New Rules Mean More Counseling Costs For Reverse Mortgage Borrowers

As reverse mortgage counselors brace for the upcoming financial assessment, with many ramping up training efforts, industry experts say the new rules’ impact will come at a cost — and one that will likely be shouldered by prospective senior borrowers.

The financial assessment will place a greater demand on counseling agencies’ resources, raising ever-looming funding concerns and leading to supply shortages that could impact wait times, as well as the length of counseling sessions. 

Most agencies are in the process of determining the length of the counseling sessions, and how that will differ from what is currently being offered, says Bruce McClary, vice president of public relations and external affairs for the National Foundation for Credit Counseling (NFCC), noting that many agencies already offer some of the counseling features that will be a part of the new requirements, such as a full budget review for all clients.

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“Counseling time increases will vary on the amount of knowledge the client already has on the upcoming changes and how many questions they have,” says Christian Tirado, housing program manager for Navicore Solutions, a nonprofit, financial management and social service agency. “We do expect an increase in time since we may have to explain and receive questions regarding the new Life Expectancy Set-Aside that will affect clients in different ways depending on their financial assessment results.”

The Set-Aside is a possible option for someone to obtain a reverse mortgage who does not meet the new underwriting criteria, and is an amount drawn under the home equity conversion mortgage (HECM) that is reserved for payment of property taxes and insurance by the lender. The Set-Aside is viewed as sufficient to assure the required payments can be met through the entire lifespan of the borrower. 

ClearPoint Credit Counseling Solutions already covers some financial assessment topics in its typical counseling session, and the agency anticipates the financial assessment will increase the average counseling time at ClearPoint by 10 minutes, says Sue Brown, vice president of reverse mortgage counseling with ClearPoint Credit Counseling Solutions. However, there might be other agencies not going to the same lengths that could see counseling times increase on average by 15 to 30 minutes, she says. 

“As you add details to the counseling protocol and gradually increase length of discussion, that increases the cost of service,” she says, noting that HUD funding will continue to cover the cost of some reverse mortgage sessions, but is not currently sufficient to cover the annual demand for counseling. “Who’s going to pay that increase in cost?”

The Senate passed a $1.1 trillion spending bill for 2015 that includes $47 million in appropriations for housing counseling, which spans reverse mortgage counseling funding, but does not specify an amount designated for reverse mortgage counseling versus all housing counseling. 

Ultimately, the financial assessment will propel credit counseling to become more important than ever before, says Amy Ford, director of Home Equity Initiatives at the National Council on Aging (NCOA).

“Counseling is such a critical part of the reverse mortgage process,” Ford says, noting that those who previously may have been eligible for a reverse mortgage may now be denied — increasing the use of tools such as the NCOA’s BenefitsCheckUp, which helps find benefit programs that can assist in paying for medications, health care, food, utilities and more. “Largely, the changes are at the lender level, and we want clients to understand what the process is like, and what to expect.”

Along with reverse mortgage counseling’s increase in importance comes a potential increase in cost.

“Cost of counseling may increase due to the additional time it takes to complete a session, and grant funding is not enough to cover all the sessions that agencies are providing,” says Anthony Lopes, housing director at Cambridge Credit Counseling Corp. “This cost will be unfortunately passed on to the senior.”

Written by Cassandra Dowell

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  • So the real agenda is in the open. Counseling wants to raise its price but needed an excuse. Who can blame them but is this the right reason for an increase?

    Yet what part does counseling have in the OTHER financial assessment, the one that actually determines if a HECM application should be accepted, rejected, or the HECM itself modified, the one performed by lenders? So why should counseling do more than provide a minimal overview and answer general questions?

    Is counseling going to explain the intricacies and complexities of extenuating circumstances and compensating factors? Will they explain the subjective decision making that underwriters will go through in determining whether an application should be accepted with no or some modification to the HECM or rejected? Will they discuss the basic documents needed to verify income and expenses and what can substitute for some missing documents? Will they try to clarify how the Monthly Income Residual Shortfall is? Why, oh, why will they try explain LESAs?

    Not that long ago, every HECM had at least one set aside, the servicing fee set aside. Yet what counselor explained it accurately? Some talked about the direction and size of the moon in trying to explain the phenomenon that some HECM lines of credit shrank from month to month due to nothing more than the amortization of a set aside for that month; while that was rare, it became more and more common as lines of credit were drawn down almost to nothing. How will counseling ever get its mind around fully and partially funded LESAs.

    Let us hope seniors have questions about the financial assessment process performed by lenders but counseling is not the group to answer a majority of the questions. BCU gathers much of the budget information and with it counselors can present suggested documents for verification and other procedural issues in very simple terms in little time at all. Counselors should explain in brief what are considered extenuating circumstances and compensating factors. With six minutes for a broad overview and four minutes for questions with in depth questions deferred to lenders, what is all of the talk of needing another 30 minutes to go over the financial assessment performed by lenders?

    Some may call this comment over the top and too harsh but it is time to look at what it is counseling is trying to accomplish? Will significantly longer sessions result in better retention and more prudent use the loan, or will simply turn off the borrower so that they lose interest and retain less? Financial Assessment by lenders is not an area that should greatly increase the time counselees spend in counseling. It is time to reevaluate HECM counseling protocol and produce something which is more comprehensive (includes Financial Assessment by lenders) and effective.

  • The_Cynic brings up a lot of good points. I see the counselors having a very difficult time trying to explain the Financial Assessment ruling. The major part of the explaining responsability is going to be placed on the lender.

    Loan officers and processors are the individuals right in the middle and the one’s that are going to need to have the answers.

    My fear is that the counseling agencies may make it very confusing to the borrower as well as undoing what good the loan officer may have done in explaining the FA ruling prior to sending the borrower to counseling!

    This will be very interesting in how all of this will play out when March 2nd comes upon us!!!!

    John A. Smaldone

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