Reverse Mortgage Counselors See More Sophistication in Post-FA World

It’s been two years since Financial Assessment rocked the reverse industry, but now that the dust has settled, some say the impact is clear. HECM counselors across the country say they are seeing a distinct shift in their client profile, from someone with limited options looking to access more cash to a more financially savvy individual looking to strategically tap their home equity as part of a larger retirement income plan.

Stacy Stuber, a counselor at Housing Options Provided for the Elderly (HOPE) in the Indianapolis area, says the shift has been noticeable.

“We are definitely seeing more sophisticated borrowers, borrowers who do have assets, who do have savings, who do have other means. They are simply looking at this as a way of leveraging the equity they have in their house,” Stuber said.

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Rise of the “mass affluent”

Connie Cline, a reverse mortgage counselor with HOPE in Charlotte, N.C., agrees.

“I see fewer and fewer cases where it is a last-ditch, desperate measure,” she says. “I see more and more people of wealth, what they call the ‘mass affluent,’ who have other assets and other ways of managing things, but they want to have an option during downtimes in the market, or they want to establish a credit line and just let it grow as an optional thing to use in the future. We’ve shifted from the low- to middle-income people who have no other assets — and it’s the only way they can go if they don’t want to sell and move — to people with many other options. I still get a few of those but, boy, not like it used to be.”

Jennifer Cosentini, housing director at Cambridge Credit Counseling in Massachusetts, says that in addition to a shift toward a more sophisticated borrower, she has noticed a jump in the number of borrowers considering jumbo loans.

“We’re definitely seeing a lot more jumbo reverse mortgages,” Cosentini says. “Every week we probably do 500 sessions, and maybe 50 of them are jumbos now, which is pretty good compared with what it was few years ago.”

Challenges remain

She also says that the more sophisticated borrowers are better prepared, coming to the table with a greater understanding of how the product works, even though it is often not enough.

“There’s still a challenge in getting borrowers to grasp the concept,” she says. “A common confusion is whether or not the loan actually has to be repaid.”

Cline says that it’s still tough to get through to borrowers, and with insufficient funding limiting the length of a session, it can be tough.

“The hour and a half we give people is just barely enough. As counselors we go through a week of training and people still don’t get the product, so it’s a lot to expect of a homeowner, especially if they don’t have much financial savvy. It’s hard to take a complex product and make it simple enough that people walk away and say, ‘Oh, okay, I got it,’” she says. “I just try to make sure that they understand the growing nature of the loan, that they see the non-recourse, and they understand that they have to pay their taxes and insurance.”

Cosentini says her agency often has trouble communicating with lenders. “We want to go over the paperwork that the client receives from their loan officer. Some lenders are great about getting that paperwork to us, but we’ll request it a million times from others and they can’t get it. We have a lot of cancelations because the client doesn’t have the required paperwork for the counseling.”

“Lenders just need to prepare their borrowers,” Cosentini says. “They have to go over the paperwork with them previously or in some shape or form talk to them about the numbers and explain that counseling is necessary and required. Putting it in a more positive light and explaining why it can be helpful to talk to us would be great.”

Cline says HECM counselors play an important role in the loan process. “I hope most lenders see this as valuable, that we are sending them an informed consumer. We’d like loan officers to see us as a team player in the sense that an informed consumer is the best consumer.”

Written by Jessica Guerin

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  • This is a healthy change for the industry. How deep it goes and how long it lasts at these low rates of applications and case number assignments (for a post 2009 fiscal year) are questions open for discussion. It is important that the gaps between originators’ ideas of their education success with seniors and what counselors are reporting be quickly and permanently closed.

    The industry needs HECMs correctly portrayed for what they are, collateralized debt with the home as its sole collateral. All of the targeted use of home equity seems to be scoring with seniors and thus confusing them as to whether HECMs are debt that must be repaid. Those who are emphasizing home equity are doing a disservice to the industry. Compliance needs to step forward and take what action is necessary to reverse this horrible trend. There can be no excuse allowed that says all of the home equity business is clarified in origination. That is obviously panning out as false.

    If we want the savvy mass affluent looking to this product for the purpose of meeting cash inflow needs for decades to come, we need to tone down the home equity nonsense and begin reemphasizing that HECMs are debt which must be repaid when they become due and payable. Growing lines of credit principles and understanding that pay downs increase the line of credit are not nearly as important for the senior to retain as knowing that HECMs
    like all nonrecourse mortgages must be repaid in accordance with the terms of the loan when it becomes due and payable.

  • I feel the article Jessica wrote just reinforces what I have been saying, she has hit it right on the head!

    As time goes on we will continually see the shifting of the market to the more affluent and those that are not using the HECM as a last resort method of salvation!

    Yes, we will encounter different problems and different questions from the more affluent, we need to be prepared to answer these questions but differently than we may have with the borrower of the past!

    We face more challenges, sometimes more challenges to our own knowledge of all the changes! With more sophisticated borrowers coming into the picture also comes more sophisticated questions. We must be prepared to answer these questions.

    Please do not what I am taking in a negative way, on the contrary! This is good for our industry, we have so many new opportunities facing us all that we never have before, as long as we capitalize on all that is out there for us and adapt. If we do this, we will be more successful than ever!

