N4A HECM Intensive July 18, 2010 Home Equity Conversion Mortgage – HECM Basics

N4A HECM IntensiveN4A HECM IntensiveJuly 18, 2010July 18, 2010

Home Equity Conversion Home Equity Conversion Mortgage – HECM BasicsMortgage – HECM Basics

Betsy Cromwell

Office of Single Family Housing

Program Support

ObjectivesObjectives

1. Why FHA Insurance

2. Basic Eligibility Requirements

3. Brief Mechanics of a HECM

4. HECM Counseling

5. HECM Counselor Roster

6. HUD-Approved Agencies

FHA Insurance CoverageFHA Insurance Coverage

FHA insurance protects lenders against “crossover risk”

Crossover is when the loan balance exceeds the value of the property

$

Time

Property Value

Loan Balance

Crossover Risk

FHA Insurance CoverageFHA Insurance Coverage

FHA Insurance CoverageFHA Insurance Coverage

The likelihood of crossover is greater when:– Interest rates are high, so that the loan

balance grows more quickly– Appreciation rates are low, so that the

property value increases more slowly

FHA Insurance CoverageFHA Insurance Coverage

Property Value

Loan Balance

Crossover Risk

$

Time

Property Value (Low Appreciation)

Loan Balance(High Interest Rates)

Crossover Risk(High Interest Rates, Low Appreciation)

Basic Eligibility Basic Eligibility RequirementsRequirements

HECM applicant(s) must be at least 62 years old

Property must be the applicant’s primary residence

All persons on the title must be on the mortgage

MechanicsMechanics

The principal limit is the maximum amount that a borrower can draw

The principal limit is a proportion of a total value determined by the:– Age of youngest borrower– Interest rate (10-year CMT and 10-year LIBOR

Swap)– Maximum claim (lower of either the appraised

value of the home or the FHA loan limit)

MechanicsMechanics

Payment plan options– Line of credit– Term– Tenure– Combination LOC/term– Combination LOC/tenure

Borrowers may choose to change their plan at any time for a $20 charge

HECM CounselingHECM Counseling

Lender is required to:– Send the prospective borrower to

counseling– Provide list of 9 counseling agencies

4 Intermediaries5 local agencies – one within reasonable

driving distance

HECM CounselingHECM Counseling

Counselors must follow Protocol to explain:– How HECM works, costs, calculation of

principal limit– Financial implications of a HECM– Alternatives to a HECM– Borrower’s obligations– FIT/BCU

HECM CounselingHECM Counseling

Counseling may be performed by telephone nationwide

Must included in Housing Counseling Plan

HECM Counselor RosterHECM Counselor Roster

A HECM counselor must -1. 1) Be employed by a HUD-approved agency

2. 2) Take and pass a standardized HECM exam

3. 3) Have received HECM training/education within the prior 2 years

4. 4) Not be listed on GSA’s EPLS, HUD’s LDP or HUD’s CAIVERS

HECM Counselor RosterHECM Counselor Roster

To remain on Roster counselors must– Provide proof of HECM training/education

every 2 years– Retake and pass standardized HECM

exam every 3 years

HECM Counselor RosterHECM Counselor Roster

Counselors apply to be on Roster in FHA Connection

Counselors use FHA Connection to create HECM Counseling certificates

HUD-Approved AgencyHUD-Approved Agency

Several ways to become an approved agency– Apply to HUD directly– Become an affiliate of an

Intermediary/MSO– Become a subgrantee of State Housing

Finance Agency

HUD-Approved AgencyHUD-Approved Agency

Applying directly to HUD– Requirements in HUD Handbook 7610.1

(found on-line in HUDClips)– compliance with fair housing and civil rights

laws

HUD-Approved AgencyHUD-Approved Agency

HUD Approval CriteriaPrivate or public non-profit with tax-

exempt statusExperience – administered housing

counseling program for at least a yearCompliance with fair housing and civil

rights lawsIneligible Participants

HUD-Approved AgencyHUD-Approved Agency

HUD Approval Criteria - continuedCommunity BaseRecordkeeping and ReportingClient Management SystemHousing Counseling resourcesKnowledge of HUD programs and local

housing market

HUD-Approved AgencyHUD-Approved Agency

HUD Approval Criteria – continuedCommunity resourcesFacilitiesHousing Counseling Work PlanConflicts of Interest and Disclosure

Requirements

HUD-Approved AgencyHUD-Approved Agency

Affiliates of Intermediaries and

SHFAs not required to be directly

approved by HUD

Parent entity evaluates eligibility – must meet handbook requirements for HUD approval

HUD-Approved AgencyHUD-Approved AgencyNational Intermediaries

NCOA

National Foundation for Credit Counseling (NFCC)

Money Management International (MMI)

CredAbility (formerly CCCS of Greater Atlanta)

Homefree – USA

West Tennessee Legal Services, Inc.

