Senior Safeguards for Reverse Mortgages: Protecting Seniors from Exploitation
Reverse mortgages can be a great way for eligible seniors to tap into a portion of their home’s equity, or purchase a home, but they can also be confusing and potentially risky without the proper guidance and information. To ensure that senior borrowers are protected from being taken advantage of, several safeguards have been put into place by the government and other industry organizations.
A few of these safeguards are covered here:
Counseling Requirements
One of the most important safeguards for reverse mortgages is the requirement for counseling. Before a lender can begin the official processing of a reverse mortgage, the borrower must undergo mandatory counseling from an independent third party. The counseling session is designed to help seniors understand the risks and benefits of reverse mortgages, as well as their alternatives. The goal is to ensure that seniors fully understand the loan terms of the reverse mortgage and are not being taken advantage of by an unprofessional lender.
A counseling appointment is required of all occupying borrowers, or those on title, A list of counselors will be provided, and you also have the ability to find your own (however, prior to doing this, please check with the lender to ensure that they have been vetted by the lender as being legitimate)
The counselors are trained specifically for this purpose and serve as an advocate for the borrower to ensure that they fully understand the program and that the lender has explained it thoroughly. Their fees will vary, depending on the counselor. And typically range between $125 and $175. The counseling appointment can be conducted over the phone, via skype, or in-person, depending on your preference and needs. Should there be any questions or concerns from family members, they are allowed and even encouraged to attend (though no fee is charged for them to do so, of course). The counselor will require payment up-front or at time of service. The counseling certificate is good for 6 months. Should that time elapse, another appointment will be required.
Important: Counselors have no affiliation with any lender and the lender is not allowed to recommend a specific counselor to you. The list you will be provided with is generated through HUD and is not an internal list compiled by the lender.
Additionally, an official loan process cannot begin until the counseling appointment has been completed and a certificate generated by the counselor. Some state regulations also require an additional wait period after the counseling appointment prior to the lender initiating the official loan process.
Lender Regulations
To protect seniors from unethical or abusive lenders, several regulatory measures have been implemented. For example, the Federal Housing Administration (FHA) sets rules that lenders must follow when offering reverse mortgages insured by the FHA. These rules include limits on fees, guidelines for appraisals, and requirements for the loan process.
Another important regulatory safeguard is the Home Equity Conversion Mortgage (HECM) program. Created by the Department of Housing and Urban Development (HUD), the HECM program sets standards that lenders must meet to participate in the program. This includes requirements for financial stability, ethical behavior, and compliance. To ensure that lenders follow the rules, they are regularly audited and may be subject to penalties for violations.
Consumer Protections
In addition to counseling and lender regulations, there are several consumer protections in place to safeguard seniors. For example, seniors have the right to rescind or cancel their reverse mortgage within three business days of closing. This gives seniors the ability to change their mind and avoid a potentially harmful decision based on any misinformation or misunderstanding discovered at signing.
Another consumer protection is the provision for non-recourse loans. The difference between recourse and non-recourse debt is the ability of the lender to take the assets of the borrower if the debt is not paid. Non-recourse debt favors the borrower, while recourse debt favors the lender. Thus, on a reverse mortgage, the lender cannot pursue repayment of the debt from the borrower – or the heirs - by seizing designated borrower assets.
This means that if the home's value should decrease due to reasons not associated with the borrower (such as borrower neglect which puts the home into disrepair), the borrower will not owe more than the home is worth. Additionally, if the senior passes away and the sale of the home does not cover the loan balance, the lender cannot go after the senior's heirs for the difference.
Overall, the senior safeguards for reverse mortgages aim to prevent seniors from being taken advantage of and ensure that they fully understand their options and obligations.
I, along with CrossCountry Mortgage, strictly adhere to the rules and regulations designed to protect senior homeowners and borrowers, allowing them to make informed decisions and avoid exploitative practices. One safeguard we implement is with the certification process for our Reverse Mortgage loan originators. I am proud to have not only passed CrossCountry’ s rigorous requirements but have also satisfied the requirements to qualify for the national Certified Reverse Mortgage Professional designation.
