Counselors See Rising HECM Interest Through COVID-19 Crisis

Reverse mortgage counseling sessions have increased as more seniors seek out ways to soften the financial shock endured by the country during the COVID-19 coronavirus pandemic, but the reasons that seniors ultimately seek a reverse mortgage are not uniformly consistent. This is according to perspectives compiled from counselors at three major agencies which conduct reverse mortgage sessions for borrowers.

Interestingly, while Home Equity Conversion Mortgage (HECM) counseling sessions have risen during the pandemic period, counseling professionals from three separate organizations — Agawam, Mass.-based Cambridge Credit Counseling Corp., Sugar Land, Tex.-based Money Management International (MMI) and Farmington Hills, Mich.-based GreenPath Financial Wellness — revealed that proprietary reverse mortgage counseling sessions have actually recently gone down, reversing a constantly upward trend observed in 2019.

How counseling has changed during the pandemic: connection with clients, buffer asset

Each counselor related different takeaways when asked about the ways they’ve noticed that reverse mortgage counseling has changed during the pandemic. In one respect, the general desire for human interaction that may stem from many of the shelter-in-place and stay-at-home orders seems to have created more outwardly extroverted clients according to Jennifer Cosentini, housing director at Cambridge Credit Counseling Corp.

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“One thing that we’ve noticed is that our clients seem to be a little more talkative than usual,” Cosentini tells RMD. “It’s not all business lately, there is a lot more personal sharing on both sides most likely due to the isolation we have all been feeling.”

Other counseled clients seem more inclined to use the reverse mortgage as something of a “buffer asset” in order to carry them through some of the financial difficulties that have arisen since the onset of the pandemic according to Jackie Boies, senior director of housing and bankruptcy services at MMI.

“Since the COVID-19 pandemic, we’re hearing from more reverse mortgage borrowers that they are considering a reverse mortgage as a ‘financial cushion,’” Boies explains. “Seniors have indicated they are concerned about their overall financial situation and will tap into their home equity as a safety net.”

In terms of emerging trends arising from the pandemic, both Cosentini and Conley express that the overall reasoning behind seniors seeking out a reverse mortgage have not changed significantly beyond typical reasons, namely to get rid of an existing forward mortgage payment or have an available line of credit. Boies notices some additional trends emerging at MMI, however.

Seniors still want to eliminate their forward mortgage payment, but more seniors seem interested in doing so among seniors who have either recently become unemployed, or who now want to retire as a result of current events, she says.

“Secondly, more seniors are looking to remain in their home and age in place for as long as possible,” she says. “While this has always been a staple of the reverse mortgage product, we’ve recently had more of these conversations.”

HECM sessions rise, but perhaps for different reasons

Another change noted is just that reverse mortgage counseling sessions have risen, at least in regards to those dedicated to HECMs particularly in the early days of the coronavirus national emergency in the U.S., though that may not be specifically because of the pandemic even if the timelines align. This is according to Kathy Conley, stakeholder engagement specialist at GreenPath.

“In March and April of 2020, GreenPath conducted an increased number of reverse mortgage counseling sessions,” Conley tells RMD. “We cannot definitively say this increase was a result of the COVID-19 pandemic as other factors may have also contributed. One such factor is the change in LIBOR, which could result in reverse mortgage borrowers having access to a higher level of proceeds from a reverse mortgage and lower interest rates, which typically increase the number of homeowners refinancing their existing reverse mortgage.”

Still, it may be too early to determine definitive trends, Conley says. However, Cosentini and Boies both note increased HECM counseling activity within their own organizations, as well. At MMI, the increase has been more modest, but it has been present, Boies explains, while Cambridge observed more immediacy from clients, Cosentini says.

“I think during the first 6 weeks there was more urgency for counseling,” Cosentini says. “Everyone was feeling the uncertainty and wanted to get to their equity as fast as possible. I believe the urgency has calmed down a bit as the pandemic continues on and we now see that getting a mortgage during a pandemic is not as challenging as we may have thought.”

