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: “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.