GAO 

United States Government Accountability Office

Testimony 

Before the Special Committee on Aging, 

U.S. Senate

REVERSE MORTGAGES

Product Complexity and 

Consumer Protection Issues 

Underscore Need for 

Improved Controls over 

Counseling for Borrowers 

Statement of Mathew J. Scirè, Director 

Financial Markets and Community Investment 

For Release on Delivery 

Expected at 9:00 a.m. CDT 

Monday, June 29, 2009 

GAO-09-812T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

June 29, 2009

REVERSE MORTGAGES

Product Complexity and Consumer Protection Issues

Underscore Need for Improved Controls over 

Highlights of GAO-09-812T, a testimony to Counseling for Borrowers

the Senate Special Committee on Aging 

T

Reverse mortgages—a type of loan 

against the borrower’s home that is 

available to seniors—are growing 

in popularity. These mortgages 

allow seniors to convert their home 

equity into flexible cash advances 

while living in their homes. 

However, concerns have emerged 

about the adequacy of consumer 

protections for this product. Most 

reverse mortgages are made under 

the Department of Housing and 

Urban Development’s (HUD) Home 

Equity Conversion Mortgage 

(HECM) program. HUD insures the 

mortgages, which are made by 

private lenders, and oversees the 

agencies that provide mandatory 

counseling to prospective HECM 

borrowers. 

GAO was asked to examine issues 

and federal activities related to 

(1) misleading HECM marketing, 

(2) the sale of potentially 

unsuitable products in conjunction 

with HECMs, and (3) the oversight 

of HECM counseling providers. 

This testimony is based on a GAO 

report being released today (GAO09-606). 

What GAO Recommends

GAO’s report made 

recommendations designed to 

address potentially misleading 

marketing of HECMs and improve 

HUD’s oversight of HECM 

counseling providers. The federal 

banking regulators agreed with the 

recommendations. HUD and FTC 

did not comment on them. 

While HECMs have the potential to play a key role in meeting the needs of 

seniors facing financial hardship or seeking to improve their quality of life, the 

product is relatively complex and costly and the population it serves is 

vulnerable. GAO’s work identified areas of consumer protection that require 

further attention, including the area of HECM marketing. Various federal 

agencies have responsibility for protecting consumers from the misleading 

marketing of mortgages. Although these agencies have reported few HECM 

marketing complaints, GAO’s limited review of selected marketing materials 

for reverse mortgages found some examples of claims that were potentially 

misleading because they were inaccurate, incomplete, or employed 

questionable sales tactics. Federal agency officials indicated that some of 

these claims raised concerns. For example, the claim of “lifetime income” is 

potentially misleading because there are a number of circumstances in which 

the borrower would no longer receive cash advances. Consumers who have 

not been cautioned about such claims could pursue HECMs with 

misunderstandings about the product. 

To date, federal agencies have had a limited role in addressing concerns about 

the sale of potentially unsuitable insurance and other financial products in 

conjunction with HECMs (known as “inappropriate cross-selling”). States 

generally regulate insurance products, and some of the states GAO contacted 

reported cases of inappropriate cross-selling involving violations of state laws 

governing the sale of insurance and annuities. HUD is responsible for 

implementing a provision in the Housing and Economic Recovery Act of 2008 

that is intended to restrict inappropriate cross-selling, but the agency is in the 

preliminary stages of developing regulations. 

HUD's internal controls do not provide reasonable assurance that counseling 

providers are complying with HECM counseling requirements. GAO's 

undercover participation in 15 HECM counseling sessions found that while the 

counselors generally conveyed accurate and useful information, none of the 

counselors covered all of the topics required by HUD, and some overstated 

the length of the sessions in HUD records. For example, 7 of the 15 counselors 

did not discuss required information about alternatives to HECMs. HUD has 

several internal controls designed to ensure that counselors convey required 

information to prospective HECM borrowers, but has not tested the 

effectiveness of these controls and lacks procedures to ensure that records of 

counseling sessions are accurate. Because of these weaknesses, some 

prospective borrowers may not be receiving the information necessary to 

make informed decisions about obtaining a HECM. 

View GAO-09-812T or key components.

For more information, contact Mathew J. 

