Why Eliminating The HECM Advisor Program Will Hurt The Reverse Mortgage Business

Last week we found out that the passage of Housing and Economic Recovery Act of 2008: HR 3221 would eliminate the HECM advisor program.  This wasn’t something anyone in the industry expected from the Bill and will hurt the reverse mortgage industry. . 

While I think all of us will agree that the guidelines HUD has issued for the program can be a little “hazy” and because of this there are companies using it to their advantage .  How companies have gotten away paying more than 25% of the origination fee still surprises me, especially when they are blatantly marketing the fact that they are paying more.

Here are a couple reasons why I think the HECM advisor program plays a positive role in the reverse mortgage business:

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  1. Allows smaller banks and credit unions to have access to the program without the cost involved in becoming FHA approved and the training needed to originate a reverse mortgage.
  2. Gives licensed mortgage brokers the ability to offer a safe and government insured program to their customers even if their employer isn’t FHA approved.

People might argue that you can still refer a senior to an FHA approved company even without the advisor program.  What they don’t understand is having the incentive of an “advisor fee” does help.  Trying to convince a small bank or anyone else to allow you to come in and train their employees on reverse mortgages will be almost impossible without the advisor program.  Unless there is some bottom line benefit to their company, good luck trying to get into the office to provide training. 

So why has HUD decided to eliminate the HECM advisor program when there is no mention of it in HR 3221?  According to HUD’s most recent interpretation there is one line in the bill which eliminates the HECM advisor program.  While I’m not an attorney, I think their interpretation is wrong.  The line from HR 3221 that I’m referring to reads:

All parties that participate in the origination of a mortgage to be insured under this section shall be approved by the Secretary.

HUD believes that this line from the Bill eliminates the HECM advisor program.  I disagree because of HUD’s clarification of the HECM advisor program they issued in May.  According to Mortgagee Letter 2008-14:

All non-FHA entities who wish to be”advisors” can provide limited services only, of an educational nature, which may include: educating prospective borrowers about the reverse mortgage lending process, advising the borrower about different types of loan products available, demonstrating how closing costs and payment options could vary under each product, and maintaining regular contact with the lender to keep the borrower apprised of the status of the loan application.

Their description of  what role an “Advisor” can do never mentions the word “origination”.  The role of an advisor is simply to educate the borrower about the process but not actually be involved in the process of “originating” a loan.  It has always been my understanding that the process of originating a loan begins when you take a loan application.  Since the advisor never handles any of the origination process it shouldn’t be eliminated because of this one line in the Bill.

As far as I know the Housing and Economic Recovery Act of 2008 was never meant to eliminate the HECM advisor so why do this?  I think we can all agree that the advisor program needs more defined guidelines, especially in regards to what “reasonable value” really means. 

Here is my proposal to HUD… Instead of taking the easy way out and eliminating the program, how about we sit down and come up with a better set of guidelines?

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  • You have expressed my thoughts precisely.

    I thought it strange that HUD took the recent position by eliminating the HECM Advisor program so soon after the ML setting out what seemed to be clear and straightforward guidelines that I embraced with the thought to enhance the training of my candidates.

    Having not read the 600+ Housing Bill I accepted, rather than challenge, HUD’s notice which I learned about in the July 31st RMD notice wherein it was reported that HUD stated ““All parties that participate in the origination of a mortgage…”. This is a large change in verbiage and meaning.

    Would our joint efforts be futile in your opinion or should I pursue this via my representatives in government and the industry?

    Thank you,

  • You have expressed my thoughts precisely.

    I thought it strange that HUD took the recent position by eliminating the HECM Advisor program so soon after the ML setting out what seemed to be clear and straightforward guidelines that I embraced with the thought to enhance the training of my candidates.

    Having not read the 600+ page Housing Bill I accepted, rather than challenge, HUD’s notice which I learned about in the July 31st RMD notice wherein it was reported that HUD stated ““All parties that participate in the origination of a mortgage…”. This is a large change in verbiage and meaning.

    Would our joint efforts be futile in your opinion or should I pursue this via my representatives in government and the industry?

    Thank you,

  • there has been talk about lot of fraud with the advisor program. one reason to elimanate advisor. second many are peole who have been selling other insurance products. Also many are not trained properly.

    Where is the penalty to an advisor who will not be adutied like a Fha lender

  • Larry,

    I’ve heard people talk about the fraud and insurance products but I dont know how the advisor program in to blame. The person writing the loan is still FHA approved and ultimately is the person at fault…

  • there is no control over the advisor. Many advisor were supplying appraser they had worked with. could cause apprasial problems. title companies recomended by brokers who did not realy understand Reverse mortgages. Now people will have to go to a lender who is approved to do Reverse Mortgages. who have insurance and will be audited Advisors not audited.

