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Aging in Place & Avoiding Aging in Place & Avoiding Predatory Lending – A Survival Predatory Lending – A Survival
Guide for Counseling & Ensuring Guide for Counseling & Ensuring Financial Security for Older Financial Security for Older
AmericansAmericans
Using Reverse Mortgages for Using Reverse Mortgages for Aging in Place – Key Issues and Aging in Place – Key Issues and
RisksRisks
Barbara StuckiBarbara StuckiVice President, Home Equity InitiativesVice President, Home Equity Initiatives
National Council on AgingNational Council on Aging
National Council on AgingNational Council on Aging NCOA is a national voice for older adults—
especially those who are vulnerable and disadvantaged—and the community organizations that serve them.
We are one of five HUD-approved HECM Counseling Intermediaries. Offer RM counseling by phone nationwide and in-
person. RMCS Network of social service agencies in 19 states.
NCOA is committed to helping older homeowners make wise decisions about using home equity. We conduct policy research to enhance consumer
protections and improve the marketplace.
Reverse Mortgage BasicsReverse Mortgage Basics Most RMs are FHA-insured HECM loans (98%). The size of the loan depends on:
Age of the youngest borrower. Value of the home and the amount of built-up equity. Interest rates at the time of origination.
Types of HECM loans. HECM Traditional and HECM Saver. Adjustable and fixed-rate loans. HECM for home purchase.
Payment options -lump sum, line of credit, monthly payments (up to life in the home), or a combination
Loan can impact eligibility for Medicaid and SSI.
Consumer ProtectionsConsumer 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. Heirs (including non-borrower spouses) who want
to keep the house pay the full loan amount.
No foreclosure risk if borrowers continue to pay property taxes, insurance, and maintain the home.
Limits on the interest rate and origination fee. Mandatory counseling before can apply for
loan.
Housing Bubble Fueled Housing Bubble Fueled Financial OptimismFinancial Optimism
Dynamic Market as Borrower Dynamic Market as Borrower Age DeclinesAge Declines
Age Group
Percent
Sources; Rodda et al. (2000); Reverse Market Insights Inc. (2011)
Withdrawing Large Sums Withdrawing Large Sums Depletes Equity, Increases Depletes Equity, Increases
Foreclosure RiskForeclosure Risk
$0
$50,000
$100,000
$150,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Duration of Loan (years)
Amount of Remaining Equity
$600 monthly
TENURE payment
$2,000 per month
CREDIT LINE payment
Credit line exhausted
Factors Affecting SuitabilityFactors Affecting Suitability• Duration of stay in home – Long versus short?
Short stay – Loan type, upfront loan costs. Moderate stay – Transition out of home, remaining equity. Long stay – Sustainability, interest rates.
• Funds needed – Small versus substantial? How long may funds last? Can they meet their goals? Impact of upfront lump sums on remaining equity.
• Ability to stay home – Likely versus unlikely? Recent health changes, isolation, home environment. Availability and cost of additional help.
• Dependence on loan – High or low? Payment options – Monthly payments versus credit line? Other supports – Family, community, public programs.
Reverse Mortgage CounselingReverse Mortgage Counseling Conducted by 800+ independent counselors
from HUD-approved agencies. Counselors must pass the HUD exam and register on
the HECM Roster. Regular training required to maintain status.
The HECM counseling session will cover: Client goals for using a reverse mortgage. 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.
Improvements in HECM CounselingImprovements in HECM Counseling
13
BenefitsCheckUp 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
Finding Meaningful OptionsFinding Meaningful Options
www.BenefitsCheckUp.org
Reverse Mortgage Default Reverse Mortgage Default CounselingCounseling
New HUD guidelines on HECM foreclosure for servicers and borrowers - January 2011 . Estimate up to 30,000 borrowers in default (5%). Delinquent in paying property taxes and/or insurance.
Free counseling by 125 HUD-approved counselors. Not mandatory. Funded by HUD grants this year. Counselors do a budget analysis, work out a repayment
plan, help clients access benefits, discuss options. Coordination with Aging Network - AoA, N4A, NASUAD.
NCOA “Soft Landing” Pilot Project Partnership with NRMLA and loan servicers. Up to 50 high-risk borrowers get intensive help from
case managers in four agencies (MI, TX, FL, CA).
Evolving Consumer Risks and Evolving Consumer Risks and Effective ResponsesEffective Responses
Must help homeowners deal with new retirement financing realities that may include home equity. Boomers are becoming eligible for reverse
mortgages. Consumer protections for young and old borrowers.
Encourage pre-lender counseling. Inform homeowners about loan options and other
strategies before they talk to a lender. Promote collaborative efforts to find real solutions.
Younger borrowers need an exit strategy. Must consider life issues and transitions (spouse). Analyze new data on consumer behavior and risks.
Barbara R. Stucki, Ph.D.Vice President, Home Equity Initiatives
National Council on Aging
