by Ronni Bennett
On Wednesday, I participated in the counseling session required by
the U.S. Department of Housing and Urban Development (HUD) of all HECM
(FHA insured) reverse mortgage applicants. A lender may not begin the
mortgage process until it receives the certificate, signed by the
counselor and applicant, that counseling has been completed.
The counseling is invaluable. My only complaint is that it should be
done BEFORE you look for a lender. I did a lot of research and study,
then used the HUD website to retrieve a list of local HUD-approved
lenders, but my work would have been much more efficient if I'd had the
counseling first – including some direction in how to choose a lender
which the counseling includes.
If you get as far as choosing a lender before the counseling, the
lender is required to give you a list of nine HUD-approved counselors to
choose from. I didn't know that, so I asked the
National Council on Aging (NCOA), a HUD-approved HECM counseling intermediary, for a recommendation.
The NCOA takes HUD-approved reverse mortgages seriously and offers
trained counselors for no fee to low-income participants and for a $125
fee to higher-income applicants. The fee can be rolled into the reverse
mortgage along with closing costs, home appraisal, etc., and the fee is
waived with NCOA counselors unless you go through with obtaining a HECM.
The goal of this post today is not to provide you with details of the
workings of HECM reverse mortgages, but to explain what you can expect
from the counseling session.
My Counselor
Counseling may be done in person or by telephone. A face-to-face meeting
is advisable if you are relatively uninformed about how HECMs work. In
my case, I already had a lot of information so I was offered a phone
session with Buz Zeman, a HUD-authorized counselor affiliated with NCOA.
He is also the director of
Housing Options for the Elderly, Inc.
(HOPE) in St. Louis, Missouri, and a veteran, since 1993, of 3,000 HUD
HECM counseling sessions who also trains incoming HUD counselors. There
isn't much he doesn't know. He was thorough, patient and an all-around
good guy – a smart, impartial coach to obtaining a reverse mortgage.
In our first conversation last week, he asked some personal questions
that would aid him in preparing for our counseling session: my age,
income, marital status, estimated value of my home, whether there is a
mortgage or other encumbrances, etc. All information is confidential and
never disclosed to an applicant's lender.
We set a date and time for the counseling and Buz emailed a packet of information that included:
- A letter confirming our appointment along with a list of the included documents for my review
- A sample certificate of having completed the counseling
- An overview of reverse mortgages
- A list of the topics to be covered during the counseling session
- A loan analysis including estimates and comparison – as examples - of the several versions of HECMs that I might choose from
- Amortization tables showing examples of how much money would be paid out and left as equity over a period of years
- Benefits checkup – other kinds of financial help that may be available locally
- Going green and Energy Start information
- Information you should know about after getting a reverse mortgage
Counseling will determine if you are eligible for a reverse mortgage
and help you make an informed choice, but counselors do not recommend
specific loan products or specific lenders.
The Counseling Session
Buz telephone at the appointed time and he began with his explanation of
the counselors role. He then went through the personal and property
eligibility requirements - currently, most co-op apartment are excluded
but, according to Buz, should be included soon.
Then we went through the details of how a reverse mortgage works and
in great detail, the numbers in the example reverse mortgage types he
had prepared for me. I printed these out so I could follow along more
easily than onscreen and make notes as we spoke.
Personalized HECM Details
This isn't easy stuff even if, like me, you have done extensive homework
on reverse mortgages before the counseling. Buz's estimates came on a
page with three examples of possible loan types I might choose from,
side-by-side so I could compare.
He explained how the loan amount and interest rate are arrived at and
how, if you choose an adjustable mortgage, it can change in the future.
The loan principal limit is an estimate at this point that will change
depending on the appraised value of your home which you won't know until
you have begun the loan process.
[By the way, interest rates are very low right now, but there is no
guarantee that will remain so in our volatile economic climate so this
is a good time to do it if you have been considering a reverse
mortgage.]
Costs and Fees
We went through the fixed costs and fees, and those that are variable –
the latter being the lender's “margin” (interest rate), monthly service
fee if you choose a variable rate loan and its “set aside,” origination
fee and closing costs. These are subtracted from the final principle
amount of the loan.
Like I said, there is much to learn in the details of this which
involves a lot of numbers and percentages, but Buz patiently explained
each item with excellent analogies that made it easier to understand.
I had been given similar estimates from the three lenders I had
contacted. Most of the numbers were near matches to Buz's except for the
loan origination fee of which there is a large spread of nearly $3600
among the three. Buz explained that although the origination fee is
capped for most HECMs at two percent of the home appraisal, in recent
months as HECMs have become more popular, some lenders have been
reducing this charge (and/or some others) to be more competitive, which
is a good reason to shop for a lender.