Scirè at (202) 512-8678 or sciremj@gao.gov. 
Page 1 GAO-09-812T 

Chairman Kohl, Ranking Member Martinez, and Members of the Special 

Committee: 

I am pleased to be here to participate in today’s hearing on reverse 

mortgages. A reverse mortgage is a loan that converts the borrower’s 

home equity into payments from a lender and, typically, does not require 

any repayments, as long as the borrower continues to live in the home. 

Available to homeowners aged 62 and older, these loans have become an 

increasingly popular financial tool for seniors, but concerns have emerged 

about the adequacy of consumer protections for reverse mortgage 

borrowers. For example, some consumer advocates have expressed 

concern about misleading marketing and inappropriate cross-selling—the 

practice of encouraging borrowers to use reverse mortgage funds to 

purchase insurance or other products that may be unsuitable for the 

borrower’s financial situation. The Housing and Economic Recovery Act 

of 2008 (HERA) acknowledged some of these concerns by putting in place 

additional consumer protection measures. According to industry sources, 

almost all reverse mortgages are currently made under the Home Equity 

Conversion Mortgage (HECM) program, which is administered by the 

Department of Housing and Urban Development (HUD). This program has 

experienced dramatic growth with an increase in both the number of 

HECM loans and the number of lenders participating in the HECM 

program. Since the inception of the HECM program, Congress has 

required prospective borrowers to obtain counseling by an independent 

third party so that they can make informed decisions about whether to 

obtain a HECM. 

My testimony today is based on work we conducted at the request of 

Chairman Kohl and Senator McCaskill for a report that we are issuing 

today.1

 My statement discusses federal agency activities for (1) protecting 

consumers from misleading HECM marketing, (2) protecting HECM 

borrowers from inappropriate cross-selling, and (3) overseeing HECM 

counseling providers. 

To do this work, we spoke with agency, industry, and nonprofit officials, 

including those at HUD, federal and state banking regulators, AARP, and 

the National Reverse Mortgage Lenders Association (NRMLA). To examine 

 

1

GAO, Reverse Mortgages: Product Complexity and Consumer Protection Issues 

Underscore Need for Improved Controls over Counseling for Borrowers, GAO-09-606

(Washington, D.C.: June 29, 1999). 
federal agency responsibilities to protect consumers from misleading 

HECM marketing, we identified authorities, standards, and processes that 

HUD, the Federal Trade Commission (FTC), and four federal banking 

regulators use to identify and address misleading marketing practices. We 

also conducted our own review of HECM marketing materials, including 

Internet and mailed materials for major HECM lenders.2

 We also 

conducted Internet searches for materials with potentially misleading 

statements and collected materials from seven reverse mortgage 

information seminars. To examine the steps federal agencies have taken to 

protect HECM borrowers from inappropriate cross-selling, we reviewed 

the HERA provisions on cross-selling, HUD’s actions to implement the 

provisions, and other HUD and federal regulator activities related to these 

practices. In addition, we compiled examples from state insurance 

regulators of cross-selling that violated state insurance laws. To examine 

HUD’s oversight of HECM counseling providers, we identified the internal 

controls that HUD currently has in place to ensure compliance with HUD 

counseling requirements and tested the effectiveness of these controls by 

conducting 15 undercover counseling sessions with HUD-approved 

counselors. The findings from the 15 counseling sessions cannot be 

generalized to all HECM counseling sessions or sessions conducted by 

particular counseling agencies. 

We conducted this performance audit from April 2008 through June 2009, 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. In addition, our investigative 

work was performed in accordance with standards prescribed by the 

Council of the Inspectors General on Integrity and Efficiency. 

While HECMs have the potential to play a key role in meeting the needs of 

seniors facing financial hardship or seeking to improve their quality of life, 

the product is relatively complex and costly and the population it serves is 

vulnerable. These factors, combined with the increasing number of 

borrowers and lenders participating in the HECM program, underscore the 

Summary 

 

2

This part of our review focused on materials from the 12 lenders that originated at least 

1,000 HECMs in fiscal year 2008. 

Page 2 GAO-09-812T 
need for federal agencies to be vigilant about emerging consumer 

protection risks. Our work identified areas of consumer protection that 

require further attention, particularly in the areas of HECM marketing and 

counseling. 

