More Going To Reverse Mortgage Counseling, but Fallthrough Still Surges

The rate at which people interested in reverse mortgage counseling end up with a closed loan has fallen as low as 53% over the past 12 months, according to the latest data compiled by Ibis Software Corp., which tracks new counseling clients entered into the company’s Reverse Mortgage Analyst program each month. While it appears to now be rebounding, the number has seen a downturn in recent months—a change which some attribute to the implementation of new counseling protocols in 2010.

Others, however, say that low home appraisals are driving the low rate of closings with respect to those potential borrowers who go through counseling. One reverse mortgage counselor told RMD that in follow up calls with borrowers, he, too, has seen the pull through rate drop, largely due to not enough equity to close the loan.

While the number who are entered into Ibib RMA and take an application is still more than three-quarters, the bottom line considers those who actually end up with a reverse mortgage loan, explains Jerry Wagner of Ibis.

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“There are three things to consider,” Wagner says. “Say 78% of counseling sessions resulted in applications. While 68% of those may result in closing, overall the counseling to closing proportion is only 53%.”

Yet there is some good news on the counseling front: the number of people entering into the system is on the rise—up more than 11% from July to August based on Ibis’ analysis of its data.

The increase of the number of new counseling clients is a positive trend and further underscores an observation noted by Reverse Market Insight in August: reverse mortgage counseling sessions, used as a leading indicator, should indicate a rise in reverse mortgage endorsements as the counseling clients move through the loan closing process. RMI referenced case numbers specifically to show the relative impact of lender exits on the reverse mortgage business.

Correction: A previous version of this article stated the Ibis findings were based on HUD’s tracking of counseling sessions. Rather, Ibis analyzes its own data based on clients entered into its Ibis RMA. RMD regrets the error. 

Written by Elizabeth Ecker

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  • The counseling session figures are from use of Ibis RMA, not from HUD. Nor from certificates issued. Ibis will post a public update when the new HUD database is released in a couple of weeks. It shows application and closing volume, but nothing about counseling.

  • It has certainly been my experience that there are more fall-outs in this past year following counseling than in previous times. I can attribute almost 100% of those to low appraisals.  While I understand that investing in an appraisal should perhaps not be done until it is determined that the borrower has a clear understanding of the reverse mortgage, I also think the borrower should not have to invest in counseling before knowing if the appraisal numbers make sense for them.

    •  On the other hand, counseling is considerably cheaper (often free) than an appraisal, and some clients may choose not to proceed when they understand what the nature of the product is.  Why pay for an appraisal if you don’t even want the product?

  • Let us take a minute to look at seasonal issues coming upon us.  There are just 62 days until Thanksgiving.  Then it will be another 55 days until we hit the start of the winter season for originations.  So in the next four months will we actually see any reliable evidence of a real change in endorsements?  You decide.    

    Endorsements for the next eight months will be light.  Our inventory of applications with case numbers assigned which is the endorsement base for the next four months is small.  Who believes that we will see a 
    high volume of case numbers being assigned between the late fall and early winter holiday season extending from the start of the week of Thanksgiving to the birthday of Martin Luther King, Jr?

    Only the extreme optimists in our industry and certain leaders who stand up at NRMLA convertions and shout that we will see 100,000 endorsements this coming fiscal year can be overjoyed by the news in the article.  What most of these individuals do not consider is that as the endorsements have shifted away from the big banks and MetLife to other lenders, the conversion rate of applications with Case Numbers assigned to endorsements has dropped more dramatically than the rate of counseling sessions has increased.

    So if you are in San Antonio and hear that prediction for 100,000 endorsements for this coming fiscal year, please do not be embarrassed to give a little chuckle.  It is a little hard to believe that we will go to 15,000 (or more) endorsements per month in the last four months of next fiscal year which is about the only way we can get to 100,000 endorsements next fiscal year.  Remember after May 31, 2013, few if any applications with case numbers assigned will get endorsed before October 1, 2013.  How will we do in fiscal 2014?  Could we see 100,000 endorsements then?  Once again you decide.

    For now let us see if we can just get back to 73,131 endorsements before we get too high on OPM (Other People’s Money).  While others may want us to ignore the endorsements for this fiscal and calendar year, guess who has not.  For an industry which measures production by the number of endorsements produced, fiscal year 2012 will be long remembered as dismal — not the year of recovery so many proclaimed as little as 8 months ago.

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