Counseling for prospective reverse mortgage borrowers is not only required, but it’s also a critical component of understanding how a new reverse mortgage loan is created. In order to make sure that the borrower fully understands exactly what kind of a transaction they’re getting into, the counselor guides the borrower through the features and obligations that come with a reverse mortgage, in addition to helping the borrower understand how they can best meet their financial goals by employing the use of the product.
As proprietary reverse mortgages become more widely available, counseling becomes even more essential due to the sometimes minute differences between certain proprietary offerings from different lenders. This also means that the counselors themselves have to take into account all the differences between various product offerings, FHA-sponsored or otherwise, to give borrowers the best information during their counseling sessions.
Still, establishing what the exact differences are between counseling for Home Equity Conversion Mortgage (HECM) loans and proprietary loans could help give some in the reverse mortgage industry some context concerning how borrowers are helped.
The divide between HECM and proprietary counseling
While the prevalence of proprietary products is increasing as evidenced by lenders continuing to roll out either entirely new products or new variations on existing products, it’s worth noting that the ratio between proprietary and HECM loans might have very different proportions between different counseling organizations. This is according to Kathy L. Conley, stakeholder engagement specialist at GreenPath Financial Wellness in Farmington Hills, Mich.
“I would say probably, and it’s a rough guess, 70/30. [The counseling sessions are divided between] 70 percent HECM and 30 percent proprietary, right now [in our organization].”
While there is some similarity and crossover content between the two types of counseling, they are still designated differently and can’t be discussed interchangeably, Conley explains.
“They are different types of counseling. So, the proprietary, each of them, and the HECM each have their own content. The sessions are not interchangeable, nor are the certificates,” she says. “There are similarities because they’re all for reverse mortgages, so reverse mortgages have some features that are very similar in how they work, so that content is the same. And then, from there the counseling would expand to talk about [attributes] that are specific to that particular product, whether it’s proprietary or HECM.”
While proprietary counseling sessions unsurprisingly deal primarily with borrowers who have higher home values, moving into the realm of both the appraisal(s) required and borrower eligibility help to paint a more distinct picture of the proprietary business landscape.
“There’s little details like that about the client eligibility, as well as the property eligibility that differs [on the proprietary side],” Conley says. “That’s why they’re not interchangeable, and why we do need to be specific with what type of proprietary [we’re discussing], or [if we’re counseling for] the HECM itself.”
Conway and GreenPath also have to tailor individual types of counseling into no less than five different variations: one for HECMs, and an additional four for the different kinds of proprietary products they’re approved to provide counseling for.
Similarities between HECM and proprietary counseling
Although the home values for prospective borrowers may be very different for those seeking a HECM versus a proprietary reverse mortgage, similarities in both the process and the borrower profile of the counseling itself paints a similar picture between the two basic forms of a modern reverse mortgage.
“We find that the [proprietary] counseling is very similar to HECM counseling,” says Jennifer Cosentini, housing director at Cambridge Credit Counseling Corp. in Agawam, Mass. “We are educating clients on all the same responsibilities with each program (property taxes, homeowners insurance, home maintenance, etc.). We discuss costs associated with the products, other financial or Social Services or alternatives, repayment options. The loan repayment options mirror those of the HECM program for each product, and they are all non-recourse loans as well.”
Reasons for seeking the reverse mortgage loan between HECM and proprietary borrowers are also pretty similar, says Conley.
“I think the majority of clients are seeking to use these funds for an easier process going forward, to have money available to pay off things that they have,” Conley says. “Maybe they’ve got a mortgage on the home, or they want to stop having to make payments and have money available for anything they might need going forward. Possibly to set themselves up for an easier retirement.”
The differences rest primarily in the property values as opposed to some kind of stark demographic outlier, she says. Not even geography makes much of a difference in the overall borrower profile.
“The reasons that they’re seeking the reverse mortgage are very similar. The differences would be that the values of the home are much higher, so that’s typically more towards the coasts in terms of higher-valued homes than maybe [compared] with the Midwest, but there are still some higher-priced homes in the Midwest, as well. But, the geographic locations might vary a little bit [between] the HECM and the proprietary.”
In terms of the difference between counseling for the four different kinds of proprietary loans that GreenPath is qualified for, the variance is much narrower between them when compared with the variance between HECM and proprietary products.
“The differences have to do with the amount of funds and the way appraisals might be handled, the various types of products, including the second-lien products, being able to purchase the homes with a reverse mortgage,” she says. “The fundamental basics of a reverse mortgage are there, so what the responsibilities of the borrower are and when they become due and payable, those things are pretty standard.”
In terms of the length of the counseling itself, Conley shares that there isn’t much difference between HECM and proprietary sessions, as they both typically take between 90-120 minutes.
What originators should know about the counseling process
There have been instances where Conley has felt that a counseling client was not adequately prepared for a counseling session by an originator. To minimize those kinds of scenarios going forward, there are a few things originators could keep in mind prior to a client’s counseling session.
“[Originators should] help the client understand the significance of the documents that are given to them, like the lender reverse mortgage analysis (RMA). That’s very important, and that they recognize that they need to have it available for [their clients] for the counseling,” she says. “They need to be able to have it available so they can see it when they’re having the counseling. That, and also understanding the type of reverse mortgage that they’re seeking, so that we are making sure that they are getting the specific counseling that they need.”
That’s not to say that Conley runs into unprepared borrowers much of the time, but keeping issues like these front-of-mind prior to a counseling session just helps maintain the flow of good information so that a borrower is fully aware of what kind of reverse mortgage product they’re seeking.
“I’ve worked with [originators] to help them understand the importance of that, and our staff is very well trained to make sure that there’s clarity on the part of the borrower as to what type of reverse mortgage counseling they’re seeking,” she says. “If not, we help them to understand how they would get that information so that by the time they’re starting the counseling, they’re understanding exactly what they’re after.”