• Although federal agencies reported few HECM marketing complaints, our 

limited review of selected marketing materials for reverse mortgages 

found some examples of claims that were potentially misleading because 

they were inaccurate, incomplete, or employed questionable sales tactics. 

The existence of these claims suggests that some HECM providers may 

not be maintaining sufficient focus on or awareness of federal marketing 

standards. Furthermore, prospective borrowers could pursue HECMs with 

misunderstandings about the product unless they receive corrected 

information. 

• To date, federal agencies have had a limited role in addressing concerns 

about the sale of potentially unsuitable insurance and other financial 

products in conjunction with HECMs (inappropriate cross-selling). States 

generally have been responsible for regulating insurance products, and 

some of the states we contacted reported cases of inappropriate crossselling involving violations of state laws governing the sale of insurance 

and annuities. However, HUD is now responsible for implementing 

provisions in HERA that are intended to restrict inappropriate crossselling. 

• HUD’s internal controls do not provide reasonable assurance that 

counseling providers are complying with HECM counseling requirements. 

As previously noted, Congress mandated counseling to help prospective 

borrowers make informed decisions about HECMs. Our participation in 15 

HECM counseling sessions found that while the counselors generally 

conveyed accurate and useful information, none of the counselors covered 

all of the topics required by HUD. Additionally, some overstated the length 

of the sessions in HUD records. 

To strengthen consumer protections for HECMs, we are recommending that 

HUD, FTC, and the federal banking regulators take steps to strengthen 

oversight and enhance industry and consumer awareness of the types of 

marketing claims that we discuss in this testimony. We are also 

recommending that HUD take steps to improve the effectiveness of its 

internal controls, such as by verifying the content and length of HECM 

counseling sessions. In written comments on our report, the federal banking 

regulators agreed with our recommendations. HUD and FTC did not 

comment on them. 

Page 3 GAO-09-812T 
A reverse mortgage is a loan against the borrower’s home that the 

borrower does not need to repay for as long as the borrower meets certain 

conditions. These conditions, among others, require that borrowers live in 

the home, pay property taxes and homeowners’ insurance, maintain the 

property, and retain the title in his or her name. Reverse mortgages 

typically are “rising debt, falling equity” loans, in which the loan balance 

increases and the home equity decreases over time. As the borrower 

receives payments from the lender, the lender adds the principal and 

interest to the loan balance, reducing the homeowner’s equity. This is the 

opposite of what happens in forward mortgages, which are characterized 

as “falling debt, rising equity” loans. With forward mortgages, monthly loan 

payments made to the lender add to the borrower’s home equity and 

decrease the loan balance. 

Background 

The HECM program began in 1988, when Congress authorized HUD to 

insure reverse mortgages to meet the financial needs of elderly 

homeowners.3

 While HECMs can provide senior homeowners with 

multiple types of benefits, including flexibility in how they use the loan 

funds and protection against owing more than the value of the house when 

the loan comes due, HECM costs can be substantial. The volume of 

HECMs made annually has grown rapidly, rising from 157 loans in fiscal 

year 1990 to more than 112,000 loans in fiscal year 2008. In addition, recent 

years have seen a large increase in the number of lenders participating in 

the HECM program, with more than 1,500 lenders originating their first 

HECM in 2008, bringing the total number of HECM lenders to over 2,700.4

A number of federal and state agencies have roles in overseeing the 

reverse mortgage market. These agencies include HUD, which administers 

the HECM program and oversees entities that provide mandatory 

counseling to prospective HECM borrowers. In addition, the Federal Trade 

Commission (FTC), federal and state banking regulators, and state 

insurance regulators are involved with various aspects of consumer 

protections for HECM borrowers. 

 

3

12 U.S.C. §1715z-20 (a). 

4

About 10 percent of these lenders originated 80 percent of all HECMs in 2008. 

