The modern reverse mortgage product landscape has grown significantly in recent years to include a variety of different options that are either sponsored by the federal government, or that don’t include the government at all. As proprietary reverse mortgage options continue to become more prevalent, there is potential for the product landscape to become more confusing, which can affect the transaction at a critical time: the counseling process.
With such a wide variety of product options available coming in the form of the more typical Home Equity Conversion Mortgage (HECM) or a variety of proprietary products from major lenders like Finance of America Reverse (FAR) or Longbridge Financial, maintaining a clear line of communication about what counseling certificate a borrower requires to move forward with the transaction is a key piece of information to have.
Some originators have expressed a renewed kind of confusion stemming from this, but counselors also have ideas in terms of how to keep this key piece of information clearly understood.
More moving parts means more things to keep track of
When a reverse mortgage loan officer works with a borrower to determine the best product for them, moving on to the counseling process is designed to help give a greater understanding of the transaction they’re about to move forward with. Obviously it’s not ideal when additional information, or even an additional question can cause some borrower confusion, but it’s possible.
“The counselors can sometimes ask borrowers ‘what type of counseling’ they need even to FHA borrowers, and it can get them pretty confused,” said Christina Harmes Hika, originator at the C2 Reverse division of C2 Financial Corp in San Diego, Calif. “In December, I had three clients call saying the counselor needed to know ‘what type of counseling’ when it was just an FHA HECM – which used to be the default unless a particular type of counseling was requested.”
To hopefully prevent this kind of confusion, invoking a specific product name in borrower conversations can be helpful, she says.
“I’ve started using the product name or type once the client is moving forward with a chosen loan and, is preparing to get counseling,” she says. “At that point I’ll make sure they know to read the counselor their access code and to ask for their specific portfolio product name or FHA HECM type of counseling session.”
When reached about the possibility of this kind of confusion, one counselor said that it’s certainly not a common practice for the counselor to ask the borrower what kind of product they’re receiving counseling for in the moment.
“We don’t ask every client what kind of counseling they are calling for because that would cause a lot of confusion,” says Jennifer Cosentini, housing director at Cambridge Credit Counseling Corp in Agawam, Mass. “Typically when their home value is over $1 million, we will ask if they are doing a HECM and this will prompt them to tell us what loan they actually need counseling for.”
That’s not to say that sometimes there can be frustrations on the counseling side about preparing a borrower before they attend their counseling, she says.
“On some occasions we all feel like the lender could have done a better job preparing their client for counseling,” Cosentini says. “Overall though our job is to educate, so that’s just what we do.”
The benefits of asking
Still, a counselor who takes the extra step of asking the borrower what kind of counseling they’re seeking does come with a good reason, according to Kathy Conley, stakeholder engagement specialist at GreenPath Financial Wellness in Farmington Hills, Mich.
“To avoid having a potential borrower repeat counseling because they did not complete the correct session initially, we ask clients which reverse mortgage counseling session they are seeking,” Conley tells RMD. “GreenPath counsels nationally and while some of the proprietary products are restricted to specific states, these products are expanding across the nation quickly. We have found that the best practice is for loan officers to discuss the reverse mortgage products available to a client and also make sure the client understands which loan product they are seeking when providing the list of counseling agencies.”
Still, questions are a natural part of the counseling process, so to expect an originator to do all of the informational work ahead of time prior to counseling could actually work against the counseling process, since active conversation can facilitate greater understanding.
“As a counseling agency, we encourage questions during the counseling and are available for questions after the counseling,” Conley explains. “We find that some borrowers have more knowledge and/or experience with mortgage products and therefore have fewer questions while others may have more. Building rapport with the borrower is important for both the loan originator and counselor.”
How originators can help
That’s not to say that an originator facilitating greater understanding in the borrower prior to counseling is unhelpful, however. There are several aspects that an originator can go over prior to counseling which will likely make the jobs of both the loan officer and the counselor easier in the future, Conley says.
“If the lender helps to prepare and educate the client, the counseling experience can be empowering rather than confusing or daunting,” she says. “It would be helpful if the client understood which specific product the borrower is seeking and why; fixed rate or ARM (if ARM, monthly and annual adjusting rate, advantages and disadvantages); closing costs and adjustments; and timing of draws (all at closing or partial draw at closing and how the rest of the funds will be drawn including LOC).”
Other helpful topics to go over, according to Conley, includes the role of the client in the transaction (borrower, non-borrowing spouse, other adults living in the property, others names on title or current mortgage); the purpose behind the reverse mortgage; all relevant details relating to when the loan becomes due and payable; and details on the residency requirement and what that means for the borrower.