Could New Underwriting by Lenders Change the Role of Reverse Mortgage Counseling?

Reverse mortgage counselors have recently been informed of the changes lenders may be making to their HECM underwriting procedures. While the changes are straightforward, they say, they have the potential to shake up the role of counselors in the reverse mortgage process down the road.

“For now, the general guidance is straightforward,” Daniel Fenton, housing director of Money Management International told RMD in an email. “It’s important that all counselors understand that some form of financial assessment may be completed as part of the application to avoid incorrectly contradicting HECM originators. It is also a good idea for counselors to be able to explain in general terms why an assessment may be completed.”

As lenders begin to make changes to underwriting, counselors have started informing their clients about the change after a letter from HUD informed them that official rulemaking was under way and would be coming soon.


“I think that it is as straightforward as it’s possible to be in a situation as murkey as this one,” says Christena Schafale, a reverse mortgage counselor with Resources for Seniors. Schafale has told clients that they may encounter some additional lender requirements, and that lenders may differ. While a client might not be approved by one lender, it is still possible to get approved elsewhere, she said.

The change isn’t likely to add any additional time to the process, the counselors say, but it may add an additional layer of uncertainty.

“I used to love being able to tell low-income borrowers that this time, with this loan, they would not be rejected because of their financial struggles,” Schafale says. “But those days are gone.”

New underwriting when done in advance of guidance from HUD could introduce some discrepancies on the lender front, but it’s the pending rule itself that could cause a shift on the counseling side, Fenton says.

“Things will get more complicated when HUD’s guidance is published. In the future we will have to decide how counselors should advise seniors who appear not to meet the assessment standards (whether or not they are already working with an originator),” Fenton says. “I expect a lively debate over exactly what the counselor role should be.”

Written by Elizabeth Ecker

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  • It is time to rethink counseling. 
    Now more than ever counseling should be divided into two parts.  Counseling education can come before application but financial risk assessment by counselors should only come after application and lender financial assessment.  Counseling maybe become little more than an unnecessary cost if the lender will reject the applicant anyway.
    FIT scoring and the resulting report should end NOW.  BCU should be decoupled from counseling and become part of the application process; however, counselors should review the results with counselees to ensure that they understand what benefits are available to them.
    At application originators should data enter budget information.  The result should be part of what is presented to counselors so that counselors can go over it with counselees.  Counselees should not become financial planners but rather financial advisors.
    The time for change is NOW!

  • Uncertainty galore. What are the Fair Lending and Equal Credit Opportunity Act (ECOA) implications of lenders-do-your-own-thing financial assessment (a.k.a credit underwriting) for HECM borrowers and lenders?  Shouldn’t HECM counselors and HECM loan officers be getting some crash course in the nation’s fair lending laws? Can lenders-do-your-own-thing financial assessment stand the traditional southward march of competition for market share in the mortgage lending business?   

    • Thomas,

      This is one of many reasons why I oppose seniors incurring any counseling cost before application.

      What this will result in will be more shopping for lenders by those who have marginal capacity and credit qualifications but need a high percentage of the principal limit upfront.

    • Believe me, there’s less and less “welfare” available to most seniors these days.  And it’s not the government telling the seniors to sell the home, it’s the lenders who choose to impose such excessive underwriting guidelines.  I certainly hope there are other lenders who will take a more moderate position than MetLife has done.

  • In the long run, when standards settle down and perhaps become more uniform, counselors may be able to help by assisting the highest-risk prospective borrowers to understand ahead of time why they may very likely be turned down for the loan.  At that point, we will turn to a more focused conversation about what other options are available, since the HECM will not appear to be the miracle cure.  The counseling may then become far more valuable than the appraisal, which the borrower is undoubtedly still going to have to pay for if they choose to proceed and then get rejected.

    Please understand that I am NOT advocating that counselors attempt to second guess what the lender will do, especially now when standards are unclear.  However, there may be times when we can be pretty sure what is going to happen.  If Mrs. Jones is living on $800/month, is in foreclosure, and will have to use all the loan proceeds to pay off the mortgage, it’s hard to see how that could go through, unless some lenders decide to be MUCH more lenient than what we’ve seen from MetLife.

  • Listen, what is it we are REALLY talking about here? We are talking about “senior citizens” (I hate classifying people, but for the sake of this argument I must), who have worked their ENTIRE LIVES, paying tax-after-tax, such as property–income–ssi–excise, etc., and now they have reached their advanced years, they need money, and the government has a mortgage program that will allow them to “get cash WITHOUT a payment,” and the banks and the government now say “Sorry, you do not HAVE ENOUGH INCOME for us to lend you money you never have to make a payment on.”…….WHAT? YOU ARE KIDDING ME!!!

  • I offer this as 1 suggestion for 1 quick and seemingly simple solution:

     I’m hopeful the industry will consider reverting back to the SUBORDINATION clause that FHA use to offer prior to 2010.  Giving consideration to the amount of business that will be lost under these new assessemnt guidelines I’m convinced it will hurt seniors more than it will the establishment. I am encouraged the process will unfold some ideas that seniors desperately need leniency during these difficult economic times. Why, with medicare issues, unemployment issues ( as many have aged out of the work force), the high cost of health care, and the decrease in property values all weighing on their lifestyle,  and people just living longer, can we think on how to put the well being of seniors as priority One. All would work out if the subordination option was made available. Because then, ” The Foundation for Homeowners”  would be in a position to help when someone is disqualified due to poor credit histories in addition to other disqualifying factors.   Let’s encourage HUD to reconsider the terms of mortgagee letter 2009-49.  This would give more seniors access to the Reverse Mortgage program through support from our agency, as well as agencies like NeighborWorks, social services programs, etc. and it will allow lenders to regain the lost business.
    Just something to think about. 

    • Lolita,

      ML 09-49 does not permit new liens (or significant changes to existing liens) but I am not so sure if it applies to pre-existing liens which permit subordination.  No doubt, you are far more familiar with the issue and what it is you are attempting to accomplish. 

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