Page 4 GAO-09-812T 
Various state and federal agencies have some responsibility for assessing 

marketing for reverse mortgage products, including FTC, federal and state 

banking regulators, and HUD. The agencies each have a responsibility for 

different segments of the reverse mortgage market, but have reported 

taking few, if any, enforcement actions against an entity as a result of 

misleading reverse mortgage marketing. FTC has responsibility for 

protecting consumers against unfair or deceptive practices originating 

from nonbank financial companies, such as mortgage brokers.5

 FTC 

officials said they have not systematically searched for potentially 

misleading reverse mortgage marketing, but noted that they are 

maintaining an awareness of the potential risks associated with reverse 

mortgage marketing and have formed a task force of state and federal 

regulators and law enforcement agencies, in part to learn about 

complaints related to reverse mortgages. In addition, the federal banking 

regulators—the Board of Governors of the Federal Reserve System 

(Federal Reserve), Office of the Comptroller of the Currency (OCC), Office 

of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation 

(FDIC) and the National Credit Union Administration (NCUA)—include a 

review of reverse mortgage marketing materials in their compliance 

examinations of lenders for whom they have responsibility, but, because 

few of their regulated lenders offer reverse mortgages, they have not 

conducted many examinations that have included these loans.6

 Like FTC, 

federal banking regulators are maintaining an awareness of the potential 

risks associated with reverse mortgages, which could include those 

associated with reverse mortgage marketing. For example, the Federal 

Financial Institutions Examination Council—the interagency body that 

includes the federal banking regulators and develops guidance for federal 

bank examiners—recently formed a working group on reverse mortgages. 

Finally, some HECM lenders are regulated at the state level, with HECM 

marketing materials subject to state compliance examinations. 

Information we obtained from 22 of the 35 state banking regulators that 

Although Various 

Agencies Have Some 

Responsibility for 

Assessing HECM 

Marketing, Some 

Advertisements 

Contain Potentially 

Misleading Claims 

 

5

Specifically, FTC enforces section 5 of the Federal Trade Commission Act (FTC Act), 

which broadly prohibits unfair or deceptive acts or practices in commerce. Section 5(n) of 

the FTC Act defines “unfair” to mean practices that cause or are likely to cause substantial 

injury that cannot be reasonably avoided by consumers and is not outweighed by 

countervailing benefits to consumers or to competition. FTC has defined “deceptive” to 

mean any material representation or omission of information, or practice that is likely to 

mislead consumers who are acting reasonably under the circumstances. Misleading 

information is “material” to consumers if it is likely to affect the consumer’s decision to 

purchase a product or service. 

6

We did not speak with officials at NCUA because none of the HECM lenders that 

originated at least 1,000 HECMs in fiscal year 2008 were credit unions regulated by NCUA. 

Page 5 GAO-09-812T 
responded to our information request indicated that their states routinely 

examine marketing materials as part of compliance examinations.7

However, only 1 state banking regulator—the Idaho Department of 

Finance—reported taking action against a lender because of reverse 

mortgage marketing. 

In addition, HUD exercises limited regulatory authority over the marketing 

activity of HECM lenders to ensure that lenders’ advertisements do not 

imply endorsement by HUD or the Federal Housing Administration. HUD 

officials cited one instance in which it referred a lender to the Mortgagee 

Review Board for misrepresenting the HECM as a “government rescue 

loan.”8

 However, HUD officials said they do not actively monitor HECM 

marketing, and do not review HECM marketing materials as part of routine 

assessments of HECM lenders. 

Some agencies with whom we spoke indicated that while complaints are 

one factor that could trigger more extensive assessments of marketing 

materials, they have received few, if any, complaints about reverse 

mortgage marketing. However, FTC officials noted that the low volume of 

complaints could be a result of consumers not being aware that they have 

been deceived, not knowing to whom to complain, or elderly consumers 

being less likely to complain. 

While the extent of misleading HECM marketing is unknown, our limited 

review of marketing materials found some examples of claims that were 

potentially misleading because they were inaccurate, incomplete, or 

employed questionable sales tactics. Among the materials we reviewed, 

we found 26 different entities that made potentially misleading claims in 

their HECM marketing materials.9

 This group includes entities regulated 

by each of the federal banking regulators with whom we spoke, as well a

FTC and state regulators; it also includes both members and nonmembers 

s 

 

7

We obtained information on state agency efforts to review reverse mortgage marketing 

materials through the Conference of State Bank Supervisors, which sent a set of 

standardized questions we developed to all 50 states and the District of Columbia. 

8

HUD’s Mortgagee Review Board, an enforcement body chaired by HUD’s Assistant 

Secretary for Housing–Federal Housing Commissioner, can impose administrative 

sanctions against lenders, including withdrawing the lenders’ authority to make HUDinsured loans. 

