Last week the Federal Reserve Board of Governors held a meeting of the Consumer Advisory Council and reverse mortgages were one of the topics discussed.
The Fed recently published new reverse mortgage disclosures to improve communication of terms with borrowers and the council said the new forms were a positive step in the right direction. “I think the regulations on reverse mortgage are really good,” said Kirsten Keefe, senior staff attorney in the Consumer, Housing, and Community Economic Development unit of the Empire Justice Center.
Under the proposal from the Fed, lenders must provide a new two-page disclosure highlighting the basic features and risks of reverse mortgages in simple language. Consumers would also receive transaction-specific disclosures that reflect the actual terms of the reverse mortgage being offered in a tabular format.
Keefre said the forms are good but stressed to the council how important counseling is during the reverse mortgage process. “I think counseling is absolutely imperative for these sort of mortgages, and we certainly do not have enough counselors in the world,” she said.
The number of HUD certified counselors has fallen since the Department of Housing and Urban Development established a HECM counseling roster and standards. In order to get added to the roster, individual counselors must pass a test that confirms they understand the product and reports have shown it’s not an easy test.
While all participants agreed counseling is important, the costs associated with offering the service forced Phyllis Salowe-Kaye, the Executive Director of New Jersey Citizen Action, to stop offering HECM counseling. The organization had been “sued several times and had to spend a lot of money on lawyers to defend against family members who later thought it shouldn’t be happening.”
Kevin Rhein, Division President Wells Fargo Card Services told the council that counseling needs to be independent from the lender and ideally face to face, but the real problem facing the industry is supply. “You have aging demographics, so there will probably be an uptake in the product,” he said.
Rhein said the Fed needs to be careful not to narrowly define what type of counselor is providing the service, but focus on ensuring each person is certified. If the industry continues to rely only on HUD approved counseling agencies, it could have a hard time increasing capacity to keep up with demand over time.
Not all of the council members were concerned about meeting demand right now, but they were in agreement that demographic shifts make it likely to happen in the future.
“I think the focus on counselors, preemptive education, and outreach to people who are thinking about this is important,” said Ronald Phillips, President of Coastal Enterprises, Inc. “Maine has an aging population and the country’s demographics are aging, it’s going to only get more demanding in the future.”