N4A HECM Intensive July 18, 2010 Home Equity Conversion Mortgage – HECM Basics Betsy Cromwell Office of Single Family Housing Program Support

Objectives 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 Coverage FHA 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 Coverage FHA 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 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 Requirements Basic Eligibility Requirements 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

Mechanics 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)

Mechanics 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 Counseling Lender is required to: – Send the prospective borrower to counseling – Provide list of 9 counseling agencies 4 Intermediaries 5 local agencies – one within reasonable driving distance

HECM 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 Counseling Counseling may be performed by telephone nationwide Must included in Housing Counseling Plan

HECM Counselor Roster HECM Counselor Roster A HECM counselor must ) 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 Roster HECM 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 Roster Counselors apply to be on Roster in FHA Connection Counselors use FHA Connection to create HECM Counseling certificates

HUD-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 Agency HUD-Approved Agency Applying directly to HUD – Requirements in HUD Handbook (found on-line in HUDClips) – compliance with fair housing and civil rights laws

HUD-Approved Agency HUD-Approved Agency HUD Approval Criteria Private or public non-profit with tax- exempt status Experience – administered housing counseling program for at least a year Compliance with fair housing and civil rights laws Ineligible Participants

HUD-Approved Agency HUD-Approved Agency HUD Approval Criteria - continued Community Base Recordkeeping and Reporting Client Management System Housing Counseling resources Knowledge of HUD programs and local housing market

HUD-Approved Agency HUD-Approved Agency HUD Approval Criteria – continued Community resources Facilities Housing Counseling Work Plan Conflicts of Interest and Disclosure Requirements

HUD-Approved Agency HUD-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 Agency HUD-Approved Agency National 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 Agency HUD-Approved Agency National 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 Agency HUD-Approved Agency State Housing Finance Agencies Contact to determine if receiving Housing Counseling funding and how to partner

HUD-Approved Agency HUD-Approved Agency To find HECM Counseling Agencies online m

HUD-Approved Agency HUD-Approved Agency To find Housing Counseling Agencies online

HUD Contact Information HUD Contact Information HUD Headquarters Betsy Cromwell

Improving the lives of older Americans Reverse Mortgage Counseling: How and Why Barbara Stucki, Ph.D. Vice President, NCOA Home Equity Initiatives N4A Conference, St. Louis MO, July 19, 2010

© National Council on Aging A 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.

© National Council on Aging A non-profit service and advocacy organization Why Reverse Mortgage Counseling Important?

© National Council on Aging A 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.

© National Council on Aging A 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

© National Council on Aging A 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).

© National Council on Aging A non-profit service and advocacy organization RMs May Be Key to Retirement Security Source: Center for Retirement Research at Boston College

© National Council on Aging A non-profit service and advocacy organization What is Reverse Mortgage Counseling and How Does it Work?

© National Council on Aging A 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.

© National Council on Aging A 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

© National Council on Aging A non-profit service and advocacy organization Partnering with NCOA

© National Council on Aging A 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 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.

© National Council on Aging A 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.

© National Council on Aging A 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.

© National Council on Aging A 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 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.

© National Council on Aging A non-profit service and advocacy organization Role of the Aging Network

© National Council on Aging A 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.

© National Council on Aging A 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?

© National Council on Aging A 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 +

© National Council on Aging A non-profit service and advocacy organization 47 Foster Access to Benefits 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

© National Council on Aging A non-profit service and advocacy organization Barbara R. Stucki, Ph.D. Vice President, Home Equity Initiatives National Council on Aging