9

At least one of these lenders corrected its potentially misleading claim since we first 

reviewed the materials, and another lender was issued a cease-and-desist order by a state 

banking regulator as a result of a misleading claim. 

Page 6 GAO-09-812T 
of NRMLA.10 We selected seven advertisements that represented these 

claims and submitted them to the regulators for review. In general, the 

officials with whom we spoke agreed that the claims in six of the seven 

advertisements raised some degree of concern and might prompt further 

investigation.11 Several of the officials noted that they would need to 

consider the fuller context of the advertisement to determine if the claims 

were misleading and the level of action they would take if these six 

advertisements were the subject of complaints or compliance 

examinations. 

The six potentially misleading claims that we identified, and agency 

officials generally agreed raised concern, were as follows:12

• “Never owe more than the value of your home”: The claim is potentially 

misleading because a borrower or heirs of a borrower would owe the full 

loan balance—even if it were greater than the value of the house—if the 

borrower or heirs chose to keep the house when the loan became due. 

This was the most common of the potentially misleading statements we 

found in the marketing materials we reviewed. This claim was made by 

HUD itself in its instructions to approved HECM lenders; however, in 

December 2008, HUD issued guidance to HECM lenders explaining the 

inaccuracy of this claim. 

• Implications that the reverse mortgage is a “government benefit” or 

otherwise, not a loan: While HECMs are government-insured, the product 

is a loan that borrowers or their heirs must repay, not a benefit. Examples 

of this type of claim include the following: “You may be qualified for this 

government-sponsored benefit program,” and “Access the equity in your 

home without having to sell, move, or take out a loan.” 

 

10NRMLA members are expected to adhere to the association’s Code of Ethics, which 

contains specific rules on ethical advertising. 

11The Federal Reserve did not comment on the advertisements individually, but indicated 

that the advertisements generally raised concerns. 

12The claim that did not raise as much concern stated that HECM closing costs average only 

1 percent more than a regular HUD mortgage. We considered this statement to be 

inaccurate because, while HECM origination fees are 2 percent, origination fees for FHAinsured forward mortgages are 1 percent—a difference of 100 percent. The officials with 

whom we spoke about this claim said that they would consider this an “editorial error” or 

“confusing,” but not intended to mislead. 

Page 7 GAO-09-812T 
• “Lifetime income” or “Can’t outlive loan”: Although borrowers can 

choose to receive HECM funds as monthly tenure payments, even under 

this option, payments will not continue once the loan comes due (e.g., 

when the borrower moves out of the house or violates other conditions of 

the mortgage). 

• “Never lose your home”: This claim is potentially misleading because a 

lender could foreclose on a HECM borrower’s home if the borrower did 

not pay property taxes and hazard insurance or did not maintain the 

house. 

• Misrepresenting government affiliation: An example of this type of claim 

would include use of government symbols or logos and claims that imply 

that the lender is a government agency. 

• Claims of time and geographic limits: These claims falsely imply that 

HECM loans are limited to a certain geographic area, or that the consumer 

must respond within a certain time to qualify for the loan. Examples 

include “must call within 72 hours,” and “deadline extended,” as well as 

the claim that a consumer’s residence is “located in a Federal Housing 

Authority qualifying area.” 

The potentially misleading marketing claims we identified suggest that 

some HECM providers may not be maintaining sufficient focus on or 

awareness of federal marketing standards. Furthermore, consumers who 

have not been cautioned about such claims could pursue HECMs with 

misunderstandings about the product. Therefore, the report we are issuing 

today recommends that HUD, FTC, and the federal banking regulators 

take steps to strengthen oversight and enhance industry and consumer 

awareness of the types of marketing claims discussed in this testimony. 

Page 8 GAO-09-812T 
Concerns exist that reverse mortgage borrowers could be vulnerable to 

inappropriate cross-selling, a practice involving the sale of financial or 

insurance products that are unsuitable for the borrower’s financial 

situation using the borrower’s reverse mortgage funds. While certain 

annuity products may be suitable for some HECM borrowers, such as 

those who wish to receive payments for life regardless of where they live, 

there is concern that elderly reverse mortgage borrowers may be sold 

other products that may be inappropriate to the borrower’s circumstances. 

