Reverse Mortgage Counseling Sees Backlog, Funding Not Sufficient?

Despite funding being made available for reverse mortgage counseling earlier this year and applications for the loans being down year-over-year, there seems to be backup forming for those who are trying to get the counseling at no cost.

Several lenders told RMD that many of their reverse mortgage clients seeking counseling are experiencing wait times of two to three weeks when requesting appointments for phone counseling at no charge.

One originator reported that the wait times for in-person counseling were much lower than for the phone counseling, but that the backup was leading to a slow in processing reverse mortgage applications.

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“What are you are really seeing is a drop in capacity nationwide,” Daniel Fenton, Money Management International Director of Housing, told RMD.

The backup may be due in part to two reasons, Fenton says.

“Lots of Agencies with counselors who were certified prior to introduction of the HECM roster are coming up on their recertification dates, so, for instance we are holding a training next week for the specialist HECM team,” he said in an email to RMD. “So counselors in training wont be available to counsel. You will probably see this in larger agencies across the nation.”

But another reason, is due to funding not being as plentiful as it has been in years past. Funding this year is about 50% of its total last year, Fenton says. The lack of available counseling may show a seasonal trend as large agencies use their funding through the current fiscal year.

This year’s allocation, totaling $45 million for all housing counseling, is less than was requested by the Obama administration, and is only slightly more than half of the $88 million that was cut from the Department of Housing and Urban Development’s budget for housing counseling in a last minute budget deal signed by Congress in April 2011.

“Agencies who have expended all funds often scale back on capacity until October. This happens every year, but given the reduction in grant funding it is likely to be more severe,” Fenton says. “For agencies like MMI, who maintain a steady capacity year round, we get a bump in demand when other agencies drop capacity, as clients shop around for a timely counseling session (at no cost).”

RMD found some agencies are still offering counseling in 24-48 hours, including GreenPath debt solutions and Cambridge Credit Counseling Corp.

“Most agencies received lower than expected reverse mortgage counseling grants, and may not have the flexibility to apply those additional reverse mortgage sessions against other grant awards,” says Setina Briggs, Housing Program Manager for GreenPath.

The problem comes down to funding, Fenton says.

“The bottom line is with inadequate HUD funds, no possibility of lender financial support and the clients’ desire to get a free counseling session means agencies’ capacity to provide free counseling will weaken and wait times will rise,” he says.

Written by Elizabeth Ecker

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  • The explanations are somewhat superficial and of no real help for now or in the future in determining how much the industry really needs in order to avoid charging consumers for initial HECM counseling.  When case number assignments are still going down on a seasonally adjusted basis by over 18%, why would agencies be running out of money when NRMLA leaders were reassuring us that the amount of funds appropriated by Congress would be sufficient to meet counseling needs this fiscal year?

    The truth is the percentage of counselees who receive certificates and also obtain HECMs is now less than 50%.  Less than five years ago, that percentage was closer to 80%.  That means if the costs were the same today as they were in 2007, the cost of counseling for each endorsed HECM would be about 60% higher solely due to fewer certified counselees obtaining HECMs.

    Add to the 60% base increase, higher costs from longer counseling sessions due to the new counseling protocol and the general increase in prices from inflation, and the average cost for counseling per endorsement has risen sharply in the last five years to probably twice as much as they were in 2007 on a per endorsement basis.

    It was abundantly clear the appropriation was far too low when granted and that the situation being currently described would occur. What is surprising is that neither industry leadership nor counseling leadership stressed that point when the funds were originally appropriated.  

    If the actual costs of each counseling session is now $125 without profit to the tax-exempt counseling agency, then to get to 100,000 endorsements, just the cost of counseling would be about $25 million. The reason is, based on pull through rates for very two certifications approximately one HECM is endorsed.  Thus right now based on current data, it should take a minimum of 200,000 counseling sessions to result in 100,000 endorsements.  Of course this does not include counselees who do not get certificates as they also are part of the costs of counseling.

    So the real question is who should be paying for counseling, consumers or the general funds of the US Treasury?  It still seems appropriate that lenders should pay this cost through “an endorsement counseling fee” paid to HUD which HUD would use for funding grants much as it does now.  Consumers would still be free to pay a qualified counseling provider if that agency has run out of grant monies; the choice to pay or not pay would be left to the consumer. It would seem appropriate the fee would simply be an upfront cost of the loan like title insurance.

  • On multiple occasions we’ve had folks unable to pay a $125 fee and the waiting for the “free” counseling 2 to 3 weeks was a slap in their face.  I don’t know why it bothers me that much, but they had more than one counseling agency say “pay me right now and I’ll counsel you later today or if you can’t afford to pay me, there are other agencies that MAY be able to do it for free BUT it will take 2-3 weeks from what we’re hearing”.  That’s no way to handle a client short on cash flow- rubbing their nose in it.  None of them offered to help call any of the other agencies or even say which ones were ‘free”.  Even the non profits are competing nowadays.

  • All the agencies have the ability to finance the fee and be paid when/if the loan closes. The issue is that there is a boycott by some lenders of the local/smaller agencies getting on the list for the clients to chose from. They are even telling them they can’t use some valid, HUD-approved agencies who are willing and able to take on the volume. If a senior has a hardship or they truly qualify for a free session, then the agencies are more than willing to do the session at no cost to the senior. The issue is that no one is wanting to pay anything at all. That makes no sense…the reverse mortgage is an expensive loan and the session is only $125. If LO’s are really worried about it, then cut your cost to cover it and ask the agency to collect on the HUD. LO’s make origination and YSP on the loan, and are knocking an agency wanting $125. The national intermediaries get a ton of funding, but can’t keep up with demand. Local agencies benefit the senior, but they may not receive funding and can’t waive every fee.

