Commentary:
I read with great interest and anticipation just what our prospective reverse mortgage borrowers would face with HUD’s new counseling protocol which includes a Financial Interview Tool [Update: Shortly after writing this commentary the NCOA FIT & Benefits Checkup are no longer available without a secure login] . Reverse Mortgage Daily was kind enough to include the above-mentioned link in their article.
I should have waited. The night before,  driven by curiosity, I had spent fruitless hours searching for the elusive FIT .
Does the F.I.T. solve anything?
My fears that the FIT would pry into every facet of seniors finances were quickly dispelled (The Benefits Check-Up is another matter). However after reviewing the entire protocol on question comes to mind:Â “Do the F.I.T. & Benefits Check-Up address the key risks of T & I default or only exhaust and repel seniors from obtaining a reverse mortgage?”
Having heard rumblings of the new protocol at the beginning of the year I began to prepare myself and my borrowers. Anticipating that a true household budget would be required I developed the necessary forms and spreadsheets (yes… I am a geek) that would isolate obligations such as property taxes and homeowner’s insurance and calculate cash flow changes.
What’s Inside the FIT?
Besides questions on goals and general health, the financial questions are sparse at best. Numbers are required for total income and how much of that income is from Social Security. Also the borrower is asked if they don’t get a reverse mortgage would they have difficulty paying for everyday expenses.
…But here’s the real rub…
The FIT questions do absolutely nothing to help prevent the dreaded possibility of the borrower defaulting on tax & insurance payments. No questions are asked on how much they pay each year (or month) for these key items nor how they are currently paid! However according to the new protocol….
“While completing FIT, a counselor may determine that completing a monthly or annual budget would further benefit the client however, this is not required.”
(my emphasis added)
This came as a great surprise since an article in Reverse Review this last April mentioned the FIT would help prevent borrowers from being unable to meet their financial obligations while having a reverse mortgage.  In addition the total income figures are based merely on the borrower’s own statements requiring no verification.
So is the borrower off the hook in providing detailed financial information? No…not just yet.
Part of the F.I.T. is the requirement that borrowers whose gross income is less than 200% of Federal Poverty Level (FPL) are required to complete NCOA’s Benefit Check Up (BCU). Fine, but are your borrowers prepared to divulge the finer details of all their income sources or the location and value of all their assets ?
In conclusion while the new HUD counseling protocol, FIT and BCU are well intentioned they are in fact problematic. The financial data gathered doesn’t address tax and insurance default risks and the Benefits Check Up (when required) could scare away the seniors who need a reverse mortgage the most.
Assessing needs and available programs for seniors is admirable; however, the unintentional consequences may include forcing HUD counselors into the role of a “mandated” financial advisor. In addition we must be careful to avoid our seniors feeling that HUD counseling is much like applying for welfare or federal needs-based programs.
The new FIT & BCU will be mandated to all HUD counselors on September 11, 2010. Let’s hope that these tools can be refined to better avoid T&I defaults and give the senior the ability to opt-out of extensive questions they don’t feel comfortable sharing with a total stranger on the phone.
Our borrowers better pack a picnic and get comfortable for their future HUD counseling session.
9 Comments
Benefits Check Up? So who checks up on the benefits and whether they are available day by day? Read a comment somewhere else and totally agree that with all the state and local budget cuts going on, it is very likely that after all the poking and prodding around the senior’s financial condition the programs the counselors refer them to will be unavailable.
The most critical aspect of any financial analysis is the reliability of the data going into the process. Unfortunately the mortgage industry found this out the hard way when it relied on SISA (stated income, stated asset) information. Unreliable data produced unreliable results. The same could be exactly the same here.
While the system is more automated, automation should not be understood to mean the results are reliable. However, it is not just the unverified data that is at issue, it is also interpreting questions so that one is providing the answer for what is being asked.
For example, if a senior is asked how short they are on living expenses, a separate question on how short they are on medical expenses, and a final question on how short they are on other expenses, do we really think the total will add up to how short their budget is for a month? What a truly odd approach.