Catholic Charities

Mon Valley Initiative

National Council of La Raza (NCLR)

NeighborWorks

Nueva Esperanza

HUD-Approved AgencyHUD-Approved AgencyNational Intermediaries

National Community Reinvestment Corp. (NCRC)

Structured Employment Economic Development Corp. (SEEDCO)

Housing Partnership Network (HPN)

National Urban League

Clearpoint Financial Solutions, Inc.

Mission of Peace

Mississippi Homebuyer Education Center Initiative

Citizens’ Housing and Planning Association , Inc. (CHAPA)

Rural Community Assistance Corporation (RCAC)

HUD-Approved AgencyHUD-Approved Agency

State Housing Finance Agencies

Contact to determine if receiving Housing Counseling funding and how to partner

HUD-Approved AgencyHUD-Approved AgencyTo find HECM Counseling Agencies

online

https://entp.hud.gov/idapp/html/hecm_agency_look.cfm

HUD-Approved AgencyHUD-Approved AgencyTo find Housing Counseling Agencies

online

http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm

HUD Contact InformationHUD Contact Information

HUD Headquarters

Betsy Cromwell

betsy.m.cromwell@hud.gov

202-402-4465

Improving the lives of older Americans

Reverse Mortgage Counseling: How and WhyBarbara Stucki, Ph.D.

Vice President, NCOA Home Equity InitiativesN4A Conference, St. Louis MO, July 19, 2010

© 2009. National Council on AgingA non-profit service and advocacy organization

Topics for Discussion

Why is reverse mortgage counseling important?

What is reverse mortgage counseling and how does it work?

Partnering with NCOA.

Role of the Aging Network.• Provide holistic counseling and access to services.• Promote pre-lender RM counseling.• Assist RM borrowers so they use their loan funds wisely.

Time frame for action and next steps.

© 2009. National Council on AgingA non-profit service and advocacy organization

Why Reverse MortgageCounseling Important?

© 2009. National Council on AgingA non-profit service and advocacy organization

Financial Challenges of Aging Growing financial insecurity due to stock market

volatility, low returns on investments, and fewer retirement pensions.

Rising longevity increases risk of outliving funds and more chronic conditions that could require increasingly costly care.

As pressure on public programs grows, seniors are being asked to pay an increasing share of the costs.

As a result, more older Americans are living in retirement with some type of home loan and monthly payments.

• 34% of senior homeowners in 2007 had some type of home loan vs. 24% in 1999.

© 2009. National Council on AgingA non-profit service and advocacy organization

Growing Debt is a New Retirement Risk

32

No home loan (66%)

Regular mortgage only (22%)

Home equity loan (11%)

Reverse mortgage (1%)

Source: American Housing Survey 2007

© 2009. National Council on AgingA non-profit service and advocacy organization

RMs Offer Unique Consumer Protections

Borrowers can live in the home as long as they want without making any monthly payments.

Never owe more than the value of the house if sold at the time the loan comes due (non-recourse loan). Heirs who want to keep the house pay the full loan amount.

No foreclosure risk if borrowers continue to pay property taxes, hazard insurance and maintain the home.

Limits on the interest rate and origination fee. Mandatory counseling that educates consumers about

reverse mortgages and other ways to address their needs (telephone and face-to-face).

© 2009. National Council on AgingA non-profit service and advocacy organization

RMs May Be Key to Retirement Security

Source: Center for Retirement Research at Boston College

© 2009. National Council on AgingA non-profit service and advocacy organization

What is Reverse Mortgage Counselingand How Does it Work?

© 2009. National Council on AgingA non-profit service and advocacy organization

Purpose of Reverse Mortgage Counseling All RM borrowers must go through RM counseling and

receive a counseling certificate.

Lenders cannot originate a RM loan without this certificate.

Counseling must be conducted by independent HUD-approved counselors.

Potential borrowers need to understand:• How RMs work and the costs involved.• Their responsibilities as borrowers.

Counselors do not “sell” or promote RMs. They help seniors make informed decisions.

© 2009. National Council on AgingA non-profit service and advocacy organization

Their goals for using a reverse mortgage.

Review life factors that could affect their ability to continue to live at home and benefit from a reverse mortgage.

An overview of reverse mortgages and their features.

The amount of money that may be available from a reverse mortgage, and how much this loan could cost.

Other housing, services, and financial options that could help them meet their goals.

