Cuts Would Eliminate Counseling While Reverse Mortgage Delinquencies Rise

A pilot program designed to avoid Home Equity Conversion Mortgage delinquencies is gaining track among seniors in need of help at about the same time pending legislation calls for cuts of all funding for federally mandated reverse mortgage counseling.

The FY 2011 Continuing Appropriations Act (H.R. 1473)—scheduled to pass Congress in mid-April—would eliminate $88 million in HECM counseling funds.

According to insiders it is bad timing because this year HECM delinquencies are on an upward trend.

Over 400,000 seniors whose retirement plans were negatively affected by the financial crisis of the past few years have opted for a Home Equity Conversion Mortgage to improve their financial situation. About 30,000 seniors age 62 and older or 5% of all HECM holders who tapped into their home equity but did not vacate the property are now delinquent.

Helene Raynaud, a spokesperson for the National Foundation for Credit Counseling, which is one of only eight HECM counseling agencies that share the grant funds, told this publication in cooperation with HUD the agencies are addressing the problem proactively. Long-term counseling is critical for people who have suffered a major economic impact due to the crisis, she said.

Barbara Stucki, vice president of home equity initiatives at the National Council on Aging—another agency that will be impacted by the cuts—called the new budget proposal “a major setback” that increases the financial vulnerability of elderly.

The Home Ownership and Economic Recovery Act of 2008 launched HECM as the housing crisis started to deepen. In 2009 HECM business growth hopefuls saw opportunity in the numbers: about 40 million homeowners aged 62-100 and about 78 million aged 55-65. The program was seen as a lifesaver until excessive home price declines thwarted hopes to see a HECM market boom. However, there was enough demand from seniors who lost financial resources to the crisis.

Earlier this year the Department of Housing and Urban Development designated an additional $3 million to come to the rescue of reverse mortgage borrowers at risk of foreclosure because they cannot afford to pay or have fallen behind on their property charges. Existing funds were used to comply with the mandatory counseling requirement that applies to all qualifying borrowers before they receive a HECM.

The loss mitigation counseling program was launched by January, but borrower awareness and response to the pilot program started to pick up late in February and early March, Raynaud said. “Now we’re seeing much more activity.”

HUD has placed an April 29 deadline on servicers mandating they notify by letter all HECM borrowers who are delinquent on their real estate taxes, property insurance, or any other property charges or special assessments such as condominium fees and homeowner’s association dues.

Since HUD regulations contain specific requirements governing the payment of property charges by the mortgagor, the program provides additional loss mitigation options to the borrowers whose mortgage is delinquent due to unpaid property charges. It connects these borrowers with certified HECM and loss mitigation housing counselors free of charge.

Foreclosure is the last option in a program that was carefully designed “with the reputational risk in mind,” she said, and all options are reviewed to ensure borrowers receive a social benefits’ analysis. NFCC has recruited 25 of its most qualified HECM and loss mitigation counselors from 14 different member agencies across the country. Homeowners who have been notified of their delinquency status by the servicer and those who are not able to pay their property charges can access these counselors dialing a toll-free number.

The lack of affordable senior housing is a long-standing problem, but according to customer advocacy groups the problem is growing more acute.

NCA reported that for every unit of federal housing assistance that becomes available, 10 seniors are on waiting lists. Meanwhile the number of homeless seniors continues to increase, NCA said, quoting survey findings that show 1.3 million elders have worst-case housing needs with one in three seniors being economically insecure because they live on annual incomes of less than $22,000.

These data coupled with the slow economic recovery suggest that after a HECM foreclosure the future of retired homeowners who as a rule are more secured financially than their peers of lesser means is also threatened by proposed federal budget cuts that drastically reduce affordable housing and part-time job options for seniors.

Jim Firman, president and CEO of the council, recently urged Congress and the Obama administration to make investments in jobs and housing programs for older Americans “who are just one bad break away from bankruptcy and homelessness.”

H.R. 1473 proposes cuts of $425 million, or 51%, in the Section 202 Supportive Housing for the Elderly program and $375 million, or 45%, in the Senior Community Service Employment Program. The bill “seriously undermines the only federally funded jobs and housing programs” specifically designed for low-income seniors, NCA said.