For example, there is concern that elderly reverse mortgage borrowers 

may be sold deferred annuities, where payments may not begin for many 

years and high fees may be charged for early access to the money. 

Because cross-selling typically involves the sale of insurance products 

generally regulated at the state level, the role of federal agencies in 

addressing the issue of cross-selling in conjunction with HECMs has been 

limited and largely has been focused on consumer education and 

disclosures. However, with the passage of HERA, HUD now has 

responsibility for enforcing the cross-selling provisions in the legislation 

and is in the preliminary stages of developing regulations to implement 

them. The provisions are intended to curb the sale of unsuitable financial 

products to consumers using HECM funds. According to HUD officials, 

HUD is drafting a Federal Register notification to solicit feedback on 

issues concerning these provisions, including HUD’s ability to monitor and 

enforce them; the usefulness of disclosures, education, and counseling in 

preventing cross-selling; what would constitute appropriate firewalls 

between a firm’s reverse mortgage sales and sales of other financial 

products; and what types of financial products should be covered. HUD 

has also instructed lenders that until HUD issues more definitive guidance, 

lenders must not condition a HECM on the purchase of any other financial 

or insurance product, and should strive to establish firewalls and other 

safeguards to ensure there is no undue pressure or appearance of pressure 

for a HECM borrower to purchase another product. 

Development of 

HECM-Specific, 

Cross-Selling 

Regulations Is in 

Preliminary Stage, 

and States Have 

Uncovered Some 

Evidence of 

Inappropriate CrossSelling 

A number of state insurance regulators have reported cases of 

inappropriate cross-selling involving violations of state laws governing the 

sale of insurance and annuities. Many states have passed suitability laws 

that are designed to protect consumers from being sold unsuitable 

insurance products, including annuities. Of the 29 state insurance 

regulators that responded to questions we sent all states and the District of 

Columbia, 8 said that from 2005 through January 2009, they had at least 

one case of an insurance agent selling an unsuitable insurance product 

that a consumer had purchased using reverse mortgage funds. For 

example, an official at the Insurance Division of the Hawaii Department of 

Page 9 GAO-09-812T 
Commerce and Consumer Affairs described a case in which an 

independent mortgage broker was prosecuted for misrepresentation of an 

annuity product. The broker, who also owned his own insurance company, 

deceived 15 clients by including paperwork for an annuity in their HECM 

closing documents without their knowledge. In another case, a sales 

manager of an insurance company violated the Maine Insurance Code by 

allowing transactions that were not in the best interest of the customer. 

The sales manager had arranged for a representative of a large reverse 

mortgage lender to speak with his sales agents about reverse mortgages. 

The agents then referred 14 clients to the reverse mortgage lender, all of 

whom obtained reverse mortgages. One particular client, an 81-year old 

widow, was contacted continually until she obtained her reverse mortgage 

funds, and was then sold a deferred annuity. The interest rate accruing on 

the reverse mortgage was 4.12 percent, and the deferred annuity earned 

only 3.25 percent. 

HUD’s internal controls for HECM counseling do not provide reasonable 

assurance of compliance with HUD requirements. HUD has a range of 

internal control mechanisms to help ensure that HECM counselors comply 

with counseling requirements.13 These controls include (1) counseling 

standards as set forth in regulations, mortgagee letters, and a counseling 

protocol; (2) a counselor training and examination program, and (3) a 

Certificate of HECM Counseling (counseling certificate) that, once signed 

by the counselor and the counselee, should provide HUD with assurance 

that counselors complied with counseling standards and that prospective 

borrowers were prepared to make informed decisions. Although federal 

standards encourage agencies to test the effectiveness of their internal 

controls, HUD has not done so for its controls for HECM counseling. 

HUD’s Internal 

Controls Do Not 

Provide Reasonable 

Assurance That 

Counseling Agencies 

Are Complying with 

HECM Counseling 

Requirements 

Our independent evaluation of 15 HECM counseling sessions found that 

counselors did not consistently comply with HECM counseling 

requirements.14 To test counselor compliance with key HECM counseling 

requirements, GAO staff posed as prospective HECM borrowers for 15 

 

13GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: Nov. 9, 1999). GAO guidance states that internal controls should provide 

reasonable assurance that agency objectives—in this case ensuring that prospective HECM 

borrowers are well-informed—are being achieved. 