What Counselors Discuss with Clients

© 2009. National Council on AgingA non-profit service and advocacy organization

Partnering with NCOA

© 2009. National Council on AgingA non-profit service and advocacy organization

Role of NCOA in RM Counseling HUD-approved HECM Counseling Intermediary

• Eligible for grant funds - $1.28 million in 2009-2010.• Able to offer RM counseling over the phone nation-wide.

Provide RM counseling through agencies that serve seniors.

• Goals is to encourage the Aging Network to offer RM counseling and to provide support to make this easier.

• NCOA’s Reverse Mortgage Counseling Services (RMCS) Network - Agencies become sub-grantees to NCOA.

Serve as a “learning lab” to enhance RM counseling.• Build on the expertise of AAAs and ADRCs.• Conduct research through counseling to learn about the

needs and risks of RM borrowers.

© 2009. National Council on AgingA non-profit service and advocacy organization

NCOA Makes It Easier to Offer RM Counseling Training to pass the HUD HECM exam

• Free 4-day intensive HECM basics webinar, help to prepare. • Taught by Buz Zeman - “super counselor.”

Ongoing training and updates on regulatory and market changes.

• Monthly RMCS network calls to share insights and learn.• Special webinars and fact sheets on key counseling issues.• On-demand assistance with RM counseling questions and

problems.

Ongoing support to meet HUD requirements• Referrals for counseling through our call center.• Online client management system for easy record-keeping.• Help with HUD Roster, quarterly reports, HUD performance

reviews.

© 2009. National Council on AgingA non-profit service and advocacy organization

Funding for RM Counseling Reimburse $130 per full counseling session, $50 per

partial session.

Clients above 200% FPL may be charged a fee of $125.

Do not charge clients unless they decide to take out a reverse mortgage. Charge at closing.

Hardship waivers - foreclosure, bankruptcy.

© 2009. National Council on AgingA non-profit service and advocacy organization

Why is NCOA Involved in RM Counseling? Provide an important service to financially vulnerable

seniors• Eligible for grant funds - $1.28 million in 2009-2010.• Able to offer RM counseling over the phone nation-wide.

Enhance education• New HUD mandates based on NCOA efforts in past 2 years.

Promote the use of BenefitsCheckup. Holistic assessment of homeowner risk factors - FIT

analysis. Education on aging in place - Use Your Home to Stay at

Home booklet.• New focus - promote pre-lender counseling.

Conduct research to inform policy and improve the market.• Strengthen consumer protections.• Encourage public-private partnerships.• Better understand suitability.

© 2009. National Council on AgingA non-profit service and advocacy organization

Role of the Aging Network

© 2009. National Council on AgingA non-profit service and advocacy organization

Ways to Get Involved

44

Offer RM counseling as part of the RMCS Network.

Refer your clients who may benefit from RM counseling to the RMCS.

• Help older homeowners in need talk to a counselor before they talk to a lender.

Assist RM borrowers who face foreclosure.• Help them find solutions to pay for taxes and insurance,

other cash short-falls so they can stay at home.• Assist with a transition out of the home.

Help RM borrowers to use their funds wisely.• Case management• Facilitate access to benefits so they can stretch their

loan funds further.

© 2009. National Council on AgingA non-profit service and advocacy organization

Diverse Reasons Why Borrowers Consider RMs

Prepare for emergencies/unexpected expenses – 78%

Improve quality of life – 73%

Pay for everyday expenses – 50%

Home repairs/improvements – 47%

Pay off mortgage – 40%

Pay property taxes/insurance – 29%

Pay for health/disability expenses – 28%

Source: AARP 2007 – Reverse Mortgages: Niche Product or Mainstream Solution?

© 2009. National Council on AgingA non-profit service and advocacy organization

Likely duration of funds based on monthly withdrawals from a HECM Creditline (years)*

*Estimates based on HECM amount for a $122,790 home and an annual Creditline growth of 5.36%. Source: NCOA analysis using the AARP reverse mortgage calculator

RMs Can Fund Home Care for Many Years

3.9

8.8

22.2

4.7

11.1

25

Home care

Adult day care

Family care

75 85

+

© 2009. National Council on AgingA non-profit service and advocacy organization 47

Foster Access to BenefitsBenefitsCheckUp is a web-based tool that screens seniors for over 2,000 State, Federal, and private benefits

Includes over 50,000 offices nationwide where those eligible for benefits can apply

http://www.BenefitsCheckup.org

© 2009. National Council on AgingA non-profit service and advocacy organization

Barbara R. Stucki, Ph.D.Vice President, Home Equity Initiatives

National Council on Aging

barb.stucki@ncoa.org541-322-5610