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