The fall-through rate of seniors who go through reverse mortgage counseling but never end up closing a loan has risen steadily over the course of the last three years, from a consistent 10%-15% during the housing boom to hovering around a quarter in recent months.
In the higher fall through when comparing applications/case numbers to closed loans, according to data from Ibis, there are some obvious factors leading to the change—the drop in home values being chief among them, and preventing many people from qualifying. But there has also been speculation that the counseling protocols changed in 2010 have also led to some fall through, including the use of the National Council on Aging’s FIT tool.
Counselors maintain that the new standards aren’t leading to fall-through, low appraisals are. But the 25-question FIT presents questions to seniors that may raise an issue they might not otherwise have thought to address, says Chris Schafale, a North Carolina-based reverse mortgage counselor with Resources for Seniors.
“For example, does one of the borrowers have a pension and does it continue if one person dies? That might prompt the client to think about whether the surviving spouse can keep up with the taxes, insurance, and maintenance. Often times, they don’t know the answer.”
But more stringent counseling protocols shouldn’t lead to more clients who ultimately don’t close a reverse mortgage loan, she says. The distinction in today’s market is overwhelmingly due to appraisals coming in lower than clients anticipate. In many cases, Schafale says based on her client interactions, the appraisal can be the deciding factor. In some cases, the borrower has already received some estimate of the home value that may not be realistic.
“When it appears unlikely that there is enough home value/equity, I recommend that the client get an opinion from a Realtor about their home’s value before paying for an appraisal.”
At that point, however, the counseling has already taken place, setting up the potential for fall-through.
For seniors of a certain low income threshold, it means the counseling agencies are responsible for making up the losses, while still awaiting new grant funding for 2012 housing counseling.
Counseling wait times had increased and costs rose, agencies and lenders told RMD upon the news that counseling funds were to dry up in 2012 after being slashed in the initial Department of Housing and Urban Development budget proposal. Counseling funds were later restored, but most agencies have yet to see the funding allocations.
Written by Elizabeth Ecker
Editor’s note: this article has been updated to reflect more accurate information provided by Christena Schafale, Resources for Seniors.