This is not an all or nothing proposition. Things will change over time but it is most important to correct known problems at the start.
Many Seniors are very skeptical when it comes to disclosing detailed information about their fianances. I am not sure that this new Financial Interview Tool is something Reverse Mortgage candidates will be excited about. I can see an awful lot of false information being distributed simply because Seniors in general do not and will not disclose personal information. In today’s market many of my Senior clients tell me that they are very clear on why a Reverse Mortgage is best for them. In many instances without the Reverse Mortgage they would not be able to maintain a comfortable living style. The HECM, in 99.9% of the cases has always been difference in affording to live in their current homes or having to move. As stated in the article, the main challenge expeerienced my many Seniors is how to maintain the taxes and insurance and there is no clear cut answer to that in the new process. So is this just another attempt to “make believe” we are interested in the welfare of the consumers, when it fact what is being done is more trouble than it’s worth?!?!
MOST seniors, do not want to give their complete financial data to a total stranger, especially over the telephone. How many times have we heard from a counselor that you cannot get a reverse mortgage when you have a life estate? And now we are supposed to trust the “housing counselor” to become a financial planner?
We are treating our seniors as if they were children, uncapable of thinking on their own. The original purpose of reverse mortgage counseling was to make sure the senior was aware of how they worked – negative amortization, and that they ‘could’ be expensive – that part is changing slightly now. They also should go into the pros and cons of a fixed vs. and adjustableb but I have have not heard that happening.
How can you establis the ‘fitness’ of someone in a 1 hour, telephone interview, especially when most of that hour would be spent gathering information.
Sorry to the folks at HUD, but you got it all wrong on this attempt.
You want to help seniors, drastically reduce, and I do mean by a lot, the required number of disclosures that the senior has to sign that don’t mean anything. Then maybe some of the important information would have value. Maybe.
Could not agree more that this new process, as well intentioned as it may be, is a product of beaurocrats trying to regulate without any idea as to the real world realities. In political terms, you’ve heard that there is a “washington” disconnect that we That – is most evident here. We anticipate a DRAMATIC drop in business, counselings that will take weeks to complete – and headaches for all across the board.
The motto shouldn’t be “Why do things the easy way” when designing these protocols. I’m not making these observations as a lender, but as a counselor!
The problem I see is that it is too difficult for seniors and their families to find all the services and progrmas that they may be eligible for. In my community we have “The Resource Center” where seniors can go to have an evaluation of eligiblity for different programs, check ups on Medicare part D to insure that you have the best program, get a book listing all the services available and their addresses and phone numbers. But not everyone is so lucky.
I am in close contact with 2 local HECM counselors through a prevention of elder abuse coalition in our community. Both have mentioned the benefits review, which they “offer” but do not require. It is not pushed on them. The seniors who have accepted the offer have, apparently, been staified with the results, and did not refuse to continue with the reverse morgage.
Personally, I have no problem with my borrowers finding out if they qualify for additional programs that can assist them in reduceing their living expenses. If this information comes through HECM counseling all the better. Just prepare your borrowers. It all makes us look like heros in the borrowers eyes.
I am planning on applying for the “Reverse Mortgage”. I have spoken to several perspective lenders, and listened to all the “pro’s and con’s”. I have had councelors play devils advocate in order to get as un-biased an opinion as posiible. That way, I will go into this assistance package with my eyes wide open.
After weighing all that I have at my disposal, I feel that this is best for ME. Not for everyone, but for my current situation. I see no invasion of privacy in financial disclosures that are meant to protect the borrower AS WELL AS THE LENDER. Why should a possible borrower want to hide certain assets or other income bearing sources, other than to deceive the program, and once again, try to get away with something they DON’T desrve.
In some respects, I wish that the requirements, and proof of adherence to them, were more stringent. This would help the truly needy borrower who is following the rules, and stop the people who are always out to beat the system. All programs that were started with the best of intentions, are subject to those cheaters and low life individuals who have nothing better to do than scam the public. If they spent as much energy directed for the good, they would do the world a service.
I couldn’t refrain from commenting. Perfectly written!
Thank you Ed.