Proprietary reverse mortgage counseling sessions fall

In terms of proprietary sessions, Cosentini reports that they have stayed about the same during the pandemic at Cambridge, but both Conley and Boies report decreases in proprietary counseling sessions at GreenPath and MMI, respectively.

“Two of the proprietary reverse mortgages temporarily suspended originations for their products due to COVID-19 in March,” Conley explains, referring to the offerings from Liberty Reverse Mortgage and Reverse Mortgage Funding. “In April and May, GreenPath saw a slight decrease in proprietary reverse mortgage counseling sessions for that reason, as well as a slight increase in the number of HECM sessions.”

At MMI, the decline in proprietary sessions stood out because that organization observed a steady rise in them throughout 2019, according to Boies.

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  • LOWER DEMAND FOR PROPRIETARY REVERSE MORTGAGES!

    When talking to management employees at companies who are offering their own proprietary reverse mortgages there is much excitement about this fiscal year’s growth BUT looking at the loss of One Reverse and the suspension and modification of proprietary product offerings at other lenders, it becomes clear why some lenders are seeing increased proprietary reverse mortgage originations while at the same time counseling is seeing a downturn in counseling sessions for proprietary reverse mortgages.

    Could this be the beginning of the end of new proprietary reverse mortgage originations for an extended period of time? Perhaps not with the strong increase in new home construction starts which should (but may not) spur new home sales now and in the near term. However, as to new home construction starts, it is expected that this spark in new starts may be short-lived since the summer residential sales season will end in about 11 weeks.

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    A BUFFER ASSET?

    How in the world is a reverse mortgage a buffer “asset.” If it is an asset it is one of the strangest assets in the history of finance. A saving account at a bank that has an active balance is universally agreed to be an asset. If you have $10,000 in that account in that account, after drawing out $1,000 you are left with $9,000 in the savings account. Yet with a HECM line of credit, if you take out $1,000 when the available line of credit is $83,500 you are left with $82,500 left to draw and your unpaid principal balance increases by $1,000.

    So with a savings account and you take $1,000, your balance is lowered by $1,000 BUT you do not owe anyone $1,000 more as a result of that withdrawal. With the HECM line of credit, $1,000 withdrawn means you not only have $1,000 less to draw BUT you also owe $1,000 more on that “asset.”

    A HECM is, however, an asset to the note owner such as HMBS investors, Fannie Mae, and HUD while a HECM is in assignment. A HECM is a borrower that is why senior homeowners who originate one are known as “borrowers.”

    There is a name for the available line of credit in accounting. It is a contingent asset which means the person with the RIGHT to use the line of credit does not own the cash that is available through the HECM line of credit until an event occurs. In our realm that event is the approval of the servicer to find out if the requested cash is available to the borrower and the servicer initiates the increase in the HECM line of credit as a result of the disbursement.

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    THE ELEPHANT IN THE ROOM — HECM REFIS

    No one in this group of counselors seems willing to discuss the elephant in the room, the base of the increase in HECM counseling. Over 70% of the current increase in HECM endorsements are from HECM Refis. Further, of the last three months of Case Number Assignments (CNAs) posted by HUD, all three of the months had more CNAs than the corresponding months in the prior year. Also in two of those months over 92% of the increase for each of those months came from HECM Refis while the other month showed that over 70% of its CNA increase came from HECM Refis.

    The problem with HECM Refis is that they are very volatile. Right now HECM interest rates are at historical lows. It is expected that the demand for HECM Refis will begin to decline within the next six months. HECM refis do not provide a stable and sustainable source for HECM growth.

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    NEW PERIOD OF STAGNATION? IS A FISCAL YEAR OF 40,000 ENDORSEMENTS CLOSE?

    If HECM refi activity falls off in fiscal 2021 as expected and the other HECM products continue to grow at about 5%, fiscal 2020 could be the start of a number of years of stagnation in HECM endorsement growth. The industry could be challenged to reach 40,000 HECM endorsements in any fiscal year before 2024. Yet that prediction has a measured likelihood but by no means is it certain.

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