14While our findings from the 15 counseling sessions cannot be generalized to all HECM 

counseling sessions or sessions conducted by individual agencies, the sessions allowed us 

to test compliance with HECM counseling requirements. 

Page 10 GAO-09-812T 
counseling sessions offered by 11 different agencies. For each session, we 

determined whether the counselors covered required topics, primarily 

those referenced in the counseling certificate. The certificate identifies or 

refers to counseling requirements originally set forth in statute, HUD 

regulations, or mortgagee letters. Our undercover counselees participated 

in telephone counseling sessions because HUD estimated that about 90 

percent of all HECM counseling sessions were conducted by telephone. All 

but one of the counselors who conducted our counseling sessions were 

examination-certified by HUD to provide HECM counseling.15

Although none of the 15 counselors covered all of the required topics, all 

of them provided useful and generally accurate information about reverse 

mortgages and discussed key program features. For example, most 

counselors explained that the loan would become due and payable when 

no borrower lives on the property, and that borrowers must pay taxes and 

insurance. Counselors also often supplemented their discussions with 

useful information, such as a description of factors that affect available 

interest rates and the fact that borrowers would receive monthly 

statements from the lender, even though this information is not 

specifically referred to on the counseling certificate. 

However, despite certifying on the counseling certificate that they had 

covered all of the information HUD requires, all of the counselors omitted 

at least some required information. The required information that 

counselors most frequently omitted included the following: 

• Other housing, social service, health, and financial options: Seven of the 

15 counselors did not discuss options, other than a HECM, that might be 

available to a homeowner, such as considering other living arrangements, 

meal programs, or health services that local social service agencies might 

provide. Our findings are consistent with findings in AARP and HUD 

Office of Inspector General reports.16

 

15HUD expects to issue regulations in 2009 that will require all HECM counselors to pass a 

written exam. The regulations will also establish a roster of eligible HUD counselors and 

allow HUD to remove counselors for cause. 

16See AARP, Reverse Mortgages: Niche Product or Mainstream Solution? Report on the 

2006 AARP National Survey of Reverse Mortgage Shoppers (Washington, D.C.: Dec. 2007) 

and HUD Office of Inspector General, Audit Report from the Regional Inspector General 

for Audit, Fort Worth Region, 2008-FW-1010 (Fort Worth, July 14, 2008). 

Page 11 GAO-09-812T 
• Other home equity conversion options: The same 7 counselors, likewise, 

did not discuss other types of (and potentially lower-cost) reverse 

mortgages that state or local governments might sponsor for specific 

purposes. For example, some state governments provide reverse 

mortgages that do not need to be repaid until the house is sold for 

payment of taxes or making major repairs. 

• The financial implications of entering into a HECM: Fourteen of the 

15 counselors only partially met this requirement, and 1 completely did not 

meet the requirement, because they omitted information that HUD directs 

counselors to convey.17 For example, 6 of the counselors did not provide 

estimates of the maximum amount of funds that might be available to the 

counselee under the HECM payment plan options. A HUD official said that 

this information would help counselees understand how reverse 

mortgages would address their financial situations. Additionally, 

14 counselors did not tell counselees that they could elect to have the loan 

provider withhold funds to pay property taxes and insurance. 

• A disclosure that a HECM may affect eligibility for assistance under 

other federal and state programs: While most counselors discussed the 

tax consequences of a HECM, 6 of 15 did not indicate that eligibility for 

some federal and state programs could be affected if borrowers had more 

money in their bank accounts than allowed under such programs’ terms. 

• Asking if a homeowner had signed a contract or agreement with an 

estate planning service:

18 HUD implemented this requirement based on a 

statutory provision intended to protect HECM borrowers from paying 

excessive fees for third-party services of little or no value. However, 14 of 

the 15 counselors did not ask this question, although of the 14, 4 cautioned 

the undercover counselees that such services were unnecessary to obtain 

a HECM. 

