GAO Urges Closer Monitoring of Reverse Originations

The General Accountability Office is urging the Department of Housing and Urban Development to increase its monitoring of housing counselors who provide information about FHA reverse mortgages to senior citizens. GAO auditors secretly participated in 15 counseling sessions and discovered that counselors did not cover all the topics required by HUD. Seven of the 15 counselors did not discuss required information about alternatives to Federal Housing Administration reverse mortgages, which are known as 'home equity conversion mortgages.' GAO also noted some claims made by counselors are potentially misleading. One potentially misleading claim is that seniors are told they will "never owe more than the value of your house." HUD had approved this claim at one time, but later said it is not true in all situations, GAO said. "A borrower or heirs of a borrower would owe the full loan balance — even if it were greater than the value of the house — if the borrower or heirs chose to keep the house when the loan became due," said Mathew J. Scire, director of financial markets and community investment, in prepared testimony released Monday. The report also recommends that other federal regulators need to be "vigilant about emerging consumer protection risks" in the reverse mortgage market.