Reverse Mortgage Counseling Fall Out Hovers Around 50%

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.”

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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

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  • This is not good news but I have to ask myself, are our loan originators doing a thorough job in pre-qualifying their senior clients?

    I know in training loan originators one thing I stress the most beside establishing trust with their clients is to pre-qualify them thoroughly!

    It is not difficult to do, it just takes a little bit more time. All one has to to first off is get enough information from the client and run an analyses to see if the debt ratios work on the property. This will tell you the amount of the gross principle limit one qualifies for. Obviously if the lien is to high on the property and there is a short fall, the senior client has a decision to make, do they want to come up with the shot fall or not?

    If the answer is no, no need to pursue any further to set up the counseling. Unless, the client is insistent about amount the value coming in higher. Then if the client still wants to go forward, proceed to see if the client will qualify from an FA standpoint. If the client qualifies, then proceed to start getting the senior client set up for counseling!

    In short, there are many things a loan originator should do before rushing into setting up the counseling procedure. I may be wrong but I feel if all reverse mortgage loan originators followed this pre-qulaification procedure, we would see a much lower percentage of those going to counseling fall out!!!

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

    • John,

      The industry average for fallout following counseling was lower before 10/2/2017. So what is true of the past is not so now.

      There has been a significant change one that has little to do with FA or any other change in the past other than perhaps the addition of Standards and Savers.

      While past safeguards and protocol will help, they fall short in light of Mortgagee Letter 2017-12. Too many more seniors have had principal limits cut down to the point where once it is verified by the counselor,

      How do you cut the dropout rate down? Many originators and sales management teams are asking that question right now.

      • I thought my comment spelled it out George? Unless I am not understanding your reply, let me know, I would appreciate it.

        You and your family make it a good weekend for yourselves,

        John

      • John,

        You see this as a lack of thoroughness by originators. I do NOT.

        I see this as a matter that needs limited research as to the cause.

        If you were right we would see significant differences between the modified annualized conversion rate James Veale uses for each fiscal year end. I have looked and there is an insignificant difference of 64.1271% for fiscal 2017 versus 64.4928% for fiscal 2018. This rate measures the percentage of HECM applications with HECM case number assigned that get endorsed.

        What Jerry Wagner is sharing is very different. He is showing us the percentage of HECM certified counselees that ultimately get an endorsed HECM. He shows it has fallen significantly. In fact where the problem lies is between counseling and getting the HECM case number assigned. His information shows that the “counseling fallout rate” is now double what it was not long ago.

        We all need to ask why. If your solution is right, it is right but how can it be right when we do not know what the problem is only when that problem occurs in the HECM endorsement process? All I am saying is let’s gather sufficient verifiable data, analyze it, and then present a cure.

  • As to the math, if 50% of certified counselees do not obtain an application or if they do, they fall out before endorsement, that means 21.63% of all certified counselees fall out before case number assignment. In the past, 10% was the estimate used for certified counselees who fall out before case number assignment.

    If our numbers are correct, we see the immediate fallout before case number assignment has doubled since the introduction of the HUD 10/2/2017 mandated changes.

    I use the same method to compute the conversation rate as James Veale, his so called “modified annualized conversion rate.” This rate represent the percentage of applications with case numbers assigned that actually reach endorsement. The rate for fiscal 2018 was 63.8%. The denominator, the total HECM case numbers assigned on June 1, 2016 through May 31, 2017 was 75,797 so that counseling during that same period certified about 96,718 counselees.

    As to whether to use 63,8% or 65%, that is up to the readers to decide but if 65% is selected than the dropout rate after counseling but before case number assignment is 23.08%.

    The increase in the dropout rate following counseling to case number assignment is alarming. We need an independent in-depth analysis of why this is increasing and take the steps necessary to reduce it.

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