Pocatello Neighborhood Housing Services is offering third-party counseling services for the Home Equity Conversion Mortgage (HECM) program.

Pocatello Neighborhood Housing Services (PNHS) in Pocatello, Idaho, is a partnership of residents, businesses and government that increases housing opportunities and promotes revitalization in low- and moderate-income neighborhoods. PNHS offers NeighborWorks Full-Cycle Lending services, including homebuyer education; purchase and rehabilitation lending; and pre- and postpurchase counseling. The organization was incorporated in 1993 and became a NeighborWorks HomeOwnership Center in June 2000.
 
HECM is a federally-insured, reverse-mortgage loan program for seniors developed by the U.S. Department of Housing and Urban Development. The loans can be used for any purpose and are usually offered by conventional lenders. PNHS became involved with HECM in 1995.

Program Details.  HECM loans are standard reverse mortgages where homeowners ages 62 and up can borrow a percentage of their home’s equity. The allowable amount borrowed is based on the age of the homeowner, the home’s appraisal amount, and the current interest rate. Payments to borrowers are flexible and may be a lump sum, monthly payments, a line of credit, or any combination of the three. Borrowers pay origination, closing costs, mortgage insurance fees and a monthly servicing fee, but no repayments are due until the home is no longer owner-occupied. HECM customers are required to obtain mortgage counseling from an approved counseling agency prior to closing on the loan, which is where PNHS comes in.

PNHS’s Role.  There are two HECM counselors in Idaho – one at PNHS and one in Lewiston, Idaho – who offer third-party counseling to customers throughout the state. Homeowners interested in HECM loans are referred to the nearest counseling site. The loan counselors then meet with the customer to review program details. Most customers seek counseling before applying for the loan so they understand the program before assuming loan application costs.
 
Borrowers who live within 50 miles of PNHS must come to the office for the counseling session; those who live farther than 50 miles away receive counseling over the phone. Counseling sessions are typically between 30 and 60 minutes. Customers receive a HUD certificate from PNHS once they complete their session.

Staff and Training.  PNHS’ HomeOwnership Center manager, who received training to become a HUD counselor at a NeighborWorks Training Institute, conducts HECM counseling sessions four or five times a week, in addition to her standard work load. HECM customers can also get counseling through AARP.

Materials.  PNHS orders HECM books and materials from AARP. PNHS sends the books to customers before their counseling session so they can review the information and highlight any questions they have.

Marketing.  The HECM program is not marketed by PNHS but is marketed by HUD, AARP and local lenders who offer the product.

Program Costs and Funding.  The primary cost for PNHS is staffing, which amounts to between three and five hours a week. The only other program cost is long distance phone calls, which is minimal. Up to 88 HECM books can be ordered from AARP for free. Program costs are worked into the agency’s overall operating budget.

This program is a great way for PNHS to support homeownership preservation. It creates options for fixed-income households and helps them avoid predatory lending situations. Educating seniors and helping them make informed decisions also fits into PNHS’s overall mission as an agency. The program is popular and in demand; PNHS is booking counseling sessions one month in advance.
 
PNHS counsels about 250 HECM customers a year. Approximately 80 percent of those households pursue the mortgage. Most customers need the funds to supplement their monthly income and pay for medications.

• Use clear and simple language. HECM customers may lack financial experience and counselors must speak in terms they understand.
   
• Warn potential customers about the higher fees associated with HECM loans. Borrowers can, however, use their equity to pay for these fees.
   
• Use available resources. Connect with the agencies linked with this program including NeighborWorks America, HUD and AARP. More information is available at www.hud.gov (search the site index for HECM) and www.aarp.org.

Agency interview on 10-13-05 with Kris McKay, Mortgage Loan Officer