Buz noted that occasionally exorbitant title company fees have been
discovered. This should not vary much from what a counselor has
estimated for you and you can question these costs.
It helped a lot when Buz explained costs that are familiar from
forward mortgages and those that are unique to reverse mortgages.
An important consideration is closing costs that can vary widely from
lender to lender, but they should be close to your counselor's
estimate. If they are much higher, you should consult your counselor. In
my case, I have the list of closing costs from my recent purchase of
this home so I will be able to compare those with the itemized list I
will get when I apply for a reverse mortgage with a lender.
Prior to our counseling session, I had typed out a list of questions I
had. Most of those were answered as Buz talked me through the possible
loan terms and he carefully explained those that remained. This part of
the counseling took up most of our time together.
Other Counseling Topics
He also explained tax implications. No income tax is paid on reverse
mortgage income (it is a loan, after all) and interest is not
deductible. Important: food stamps, SSI. Medicaid payments and a few
other benefits can be negatively impacted.
Sometimes there are options other than a reverse mortgage that may be
more sensible depending on personal circumstances and intended use of
the funds. Those were clearly explained too along with the borrower's
obligations.
Obligations include keeping property taxes, homeowner's insurance,
flood insurance (if required in your area) and repairs up to date.
Buz and I covered many other details of reverse mortgages, but these
are the major points. Buz also assured me that if I have more questions
he is available by phone and email to answer them.
Choosing a Lender
You should definitely shop for a lender to get the best deal. Even a .25
percent difference in an interest rate can translate into an increase
or decrease of thousands of dollars in the principal amount available to
you from a reverse mortgage. And as mentioned above, some lenders are
currently reducing costs in the name of competition, but this could
change in the future.
Each lender you speak with should give you a written preliminary cost
estimate on all the kinds of reverse mortgages that are available.
Later, when you have chosen a lender, you will receive a Good Faith
Estimate (GFE) which will be as close as possible to the final figures,
although they can change slightly in the interim between receiving the
GFE and closing.
Fraud is a common concern in regard to reverse mortgages; they have
had a poor reputation. This should not be so. The vast majority of HECMs
abide by HUD regulations, but there are occasional exceptions. From the
preliminary material Buz emailed before our session:
”HUD has learned of a fraud scheme involving HECM loan
officers. In one scheme, the loan officer arranges for the title company
to pay the loan proceeds through two checks. One check is sent to
borrower and the other is kept by the loan officer.
“In another scheme, the loan officer persuades the senior to sign over
loan proceeds to the loan officer for future disbursement to the HECM
borrower...
“The proceeds received from a loan should be paid directly [and only] to
the borrower or should be deposited into the borrower's bank account.”
I don't know if all counselors do so, but Buz included in his package
to me a list of lender deceptive practices that should be a red flag to
anyone considering a HECM. Among them:
• Pressure to buy other financial products and services with the proceeds from your reverse mortgage
• The suggestion that a HECM is a “government benefit.” It is not; it is insured by the federal government
• The suggestions that a HECM will provide income for life. Funds are available only for as long as you live in your home
• A lender who pressures you to act quickly
• A lender that obligates you to fees before you receive the Reverse Mortgage Counseling Certificate
Bottom Line on Counseling
Buz cautioned that all counseling is not created equal so shop for a
counselor as you do for a lender. If a prospective counselor tells you,
for example, that the session can be done in less than hour, it will not
be useful or worthwhile.
Although HUD requires training for all their approved counselors, Buz
says it is not always adequate. HUD is working to improve training and
certification, but meanwhile you should choose carefully to get the full
benefit. Any good counselor should send you a package similar to what I
have outlined before the session.
Personally, I recommend finding a counselor through the NCOA. It is
an excellent advocate organization for elders that takes its mission
seriously.
As mentioned above, I am convinced that counseling makes more sense
to be done prior to shopping for a lender. Buz and the NCOA agree and
are pushing for that to become standard.
I could not be more pleased with the counseling I received from Buz.
Even with the research I had done before our session, I learned a lot
that I hadn't known. He gave me alternative ways to think about some of
the details and choices I was considering and I came away from our
conversation feeling thoroughly grounded – so much so that I wish I had a
Buz Zeman for other aspects of my life.
Thanks to Buz and my own research, I have decided to go forward with
the HECM, and the next post in this series will report on the loan
process.
The TGB Reverse Mortgage Series
Part 1: One Reason For a Reverse Mortgage
Part 2: The Basics
Part 3: Finding a Lender
Part 4: Do Not Fear HECMs
TIME GOES BY | Reverse Mortgages - Part 5: The Mandatory Counseling Session
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