The National Foundation for Credit Counseling is offering free loss mitigation counseling for older homeowners who have reverse mortgages (RM) and struggle financially.

Thanks to a federal grant, the free program targets homeowners who've signed up for the most popular brand of reverse mortgage, the often controversial Home Equity Conversion Mortgage (HECM), administered by the U.S. Department of Housing and Urban Development (HUD).

Reverse mortgages are for borrowers 62 or older who need to tap into their home equity in order to increase their cash-flow. The loans offer cash payments or lines of credit tied to home equity. No payments are due until the borrower dies, leaves the home for 12 consecutive months or more, or fails to maintain the property or pay homeowners insurance or property taxes.

Under those circumstances, the full balance can become due. Borrowers also pay a loan origination fee, closing costs, and compounding interest on the loan principal, expenses which can add up and become financially troublesome according to "Examining Faulty Foundations in Today's Reverse Mortgages" released earlier this year by California Advocates for Nursing Home Reform, the Council on Aging Silicon Valley and Consumers Union.

AARP recently sued HUD over a HECM rule change that left surviving spouses holding the bag and facing foreclosure because of RMs they never signed for.

Because the loans are rife with difficult-to-understand terms, high risk and other problems, critics often advise alternatives and suggest seniors use them only as a loan of last resort.

In recent years of economic turmoil, a growing number of older homeowners found themselves house rich, but cash poor, and sought relief through a reverse mortgage, only to later face financial problems that impacted the mortgage.

"Seniors were not immune to the financial woes that have plagued Americans for the past few years, as many saw their retirement plans decimated by the downturn on Wall Street," said Gail Cunningham, spokesperson for the NFCC.

"Some are still struggling to keep their home, even after tapping into the resources generated by the reverse mortgage. This new counseling program is geared to help people cure their tax and insurance delinquencies and remain in their house, something that benefits the individual and the community," Cunningham said.

Because of the problems, the loans, like so many other residential real estate mortgages, are slated for regulatory overhaul.

After calling NFCC's toll-free number (1-866-363-2227) homeowners work with counselors on delinquent real estate taxes, property insurance, or any other property charges or special assessments such as condominium fees, homeowner's association dues, etc.

The free assistance is designed to help resolve the delinquency, determine options for additional financial assistance, explore other housing options, identify resources to provide transitional housing guidance and when appropriate, refer the borrower to a local Area Agency on Aging (AAA) for further guidance and counseling.

"Servicers are required to notify by letter all HECM borrowers who are delinquent on their taxes and insurance by April 29. Homeowners who have been notified, or those who are in danger of falling behind on their property charges, thus putting their home at risk of foreclosure, should reach out for this free help immediately," said Cunningham.

Published: April 28, 2011

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.