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      Our biggest problem is not in believing the mantra that we educate consumers; it is obtaining the education we need as originators and sticking to that information when we “educate.” We do not need prospects being told that there are NO mortgage payments with HECMs or that there is NO payoff required when a HECM becomes due and payable. Those who do this should be told otherwise and those who persist should be attacked for their false and misleading statements.

      Another problem is the inability of originators to refrain from trying to be the financial adviser when financial advising questions come up. It is not our job to answer ALL questions when our customer was referred to us by a financial adviser. Some questions require that we tell the prospect that they need to seek the advice of their financial adviser. This complaint from financial advisers is growing. We do not need that kind of reputation.

      As to being more successful than ever before, let us bear in mind that we have yet to break the pattern of stagnation we currently are in. That pattern predicts a down leg next fiscal year (2018) to about 45,000 endorsements. If we can get to at least 56,000 endorsements in fiscal 2018, we can begin talking about breaking secular stagnation altogether. The increase this year will not allow us to reach what the pattern would indicate, 56,000 endorsements should be the total endorsements for this fiscal year. Most likely we will not reach 55,000 endorsements.

      Last fiscal year endorsements were the worst such total in over a decade. The return of the successes of yesteryear is not in view. We are still in the fog of stagnation with no signs of recovery seen as of yet. Don’t be confused by the negativity of those who did not indicate where we actually are and are somehow jealous of that skill.

      John, what you see and are reading in the blog above is no indication of a growing endorsement market. Right now our market is one of a changing borrower market; that distinction is critical to our understanding on how to break the secular stagnation we still find ourselves in.

      The consistent companion we have in this industry in the current decade is change. So far this decade has NOT been known for its dominance in endorsement production but rather for its changes and its pattern of secular stagnation in the last half of the decade. This is because we are far too myopic and that myopic view makes everything look positive or negative when in fact we are in flux.

  • As a counselor, I would agree with much of what the article said, up to a point. While we are no longer seeing as many of the desperate people who are really only putting the inevitable off for a short time, I am not seeing more sophisticated consumers. Many of the people that I talk to our in the situation that their carefully husbanded savings are running out. (Primarily due to the absurdly low interest rates over the past decade or so.) Gone are the days where you could get a 5% or greater return on the money that you kept in a bank. Many of these folks are finding that out and they are the ones that are seeking HECMs.

    Sophistication is an imprecise term and varies for many people. Many people who have not even graduated high school can be extremely sophisticated financially, and I *know* people with doctoral degrees who have trouble making change or understanding the most rudimentary financial information. So education is really not an issue here, it is how they think about money. The vast majority of people that we are dealing with in HECMs have some basic financial literacy, part of my job is making sure that they understand what it is that they are getting into. With a good loan officer, my job is very easy because I am reinforcing what they have said. Counseling sessions are usually shorter and the bond of trust between the loan officer and their customer has increased significantly because the counselor is reinforcing what the loan officer is saying. With a poor loan officer, a counseling session may very well cost them a sale because the client will stop trusting whatever the loan officer is saying.

    Please note, this can also be true of a poor counselor, this is why it is good practice for a loan officer to follow up with their customer as to what the counselor said was different. I can tell you right now that if I am giving someone misinformation I want to hear about it. And I am sure that any other counselor would want to hear about it as well. How you approach the counselor will make a big difference though. If you call me up, yell at me, and tell me I am an idiot, I am less likely to listen to what you say. If you call me up and get right to the point about what information I have that is incorrect, I will listen. Be prepared, though, to back it up. Have the regulations handy and be ready to e-mail or fax them over. Most counselors that I know want to do a good job. Nobody wants to be wrong, but if you show me I am, I will be calling people to correct my comments. Again, this might be the difference between making a sale or not.

    One final note, just for fun I did a quick check, and out of 353 people I saw for counseling over the past two years, I have the following educational breakdown: 15 did not complete high school, 150 had a high school education, 62 had an associates degree, 62 had a bachelors degree, 26 had a masters degree, 18 had a doctoral degree, and 20 chose not to list their education. Now I am strictly counseling in Massachusetts, which is often listed as the state with the most college degrees (something like 45% of our population has at least a bachelors degree), so my numbers should not be taken as typical. But they may be interesting for anyone trying to look at sales in Massachusetts.

    Frank J. Kautz, II
    Staff Attorney

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

  • With the big increase in affluent borrowers, maybe the next difficult aspect of explaining the reverse mortgage terms of agreement will be that, the house they borrow against, must be their principal place of residence.

    If they really don’t need the reverse mortgage cash to live on, maybe they’re attracted to it for more reasons than just hedging against investment downswings.

    Maybe there’ll be a big uptick in recipients using RM cash for down payments on resort homes; as they’re at least 62 and probably retired, they won’t use the principal residence as intended in the RM terms requirement.

    There could be FHA reports of a certain percentage of recipients renting-out their principal places of residence, and thereby defaulting on the loan, or maybe this requirement will be “under-checked” and there’ll be a big surge in RMs because people are getting away with it. That’d be a new twist. 😉

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