While there is concern among the reverse mortgage industry about what the regulators may do in their oversight of the business, it may have found an ally in a surprising place: The Consumer Financial Protection Bureau.
In the CFPB’s recent report on reverse mortgages, it stresses what stakeholders have been saying for some time, namely the need for ongoing funding of required counseling. Now, it agrees, maybe lenders should be involved.
Last year, $88 million in housing counseling funding was wiped out of the Department of Housing and Urban Development budget, and was later restored at $45 million, a lower level than requested—or needed.
To provide a consistent supply of funding the CFPB now suggests that lenders pay into a pool that all counseling agencies could access.
“One possible funding mechanism worth considering is a lender-funded pool,” the agency wrote in its report to Congress. “Lenders could contribute funds to a central pool, which would then be disbursed to counseling agencies according to need or client volume,” the CFPB writes. “The pool could be administered either by HUD or by a neutral third party.”
Industry participants agree the solution could help solve the ongoing funding problem, which only seems to be getting more difficult year after year.
HUD-approved counseling agencies are limited today in how they can be funded, under the Housing and Economic Recovery Act of 2008, which states lenders can’t contribute to Home Equity Conversion Mortgage (HECM) counseling directly or indirectly.
With the ongoing fight to fund the counseling mandate, the CFPB’s suggestion is a welcome one.
“The CFPB addressing the issue opens the door for further discussion of it,” says Peter Bell, president of the National Reverse Mortgage Lenders Association.
Whether the agency’s suggestion will actually be put into practice is unclear.
“We look forward to hearing from Congress about the report and the suggestions we offer in the report, including how to fund counseling about reverse mortgages,” a CFPB spokeswoman told RMD.
The Time Has Come
The topic of reverse mortgage counseling funding is a sensitive one, with many protections built in to prevent any conflict of interest between lenders, counseling agencies and borrowers. But lenders and counseling agencies seem to agree that now is the time to come up with some new solutions about the way counseling is funded.
“Given the difficult environment for government funding of HECM counseling and increased regulatory scrutiny, I think the pooled funding is an idea whose time has come,” says Daniel Fenton, housing director for Money Management International.
“The concept does effectively remove the conflict of interest by decoupling compensation for counseling to the number of loans closed, but the usefulness of the concept goes far beyond this.”
Counseling agencies, which are non-profits that allocate resources, typically based on the grant funding that is administered each year from HUD, agree that some form of lender-pooled funds, under the right protections, would be a welcome change.
Before HERA, lenders were allowed to contribute to counseling agencies. However, with the language specifically prohibiting any reverse mortgage lender or related party from funding reverse mortgage counseling, the interpretation today is that even a blind pool would be prohibited.
Since then, the funding for counseling has gone through Congressional appropriations each year, with funding lacking consistency year over year and lobbyists continually going to Capitol Hill for funding requests.
“Everybody is on the same page on the importance of counseling,” says Gregg Smith, President of One Reverse Mortgage. “It’s more about making sure that the cost is not a determining factor in a senior moving forward with counseling. This dialogue is starting to gain some traction and we’re hoping this is a positive sign.”
In order to eliminate any conflict of interest, the involvement of a third party would be essential, says Setina Briggs, housing director for GreenPath Debt Solutions.
“I would propose that lenders make annual year-end financial contributions to HUD based on HECM loans closed in support of the counseling program and that HUD add those funds to make the awards as they typically do,” she says.
While an escrow-style system to cover the costs of both sessions that result in a closed loan and those that don’t would be ideal, says Jeremy Shadrick, founder of QuickCert, an agency that is funded through donations rather than government grants, the pooled funding would be a next-best alternative.
“I agree with the idea of having some way to have blind donations from the lenders that indirectly fund the counseling sessions. It would need to be handled by HUD as a third-party government agency dispersing the funds like they do the grants now, and the lenders and brokers would need to contribute based on the volume they close each month,” he says.
When asked how such a program would work, the Department of Housing and Urban Development declined a request for comment.
The benefits of such a system go well beyond keeping counseling funded on a consistent basis, Fenton says. The client who is unsure about getting a reverse mortgage would not be discouraged by a fee, nor would that counseling client be influenced by varying fees in the marketplace, as sometimes happens when funding allocations vary by agency, he says.
Further, the counseling agency would have a more predictable funding stream and lenders would not have to field borrower questions about varying fees in the market for counseling.
“There are lots of potential variations of this idea, and it is not a silver bullet in terms of improving counseling quality,” Fenton says. “But providing a sustainable and scalable funding stream for counseling without being tied to closed loans will be a huge improvement over the situation we face today.”
It may not be a fully developed solution, but lenders and counseling agencies agree it is a good starting point to developing a solution for a situation that is not sustainable.
“We know it is important and we know it has a cost. Either borrowers, the government or lenders have to contribute,” Bell says.
“The lender-funded pool is just one idea that’s on the whiteboard,” Smith says. “It isn’t a game plan. It is the funding mechanism that seems to be causing the concerns. At the end of the day, counseling agencies are non-profits, but they still have to pay their rent.”
This edition of RMD Report is brought to you by Landmark, a leading national appraisal management and compliance company serving the reverse mortgage lending industry.
Written by Elizabeth Ecker