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Federal Housing Administration Sets Stricter Rules for Reverse Mortgage Counselors

December 15, 2009

As Ontario predatory lending attorneys, we were pleased to see a Dec. 4 article in the New York Times announcing that the federal government is increasing the help provided to homeowners considering reverse mortgages. According to the article, the Federal Housing Administration, which insures reverse mortgages, has increased its standards for required reverse-mortgage counseling since an investigation found numerous counselors omitting important information. In fact, the Government Accountability Office found that none of the 15 counselors its agents visited covered all of the topics required, and that seven failed to discuss alternatives to reverse mortgages. In response, the FHA has required new testing, training and protocols.

In reverse mortgages, borrowers ages 62 and older put a lien on their homes to receive monthly or lump-sum payments out of existing equity. The lender is repaid after the borrower dies, sells the home or permanently moves out. This can provide important income to seniors, but it also raises predatory lending concerns. The FHA's stricter counseling rules require counselors to pass a test used by the AARP to qualify its own counselors, and attend new training sessions every two years. Counselors will also be required to follow a set procedure to determine whether a reverse mortgage would actually help the prospective borrower. If not, they may suggest alternatives such as social service programs, the Times said. And if they cannot determine with confidence that the client fully understands the information, they are required to deny the counseling certificate required for taking out a loan.

Our Fountain Valley predatory lending lawyers applaud the FHA for tightening its standards in this way. Senior citizens are an attractive target for financial fraud because they tend to have high savings and lots of home equity, but may be losing their rationality. Reverse mortgages are also used by seniors who genuinely need the money -- but they are more expensive than traditional mortgages and home equity loans, which raises exploitation concerns. The requirement to speak with an independent counselor before proceeding with a loan is intended to address these concerns, but as the article noted, counselors don't always do the job expected of them. This leaves borrowers unprotected from making a serious, sometimes irreversible financial mistake that can take away their financial security or even their homes.

Nonetheless, federal and state laws protect all borrowers who were induced to take out loans, including reverse mortgage loans, under false or misleading circumstances. This includes laws against misrepresenting the cost of the loan; failing to disclose all terms of the loan; providing a contract in a language different from the one used for negotiations; and many other deceptive practices. If a reverse mortgage lender breaks one of these laws, borrowers and their loved ones have the right to sue. Howard Law LLP is proud to represent Californians who are victims of predatory lending. Our Dana Point predatory lending attorneys help clients sue to cancel the loan entirely; recover all of the money paid under false pretenses; and collect financial damages when appropriate as punishment for blatant law-breaking.

If you believe you or a loved one was misled or outright lied to when you took out a home loan of any kind, you should contact Howard Law right away for help. We offer free consultations at absolutely no further obligation to you. To set up a meeting, please send us a message through our Web site or call 1-800-872-5925 toll-free.