Home Equity Conversion Mortgage (HECM) counseling is often where prospective borrowers learn a lot about reverse mortgages. But they might not be learning enough, says one mortgage resource that is providing a new, “kosher” approach to HECM counseling.
When gauging the level of reverse mortgage understanding between expert loan originators and the borrowers they serve, there is no industry that has a wider knowledge gap than the reverse mortgage industry, says Jack Guttentag, professor of finance emeritus at the Wharton School of the University of Pennsylvania—also known as “The Mortgage Professor.”
In efforts of addressing this shortfall, The Mortgage Professor has created a new approach to HECM counseling, as part of a package of creating what Guttentag calls “kosher” reverse mortgages.
“The counseling system is a bit myopic,” Guttentag tells RMD. “It’s limited in its coverage because the whole thrust is to have the senior borrower avoid making a mistake, meaning taking a HECM when they shouldn’t.”
Essentially, mandatory HECM counseling is designed to protect prospective borrowers from making these “mistakes of commission,” or taking a reverse mortgage when they would do better without one, Guttentag says.
Counseling as it stands today, however, does not address “mistakes of omission,” which Guttentag says are committed by “untold millions” of home-owning seniors who have either never heard of reverse mortgages, or who have heard of the loans but in a negative light.
“So they don’t get a HECM when they might actually benefit from one,” he says.
The Mortgage Professor’s proposed alternative approach aims to give seniors the information they need on reverse mortgages while eliminating the financial interest of the reverse mortgage expert in the outcome of whether or not the prospective borrower obtains a HECM.
It does this through what Guttentag calls Option Experts, who are loan officers and mortgage brokers The Mortgage Professor certifies. What is unique is that there is no salesmanship involved, because the Option Experts are not licensed to originate HECMs for the seniors with whom they work.
“We’re using these people [Option Experts] as counselors in situations where they don’t have any financial interest in whether a borrower takes a HECM or doesn’t,” Guttentag says. “We simply match-up the senior with a counselor who’s not licensed in the state in which the senior’s property is located, so he can’t do a deal with that senior. He’ll have to make his commission on another transaction.”
Seniors interested in learning more about reverse mortgages can visit the new counseling solution via The Mortgage Professor’s website.
There, seniors can access the site’s reverse mortgage calculator, where they can plug-in information on the type of HECM they are interested in, including choosing between fixed- or adjustable-rate products, mortgage insurance premium, interest rates and draw options.
Like their name implies, Option Experts will discuss with seniors their possible options in a HECM transaction, such as the maximum amount that can be drawn in cash upfront, monthly for any intermediate period, through a credit line that can be reserved for future use, as well as any combination of these options that best fits the senior’s circumstances.
Experts might also discuss the initial and future costs to the senior regarding the various draw options, among other HECM-related features and topics.
For seniors who have been counseled by the Option Experts and have decided that a HECM is indeed in their best interest, The Mortgage Professor urges that these prospective reverse mortgage borrowers not be subject to traditional Department of Housing and Urban Development (HUD) counseling.
To mitigate risk, and make sure that seniors are aware of all of the HECM pitfalls that might arise in a standard counseling session, the new counseling approach will request a waiver only for seniors who have received a score of 100% on a HECM features test administered by The Mortgage Professor.
While Guttentag says he has solicited the idea of obtaining a waiver from HUD for these borrowers, it has been difficult to get a response from the federal agency.
“The senior who has gone through our type of counseling with an Options Expert has come to the conclusion that the HECM is, or is not, in his financial interest,” Guttentag says. “If he decides it’s not, that’s the end of it. But if he decides it’s in his interest and wants to go forward, I don’t see any need to have another level of counseling. It’s overkill.”
Seniors are not charged to use the service via The Mortgage Professor website.
Written by Jason Oliva