  • Larry,

    I have to agree with ADMIN. The FHA approved lender/provider of the HECM Advisory program to the advisor is to blame if fraud is involved. The provider of the program takes the application, process the loan and closes it.

    You also bring up about advisors using appraisers and title companies of their choice, which can create fraud or manipulating values etc. You also say there is no control over the advisor. Here again, I put the blame on the lender/provider of the advisory program to the advisor. First off, the lender/provider should be in control of ordering the appraisal and choosing the title company.

    Secondly, it is the responsibility of the FHA approved lender/provider to train and teach the advisor they signed up as much about the Reverse Mortgage business as possible. The lender/provider is whom we need to zone in on. HUD needs to enforce their rules and regulations to those lenders that provide the HECM advisory program; they have done a very poor job doing that thus far! We do not need to eliminate this program; we need to retain the HECM advisory program. What we need is to re-write the program so the fees allowable, the guidelines and any other factors governing the program are crystal clear to every one.

    We also need to look at who is being signed up under the program. I feel we need guidelines and certain minimum criteria’s for Non-FHA approved lenders to qualify and participate in the HECM Advisory program. In short, we need to standardize and make the program uniformed through out our industry. That pertains to the fees paid, the contracts used to sign up an advisor and the guidelines an advisor must follow. I feel that each lender/provider should not make up their own program as they see fit to do so. This is what HUD should be doing, this is what our legislators need to understand, not eliminate the program because that is the easy way out! Have a great day.

    The Great American Philosopher

    http://www.thegreatamericanphilosopher.com

    By John A. Smaldone, johnsmaldone@charter.net

  • what you say is true. I have sat in on many seminars since I am a senior I get a lot of invites. and i want to see what they are saying, Unbeliveable the story that is being said by advisors. One did not even know what homestead ment snd dsughter was a realtor who was part of the seminar. I meet many insurance agents acting as advisors. As far a s the fraud I was told by a Bank that they were having trouble with some advisors and told me he heard it from HUD.

  • Admin – you said ” The person writing the loan is still FHA approved and ultimately is the person at fault…”

    Being FHA approved is expensive; being FHA approved means lots of extra paperwork, home inspections because FHA won’t take homes in poor condition,it means knowing property lines, metes and bounds, it means fixing wells and septic systems, and untold title problems in Reverse Mortgages, using FHA approved appraisers, not someone’s brother-in-law who, (heh heh, wink wink) is a geat appraisor that an Advisor could know and be could be in collusion with.

    An FHA approval is something to be protected.

    Too many small lenders have originators that know little about lending – they get small spurts of training now and then, but most don’t care; what they like are the commissions. In my state now, VIRGINIA, anyone can be a broker as long as they have the business license and pay the fee. But neither broker salespeople, or sales people in small banks are required to have any training, take any acceptable knowledge tests, or do continuing education. Usually, 6 months experience and a high school degree are enough.

    The bank, just like the broker, put the sales person on commission…so if they do well the get big bucks; and if not they leave the business so they can do something else where they can eat. Banks though, since 9/11 have been having to meet high compliance rules, and therefore have to train employees, and have upped their new loan officer qualifications.

    In contrast, when I lived in that crazy state with all the fruit and nuts, CALIFORNIA, REQUIRED THAT you could not be a loan broker, or a loan salesperson without a real estate broker’s license or a real estate sales license…and you had to do 45 hours of continuing education between your license renewals. And in the initial training, one class had to be in Law and Ethics, and one of your 2 or 3 hour training courses between licence renewal had to be in Law and Ethics.

    And, what about the fiasco in Florida….10,000 felon loan brokers/sales people deceiving old people – who have no time to recover their losses, let alone their homes.

    The damage to those elderly borrowers with limited knowledge of today’s sophisticated lenidng practices, and who can only rely on their originator and believe in their words.

    …well, it’s tragic when they are tricked into losing the equity in their homes- they are hurt, their family members who must now support “Mom and Dad” are hurt, the grandchildren are hurt because money for things they need to grow and learn and get to college are severly diminished. The adult children are stressed out, physically and financially taking care of their elderly parents and lose the precious time with their children.

    Cheating, deceiving, colluding to take someone’s money has large ripples that spread outward and affect more people than you can know.

    So, right now, until some pretty stringent rules are in place for the educating, teaching of ethics and laws,passing of tests, continuing education, proof of experience in normal, vanilla loans, WHY WOULD ANY SANE FHA APPROVED LENDER WANT TO RISK THEIR APPROVED STATUS WITH UNPROVEN LITTLE BANK EMPLOYEES, OR LOAN BROKERS AND EMPLOYEES for which there are no professional requirements….and who probably don’t have the vaguest idea of just how much damage they can do to senior citizens.

