For Home Equity Conversion Mortgage applicants, only about half of those who complete the required loan counseling go on to close a reverse mortgage loan, according to industry data.
Numbers from Ibis Software, which tracks HECM counseling sessions, indicate that last year’s changes to the program have contributed to this trend.
“Forty-eight percent of endorsements fell through with respect to counseling sessions before the PLF reductions in October 2017,” Ibis CEO Jerry Wagner told RMD in an email. “Fifty-one percent of counseling sessions are now falling out. So the lower principal limits are definitely having an effect.”
Wagner says that about 25% of applicants who complete counseling do not ultimately end up with a case number, with a usual two- or three-day lag between completion of counseling and case number.
“There is about a 35% fall off from case numbers to endorsements using a 3 and 4 month lag,” he said. “The fall off from counseling clients to endorsements is about 50% using the same 3 and 4 month lag.”
Justin Lally, a HUD-approved reverse mortgage counselor with Cambridge Credit Counseling says he hears many reasons why someone goes through counseling but does not move forward to open the loan, such as opting for more conventional financing, refinancing, downsizing, or simply postponing.
“We hear them all,” he says. “But most common, I think, is that for one reason or another they’re not happy with the final figures and either cannot or decide not to move forward.”
Common reasons may be a low appraisal, high fees and closing costs, smaller loan proceeds, being short to close, or unexpected repairs or a life expectancy set aside (LESA), he says.
Melinda Hipp, a HECM originator and branch manager with Open Mortgage LLC, says that education and correct information from all parties involved is imperative. Because lenders and counselors are prohibited from communicating to prevent preferential steering, Hipp says originators need to take the time to fully explain the loan and its process before the client goes to counseling.
“The counselor has to utilize a script and if the borrower is not familiar with the program and their own numbers, the counselors will perhaps not give the correct calculations as fees vary by state, they don’t know rates, etc.,” she says. “So the borrower may either find out truthfully from the counselor that they don’t qualify, or since the counselor is not an LO, they may not finagle the numbers to be able to make it work for the borrower.”
The U.S. Department of Housing and Urban Development requires that counselors explain to borrowers the reverse mortgage alternatives available to them, and sometimes this results in applicants finding a better-suited solution.
“I had that happen 2 weeks ago,” Hipp says. “The couple completed the loan application, was all excited about the possibilities going forward, and then after counseling told my assistant that they were ‘pursuing other options.'”
Lally says that the majority of the clients he counsels are well-informed by the originator. He says counselors can and do provide loan estimates generated through Ibis for review purposes only and to illustrate how the loan is calculated, but they should never be perceived as a quote.
“Quoting rates of different lenders during a counseling session is prohibited by HUD,” he says, adding that counselors also must not encourage or discourage clients from using any specific products.
“We will never provide information on the specific costs charged by any individual lender, because costs are subject to market fluctuations and may depend on variables that are not constant from client to client,” he says. “If a client presents us with estimates from multiple lenders however, we will help them compare the costs.”
Written by Maggie Callahan