    • Hello Advocate,

      Actually, no all agencies do not have the ability to finance the fee and be paid when/if the loan closes.  I know, because my agency does not.  We do not do it for two reasons, one, if we are required to wait for the fee, then we are no longer neutral, we now have a stake in whether or not the HECM is taken out.  We get paid regardless of whether or not the loan is taken, so we remain truly neutral.  Second, if someone does not take the loan we do not want to be in the position of chasing down clients to collect our $125.  It is not worth it.

      All agencies are required to give free counseling to anyone under 200% of the poverty line.  (I don’t remember off of the top of my head which mortgagee letter required that, but one of them does.)  In my agency, we will also look at a senior’s budget and if their out go is greater than their income then we will also eliminate the charge.

      Frank J. Kautz, IIStaff Attorney
      Community Service Network, Inc.52 BroadwayStoneham, MA 02180(781) 438-1977(781) 438-6037 faxFrankKautz@csninc.org

      • Mr. Kautz,

        Here is the specific language of Mortgagee Letter (“ML”) 2011-09:  “Counseling agencies choosing to charge HECM fees should not collect a fee at the time of the counseling session from a client whose income is below 200 percent of the Federal Poverty level.  Agencies may charge these clients a HECM counseling fee at closing provided the client has been advised during the counseling session of the amount of the fee.”

        I agree with your standard of independence.  Too many in our industry do not understand the perception of lacking independence is as critical to the success of the perceived value of counseling as true independence itself.  There is no way under the sun that someone whose income is dependent on a specific result has no financial interest in that result succeeding.

        The last sentence of the quotation taken from ML 2011-09 destroys the perception of any independence if the counselee has income of less than 200% whether that agency actually charges fees to counselees or not.  That last quoted sentence should be amended or simply struck down.

        As long as Congress refuses to fully fund counseling and lenders are not charged some type of counseling tax to fund counseling, HUD grants for HECM counseling should be required to be applied against the fees of those meeting the poverty level requirement.  It should be paid on an as services are delivered basis with all fee requests subject to audit by the Office of the HUD Inspector General.

      • Frank- You DO have the ability to finance a fee, but it sounds like you are choosing not to. It is a lot of work to track and more paperwork, so you would rather be paid upfront and whatever happens to the senior, happens is your approach. So if someone can’t pay upfront, you are turning them away? Or do you mean you have a grant so you just charge the grant and get your $125 regardless AKA bill the taxpayers. I have a couple of problems with that either way. If you turn them away because they can’t pay, that’s a violation.

        It IS worth it to some agencies to finance it because if an agency doesn’t have a grant, they need a way to collect on the counseling session and maintain the agency. It’s not “worth it” to you because you probably have a grant and would rather just have the taxpayers pick up that cost. If your agency had to stand on their own and actually operate like a business, you would probably change your tune.

        The agencies that finance tell the senior if they chose not to move forward, they are responsible for the fee at that time but are willing to finance until then. You should only be biling your grant for those that can’t pay if they don’t move forward. It sounds like you are not even willing to try.

        James- If the agency is forthright with the customer and tell them they are responsible for the fee regardless if they chose to move forward or not with that loan (or the outcome of the loan), they are still maintaining their indepence and giving the seniors the information they need to make that decision and reamin the unbiased third party.

      • Hello Advocate,

        True, under the regulations we may have the ability, but for the reasons stated, our agency does not utilize that ability.  This was a rule set by our board of directors, so we cannot do it.  I know several agencies that operate this way.

        I apologize if it sounds this way, but we do not turn anyone away for inability to pay.  If they are below 200% of the poverty line, they get counseling free.  If they are having financial dificulty, we also give them free counseling, even if they make more than I do (which, unfortunately, is really not all that hard).  Depending upon their needs, we will also reduce the price of counseling if free counseling is not warranted under the circumstances.  We do some pretty careful budgeting work with people to make these deteriminations.

        We do get a general housing counseling grant from HUD, but, it does not come even close to covering all that we do, including HECM counseling.  In addition to HECM counseling, I also do first time homebuyer counseling, foreclosure prevention, landlord/tenant counseling and advocacy, etc..  It off-sets some of the cost (it actually costs us more than $125 per session when I sat down to figure it out, but our Executive Director felt that $125 really should be our maximum). 

        “The agencies that finance tell the senior if they chose not to move forward, they are responsible for the fee at that time but are willing to finance until then. You should only be biling your grant for those that can’t pay if they don’t move forward. It sounds like you are not even willing to try.”

        True, we are not willing to try this.  If a client does not pay, the only way to make them pay would be to file suit against them.  The last thing that I or my agency needs is a series of small claims cases all across Massachusetts and Southern New Hampshire to try to collect such a small amount.  It costs us more to do that than to simply say, “Pay at time of service like just about any other service that people provide.”

        Frank J. Kautz, II
        Staff AttorneyCommunity Service Network, Inc.
        52 BroadwayStoneham, MA 02180
        (781) 438-1977
        (781) 438-6037 fax
        FrankKautz@csninc.org

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