    I think it’s a great part of the new Bill…….until small lenders have trained officers, and brokers and their salespeople get trained……SO I’D PETITION MY STATE TO COME UP WITH SOME QUALIFICATION TO ALLOW A NON-FHA APPROVED LENDER TO BECOME A PROFESSIONAL – WITH KNOWLEDGE AND ETHICS.

    I have tried working with brokers and small banks…and frankly, they don’t know the Reverse Mortgage product well enough to do me much good by their selection of seniors to borrow, or steps to take to be an “Advisor”. I don’t want to be responsible for them and lose FHA.

    (Apologise for such a long post…but as my brother says, “Hell, Francella, why don’t you ever say what you feel”.

    I try.

    Francella (in the business since 1980, and highly trained before I started)

  • Francella,

    I appreciate your response to me. I agree with you as far as the advisors not having the proper knowledge they should have. However, I fall back on my previous E-Mail. NON-Approved FHA lenders are allowed to only perform certain functions in a Reverse Mortgage transaction, this is why they are called “HECM Advisors”. They are to advise, they are to disclose, they are to assist in pre-qualifying and assist their provider in gathering documentation. They should be educated by their provider and given the tools to work with so they can perform their required functions.

    HUD has requirements as to the guidelines an advisor must follow. However, it is still the responsibility of the approved FHA lender that is providing the HECM Advisory Program to the prospective advisory account. The provider must educate and set forth the responsibility’s to the advisor. I think HUD should be much clearer with its guidelines, to many mortgagee letters and guidelines from HUD are very ambiguous.

    Providers of the program should have enough sense to screen and due their due diligence on a prospective advisor. The problem is that to many providers are not doing their job. They care more about signing up an account rather than looking at the quality of the account. You mention the risk an FHA approved lender is taking by signing up Non-Approved FHA lenders. This is a great oppertunity for the provider, the advisor and the potential borrower. We put to much blame on the advisor. They don’t take the application, they don’t order the appraisal, they don’t order the title insurance and if the advise was wrong when given by the advisor, the providers loan officer should set any missunderstandings strweight with the borrower.

    If this is not being done by the LO of the provider, you have big problems, I mean big one’s.

    Francella, again, thank you for your reply to me.

    The Great American Philosopher

    http://www.thegreatamericanphilosopher.co

    BY: John A. Smaldone, johnsmaldone@charter.com

  • John,

    I agree with you totally…we who are in the RM field directly can be a real blessing to the Forward market from a financial point of view, what ever % HUD allows; and even more to the seniors who ‘finally’ make their contact with the RM world through the only avenue the senior knows, the Forward mortgage world…let us not kill off an avenue for the seniors to walk down. DAE

  • everyone forgets what the role of a Advisor is. many banks have found out they were in violation of there rules. One is that a adviser has to show borrowers more than one bank probly 3 to makes sure borrower is getting the whole story. in other words you can’t you use your fsvorate lender who is paying you a commisson. That is not the role of an advisor.

  • Larry,

    I have to disagree with you in one way yet I agree with you in another way. The “Applicant Assistant Agreement” alludes to the fact you are not to steer the borrower to any one lender, most of the agreements state that, but not all of them do. The HUD version does but many companies have their own custome form.

    However, where this gets tricky and yet ridicules on the part of HUD. In order for an advisor to be an advisor, they have to sign an agreement with a provider. The advisor also must be under the supervision and training of the provider. In most cases the advisor would have the providers software in order to run an analyses for a potential borrower.

    The point I am making is that if you are to supposed to show a potential borrower to more than one provider as you point out, you would need to be signed up with three different providers? It does not make sense, does it? We must use our common sense, HUD does not. HUD half of the time does not know how to enforce its rules and regulations and does not understand half of the regulations they write up!

    From my statement Larry, I will let you and everyone who is reading my reply to you make their own decision? Have a great evening.

    Best regards,

    The Great American Philosopher

    http://www.thegreatamericanphilosopher.com

    By John A. Smaldone, johnsmaldone@charter.net

  • I think alot of people who are in favor of eliminating the HECM Advisor program come to the table with a hidden adgenda.
    Who do you think becomes the immediate beneficiary of this prohibition??
    It’s the large lenders with ‘store fronts’. They want to eliminate the competition created by the non FHA banks and credit unions and also the FHA lenders who do not have the ‘branches’ like Bank of America, etc.
    It’s all about money and power NOT about what’s best for our Seniors.

  • It’s the best news in years!

    FINALLY some cleansing of the mortgage Gene Pool! The only people complaining are the ones that have no other way of doing business and shouldn’t be touching HECMs anyway!

    Life is good when you add chlorine!

  • M Opulant is absolutely right. Quit whining and pontificating and try WORKING! Too many of you want to ride the gravy train and haven’t worked a hard day in your life. I absolutely LOVE the new laws and my business is thriving!

    It’s butter baby!

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