HUD Plans to ‘Mystery Shop’ Lenders for Reverse Mortgage Counselor Steering

Reverse mortgage lenders may soon find themselves subject to random “mystery shopping” to ensure they aren’t illegally steering prospective loan applicants to Home Equity Conversion Mortgage counseling agencies, according to one official with the Department of Housing and Urban Development (HUD).

For certain lenders suspected of engaging in HECM counselor steering, HUD plans to mystery shop these companies in its efforts to improve oversight of both agency-approved counselors as well as reverse mortgage lenders.

“We’re looking at mystery shopping of counseling agencies, and also on the lender side we’re going to be looking at mystery shopping,” said John Olmstead with HUD’s Office of Housing Counseling, during the National Reverse Mortgage Lenders Association (NRMLA) eastern regional conference in New York City last week.


Mystery shopping is a practice allowing consumers, watchdog organizations and companies themselves to anonymously gauge the quality of service or compliance with regulation of the business in question.

HUD neglected to divulge specific details for its plans, but said this mystery shopping initiative is something the agency intends to put into practice for its network of HUD-approved counselors sometime in the future.

“That is something we will be doing in a future contract,” Olmstead said. “We feel that is necessary to help support the entire network.”

Currently, there are 1,472 HECM counselors approved within 270 agencies, according to HUD data Olmstead referenced during the NRMLA event last Tuesday. The vast majority of counseling (62%), however, is carried out by only 10 agencies.

Based on Fiscal Year 2016 numbers, HUD reports a 70% pull-through rate of HECM certificates being converted into endorsements. Olmstead pointed out that this increase in conversion rate is “something positive.”

“That is something we expected, because the feeling was you folks would be doing more due diligence at the intake,” he said, addressing reverse mortgage professionals in the audience. “We’re satisfied this trend is taking place.”

For seniors who are interested in obtaining a HECM, the reality is they are typically coming to reverse mortgage lenders for more information first, before they contact a counselor. That is how the process generally works most of the time, Olmstead said.

One of the primary functions for the Office of Housing Counseling, Olmstead said, will be making sure that counseling agencies are doing a “thorough job” of providing counseling services to the clients they receive from reverse mortgage lenders.

“If we see a counselor who is doing 10-to-12 counseling sessions a day, over an eight hour day—the math doesn’t work out,” Olmstead said. “That tells us these are short sessions and we would be concerned about the thoroughness of that particular counseling session.”

HUD’s counseling office currently has an oversight team, a group of agency personnel with various levels of HECM performance review expertise. Their job will be looking at counseling agencies and assisting them in “getting stronger” in their counseling sessions, Olmstead said.

HUD also plans to focus efforts on training. Specifically, the agency will be working with the HUD Office of Single Family Asset Management to train counselors on the HECM default side of operations—an area of particular focus, considering the recent series of Mortgagee Letters that have updated HECM servicing issues related to loss mitigation and non-borrowing spouses.

“We need counselors up to date on that and we want to make sure they talk to clients about the impact of non-borrowing spouse issues, timeliness and cases of assignments,” Olmstead said.

While this focus is more directed at HECM professionals working with defaults, Olmstead said it is important that these topics are discussed at the initial counseling session.

The news of HUD’s plans to ensure HECM program compliance among reverse mortgage counselors and lenders followed other recent initiatives the agency has in store for the industry, including an updated HUD Handbook.

Written by Jason Oliva

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  • Mystery shopping probably is not the best name for this audit testing procedure since HUD is not really shopping. What they are doing is testing the system to determine if counseling agency steering is occurring along with other possible problem areas.

    Despite the “most teachable moment” concept that several counseling agency leaders have tried to impose on the industry for years now, with the advent of financial assessment, let us hope that this suggestion is now dead. Theoretically it sounds great but pragmatically, serious “shoppers” (prospective borrowers) should get an idea of whether they will qualify before incurring the cost of counseling (if any).

    In the last few months, there has been a noticeable improvement in the annualized and modified conversion rate from going just under 60% to now exceeding it but it in no way what it was for fiscal 2007 when it was over 95%. With the average high cost of prospective customers, it is important the conversion continue to rise for the foreseeable future.

    • Nod,

      No counselor who is correctly doing their job would steer a client anywhere. To be perfectly honest, I prefer *not* knowing what lender the client in front of me is seeing. While I know that all lenders are not equal, I also know that it is the client’s right to pick whomever they want as a lender. I do not change my counseling regardless of the lender, even when the lender happens to be someone I know well (as occurs in small communities).

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax

  • I have to admit that I look forward to this. I think it would be useful for both counselors and to lenders. I do want to know how any counselor does 10 to 12 sessions a day? Unless that the counselor is willing to go non stop from morning to night, I don’t know how that would be possible. (Not too mention how do they get the paperwork done?) I am hard pressed to get 3 sessions in a day.

    Frank J. Kautz, II
    Staff Attorney

    Community Service Network, Inc.
    52 Broadway
    Stoneham, MA 02180
    (781) 438-1977
    (781) 438-6037 fax –work –private

    • I so agree Frank, I only slot for two sessions a day as there is a lot of pre-counseling paperwork to mail out and then after the session more paperwork. I also want my clients to have all the time they want to ask questions.

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