 

17As indicated in Mortgagee Letter 2004-25, to meet this requirement, a counselor must 

cover specific information, including the advantages and disadvantages of each payment 

plan and the borrower’s ongoing responsibility to pay property taxes and hazard insurance, 

either directly or indirectly by electing to require the mortgagee to withhold funds from 

monthly payments or to charge such funds to a line of credit. As of March 27, 2009, HUD 

more specifically required that the counselor document a client’s budget based on the 

person’s income, assets, debts, and monthly expenses. 

18HUD implemented this requirement in Mortgagee Letter 99-2, pursuant to a 1998 

amendment to the National Housing Act. 

Page 12 GAO-09-812T 
In addition to requiring HECM counselors to convey certain information, 

HUD requires them to record the length of each counseling session on the 

counseling certificate. Although HUD has not issued guidance on the 

subject, HUD officials told us that the recorded time should reflect only 

the time spent counseling the client. However, 6 of the 15 counselors for 

our undercover sessions overstated the length of the counseling sessions 

on the counseling certificates. In 3 of these cases, the sessions ranged 

from 22 to 30 minutes, but the recorded times ranged from 45 minutes to 1 

hour. In another instance, the session lasted about 20 minutes, but the 

counselor recorded 30 minutes. These 4 sessions omitted much of the 

required information, particularly the discussion of options and various 

aspects of the financial implications of a HECM. The counselors for the 

remaining 2 sessions recorded the sessions as lasting 2 hours when 1 

lasted 45 minutes, and the other 57 minutes. 

Another area of noncompliance we identified concerned the requirement 

that counseling agencies assess a client’s ability to pay the counseling fee. 

In May 2008, HUD issued instructions allowing counseling agencies to 

charge a fee of up to $125 for HECM counseling, as long as the fee did not 

create a financial hardship for the client.19 The instructions require 

counseling agencies to make this determination by considering factors 

including, but not limited to, the client’s income and debt obligations. 

While HUD guidance states that agencies may use “objective criteria” in 

assessing a client’s ability to pay, the guidance does not specify what types 

of criteria are appropriate. Consistent with HUD requirements, 12 of the 15 

counseling agency staff responsible for charging the fee, whether intake 

staff or counselors, informed our undercover counselees of the fee in 

advance of the session and charged $125 or less. However, staff at most of 

the agencies did not collect the minimum amount of information that HUD 

requires to assess the counselee’s ability to pay. For example, for 4 of the 

15 sessions, agency intake staff took the counselee’s credit card 

information up front, without obtaining any information about income and 

debt; and counselors for four other sessions, asked about the undercover 

counselees’ income but not their debts. In the absence of clear guidance, 

similarly situated counselees could be treated differently, and those facing 

financial hardships might be paying for counseling when they should not 

have to. 

 

19HUD issued these instructions in Mortgagee Letter 2008-12, pursuant to regulations 

published in 2007 (see Federal Register at 72 FR 55638) and codified at 24 C.F.R. Part 214. 

The instructions state that if an agency’s cost of providing HECM counseling is less than 

$125, the maximum amount the agency can charge is the actual cost. 

Page 13 GAO-09-812T 
Because of the weaknesses in HUD’s internal controls, some prospective 

borrowers may not be receiving the information necessary to make 

informed decisions about obtaining a HECM. Therefore, we are 

recommending that HUD take steps to improve the effectiveness of its 

internal controls, such as by verifying the content and length of HECM 

counseling sessions. 

In closing, HECMs can provide senior homeowners with multiple types of 

benefits, but borrowers may not always fully understand the complexities 

of the product’s terms and costs. Thus, the types of marketing claims 

discussed in this report, as well as the potential for seniors to be sold 

unsuitable products with their HECM funds, are causes for concern, 

particularly in a market with potential for substantial growth. These 

factors underscore the need for improvements in HUD’s controls over 

HECM counseling. 

Mr. Chairman, Ranking Member Martinez, and Members of the Special 

Committee, this concludes my prepared statement. I would be happy to 

respond to any questions that you may have at this time. 

For further information about this testimony, please contact Mathew J. 

Scirè, Director, at 202-512-8678 or sciremj@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this statement. Individuals making key contributions to this 

testimony include Steven K. Westley (Assistant Director), Sonja J. Bensen, 

Christine A. Hodakievic, Winnie Tsen, and Barbara M. Roesmann. 

Contact and Staff 

Acknowledgments 

(250475) Page 14 GAO-09-812T 
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