attend counseling could help avoid such situations, advocates argue.

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