Reverse Mortgage Fall Out Stresses Cash-Strapped Counseling Agencies

Several recent reports have pointed to the rise in the number of borrowers who receive reverse mortgage counseling and the falling number of borrowers who actually close a reverse mortgage loan. The increasing gap, or growth in the “fall through” rate between counseling and loan close may be a product of several different factors, but regardless of the source, it stands to weigh on the industry in one important way: counseling resources.

One smaller agency not affiliated with one of the major counseling intermediaries told RMD approximately 70% of its reverse mortgage counseling clients finance the fee into closing, which is cause for concern as the gap widens between those who attend and those who end up with a reverse mortgage.

Larger agencies, too, note that the gap is growing larger and it could have an adverse impact on the availability of counseling.


“When grants fund the counseling session this is not an issue,” Setina Briggs-Kelly, Housing Program Manager for GreenPath Debt Solutions, told RMD in an email. “However, when agencies exhaust their grant funds and need to return to a customer pay model, this is where having the counseling fee paid at closing becomes an issue. If counseling is delivered and the fee is to be collected at closing and the customer never closes, that’s an unfunded session and a loss for the agency who invested valuable time and resources into that counseling session. When at all possible, it’s in the best interest of the counseling agency to collect the counseling fee when services are rendered so that losses are minimized.”

While the issue of counseling funding has been a headline topic, particularly in recent years since being cut from the federal appropriations in 2010, the fall through issue stands to have an impact especially on counseling agencies that continue to allow borrowers to roll the cost of counseling into the loan closing. Right now, that includes some larger agencies, but could cause even bigger problems for the smaller organizations that offer the services.

“The funding question for reverse mortgage counseling is a topic addressed on a national level,” says Sue Hunt director of reverse mortgage counseling for CredAbility. “It’s absolutely something to be concerned about. Fortunately for an agency like CredAbility where we do have lots of lines of service, we are better able to absorb the loss that will come to us.”

For smaller players, however, the outcome could be more difficult.

“If the numbers deteriorate much more and there is no different solution, the consequences might mean smaller local agencies that are more dependent might not be able to provide that service any more. That would be a shame.”

There have been solutions discussed in recent weeks and months, including a suggested made by the Consumer Financial Protection Bureau following its recent report to Congress on the reverse mortgage industry that would allow a lender-funded pool to help provide counseling resources. However, pending a major change and government approval, agencies currently offering services still must exist on donations and appropriations deemed by the Department of Housing and Urban Development.

“A sustainable source of funding must be secured to pay for all counseling at the time of the session,” Briggs-Kelly says. “Otherwise, counseling agencies will continue to operate at a loss after exhausting their grant funding.”

Written by Elizabeth Ecker

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  • While all counselors must meet FHA standards and all counseling agencies must be tax-exempt and unrelated to any lender, counseling sessions are NOT required to be independent.  For the session to be dependent, payment of the fee cannot be dependent upon the occurrence of an related event such as the closing of the HECM.  Mortgagee Letter 2011-09 ended that requirement.

    So while some sessions may be independent because it is being paid upfront or through appropriation, not all are independent.  So is the loan independent of lenders?  Absolutely NOT.  If the counseling agency utilizes the method available under Mortgagee Letter 2011-09, then it is dependent upon a lender being able to close the HECM which makes them dependent upon that party.

    Is it worth the efforts of the larger counseling agencies to fight it?  Based on conversion rates, where 100 counseling sessions were needed to obtain 75 endorsements, about 145 counseling sessions are needed today.  That means that while our endorsements are down by over 50%, counseling is down much less.

    Will the fallout rate following counseling certification turn around?  It is highly unlikely.  Who is working on it?  Does anyone REALLY care?  After five years of an ever falling conversion rate, NRMLA is finally holding some sessions this calendar year which cover this subject.

  • Would be interesting to compare the statistics of lenders who utilize solely a call center marketing strategy for Reverse Mortgage Loan Production with those who combine call center/local originators to those that use a local lender presence in their markets? 

  • The borrower that wants to pay for the counseling session when the loan funds, usually wants to pay for the appraisal when the loan funds too.  The counseling agency loses $125.00 when the file doesn’t fund, and the Loan Officer loses $450.00.  It’s painful for both of us.  So both of us need to make a business decision before saying “yes, that fee can be covered from the proceeds at funding”.  It’s a risk associated with our occupation, and I used to say “yes” alot, but find myself saying “no” more nowadays.  I realize it’s a cost of doing business, but am tired of paying for appraisals.

  • More than Merely a Counseling_Advocate,

    Your very long comment says two simple things about Mortgagee Letter (“ML”) 2011-09.  That ML not only threw away the principle of counseling independence other than on an individual contract by contract basis but the payment method contained in the ML is also feckless.

    Unfortunately you are blinded to many of the ways this ML is feckless and irresponsible.  Why and in many cases how can the mortgagee be responsible for ensuring payment of these fees?  If the originator is an employee of a TPO, the mortgagee must somehow be put on notice that the fee is unpaid and contingently due but in most cases the originator has no relationship with the mortgagee or its employees.  What if the borrower goes through a different TPO or mortgagee than at the time the counseling certificate was issued?  What if at the time of counseling the counselee had contacted no TPO or lender?  Even if the HECM is closed with the same mortgagee and/or TPO, how is the originator put on notice that any fee is unpaid?  Is a physical bill sent to the originator? 

    You blame others for a lack of competency of the agency itself in obtaining the contingent fee ML 2011-09 permits.  For example, why is accounts PAYABLE handling the collection of some type of contingent tender (or legal tender, highly unlikely) in payment of a contingent fee whether it is coming from an ineligible payer or not?

    What your comment makes clear is that ML 2011-09 is next to worthless except as to destroying the previous principle that all counseling is provided by parties who are independent to the outcome of the lending process.  ML 2011-09 has made a mockery of that general protection.

  •  Your first three paragraphs are dead on……Nothing….I repeat Nothing… “boots on the ground”. Face to face with a HECM Counselor means nothing……Face to Face with a HECM Consultant….is priceless.

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