Consumers Union, the advocacy and policy division of Consumer Reports (CU) and California Advocates for Nursing Home Reform (CANHR) submitted these comments in response to the Department of Housing and Urban Development (HUD) request for comment on the Federal Housing Authority (FHA) proposed rule to codify several significant changes to the FHA’s Home Equity Conversion Mortgage (HECM) program.
The full comments are attached to this post as a pdf, above, including the following recommendations to improve counseling for potential reverse mortgage borrowers:
- Borrowers should be required to complete and submit a pre-counseling questionnaire Worksheet, modeled on California’s new law, as discussed above.
- Brokers should be required to provide prospective borrowers with a DVD and a packet of information regarding the basics and risks of reverse mortgages to prepare for the counseling session. The materials should be easy to follow, using clear language and be written at appropriate literacy levels so the can be easily understood by the intended audience. This will enable the elder to more properly prepare for the session and be able to ask important questions.
- Face-to-face counseling should be required and the session should be recorded for future reference. The new protocols have not abated problems with reverse mortgage borrowing and do not require face-to-face counseling. In instances where face-to-face counseling is impossible, counselors should be required to employ modern technology to provide virtual face-to-face counseling. Counseling needs to be either in-person face-to-face or electronic face-to-face because it vastly superior than communicating via telephone. Counseling over the phone is inadequate due to the complexities of the loan, the possible hearing or cognitive impairments of the borrower, and the difficulty of determining exactly who is on the other end of the phone call.
- The reverse mortgage counseling session, whether done face-to-face or though web-based counseling technology, should be digitally recorded by the counselor and the record preserved by the counselor and the broker/lender for the life of the loan. The recording should be given to the borrower and/or his or her legal representative. The digitally preserved session will serve as evidence should any questions arise at a later date regarding the borrower’s capacity for understanding the loan at the time it was originated, which participated in the session, or if anyone unduly influenced the borrower into getting the loan.
- The counseling session should be broken up into two parts in order to maximize the borrower’s opportunity to learn and fully discuss any items from the Worksheet and retain as much information as possible about reverse mortgages without suffering undue fatigue. The first session would complete the borrower’s budget and the second would cover the anatomy and features of the reverse mortgage loan, alternatives to the reverse mortgage, and whether a reverse mortgage would be suitable for the particular borrower.
- Counseling protocols should include a discussion on inter-family loans. In an inter-family loan, a family member or family members can advance money to the senior instead of a bank doing the lending. If the senior has family members who are willing to consider such an arrangement, the senior’s home equity can be used as collateral for prepayment. A senior can be advised to contact an estate-planning attorney or a Certified Public Accountant not involved in selling reverse mortgages to set up the paperwork at a small fraction of the cost required to start a reverse mortgage.
- Counseling protocols should require HECM counselors to provide clear information on where to turn for help if the borrower later has problems with a reverse mortgage. The sources of assistance should be beyond the loan servicer who may have little motivation to help. For example, several non-profit agencies funded by HUD are designated to assist HECM borrowers who are delinquent on their property taxes or homeowners insurance. These and other sources of free assistance approved by HUD to assist HECM borrowers should be brought to the attention of prospective borrowers and HUD should update this list frequently to give prospective borrowers the most current information. We recommend that the CFPB also make such a list available for borrowers on its website.
- Lastly, tenants whose names are not on the reverse mortgage loan need to be notified about their limited rights to remain in the home after the borrower dies or permanently moves out of the home. All members of the household need to know what the reverse mortgage could mean for them in the future.