Op-Ed: Let Private Lenders Fund HECM Counseling

An article by former Seattle Times real estate editor Tom Kelly suggests that lender funding is the solution to the recent housing counseling cuts felt by reverse mortgage counseling agencies nationwide.

With recent funding slashed from the national budget, the article says, counseling fees will be charged directly to seniors. The National Reverse Mortgage Lenders Association as well as Department of Housing and Urban Development Secretary Shaun Donovan have made statements to the same effect: the lack of funding will ultimately lead to seniors facing a greater expense in the counseling process for HECM loans.

The article points to conflict of interest concerns that prevent lenders from contributing to the counseling pool of funds. But, the author argues, “Why not permit lenders who handle reverse mortgages to pitch in, especially in this time of need? They all have continuing education budgets earmarked for consumers. Let them bridge the gap in the counseling funding shortfall until another pot of cash can be found.”

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Because reverse mortgage counseling is mandatory, the problem may require a solution that involves lenders, the article asserts.

“Many seniors are poor, don’t have the cash to fund the pre-lender sessions, and yet desperately need to pull cash out of their homes to survive,” it says. “HUD funding is gone. Let the private lenders help.”

Read the Spokesman-Review article.

Written by Elizabeth Ecker

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  • While the counseling subsidy may not be $798 million, $250 million, or even $150 million, still $9 million is a sizable sum and would supply 72,000 counseling sessions at $125 each, almost the number of endorsements HUD predicts for next fiscal year. Of course if the price of counseling jumps to $200 per session then the number of free counseling sessions drops to 45,000.

    Some may not view Congressional taxpayer counseling subsidies in the same way as a direct subsidy to HUD to defray the costs of the HECM program itself. Yet what is the difference? When Congress does not provide subsidies to the HECM program who ends up paying for the unsubsidized costs? Borrowers do through some combination of higher MIP and lower principal limits. While the counseling subsidy pays not only the cost of counseling for many borrowers it also pays the costs of counselees who do not participate in the HECM program as well.

    It has always seemed that lenders could somehow subsidize counseling through HUD without counseling looking any the less independent. If HUD charged a fee per endorsed loan, that would be one means of providing funds for counseling. Such funding might also be a way to control the excesses of counseling and trim it back down from the swelling and bloating we have watched it go through over the last year or so. Counseling today looks more like “Jaba the hun” of Star Wars fame after a gluttonous feast than a true consumer protection.

    Here we go again with the “pre-lender counseling, where the first information comes from a disinterested third party” propaganda. This is one of the biggest myths regarding reverse mortgages and counseling there is. If a borrower is talking with a counselor, the borrower obviously obtained some information from somewhere. It most certainly did not float done from the sky on tablet stones from Mount Sinai (or ipaid ). I have yet to meet a senior calling about a HECM who lives in a bubble or in a vacuum. The reason they are calling a counselor is that they have received SOME information about a reverse mortgage already. My hat is off to every lender which has a good information DVD to send prospects. Why not if one really believes the GAO report on the condition of counseling and in our obligation to educate seniors?

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