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Why Eliminating The HECM Advisor Program Will Hurt The Reverse Mortgage Business

Last week we found out that the passage of Housing and Economic Recovery Act of 2008: HR 3221 would eliminate the HECM advisor program.  This wasn’t something anyone in the industry expected from the Bill and will hurt the reverse mortgage industry. . 

While I think all of us will agree that the guidelines HUD has issued for the program can be a little “hazy” and because of this there are companies using it to their advantage .  How companies have gotten away paying more than 25% of the origination fee still surprises me, especially when they are blatantly marketing the fact that they are paying more.

Here are a couple reasons why I think the HECM advisor program plays a positive role in the reverse mortgage business:

  1. Allows smaller banks and credit unions to have access to the program without the cost involved in becoming FHA approved and the training needed to originate a reverse mortgage.
  2. Gives licensed mortgage brokers the ability to offer a safe and government insured program to their customers even if their employer isn’t FHA approved.

People might argue that you can still refer a senior to an FHA approved company even without the advisor program.  What they don’t understand is having the incentive of an “advisor fee” does help.  Trying to convince a small bank or anyone else to allow you to come in and train their employees on reverse mortgages will be almost impossible without the advisor program.  Unless there is some bottom line benefit to their company, good luck trying to get into the office to provide training. 

So why has HUD decided to eliminate the HECM advisor program when there is no mention of it in HR 3221?  According to HUD’s most recent interpretation there is one line in the bill which eliminates the HECM advisor program.  While I’m not an attorney, I think their interpretation is wrong.  The line from HR 3221 that I’m referring to reads:

All parties that participate in the origination of a mortgage to be insured under this section shall be approved by the Secretary.

HUD believes that this line from the Bill eliminates the HECM advisor program.  I disagree because of HUD’s clarification of the HECM advisor program they issued in May.  According to Mortgagee Letter 2008-14:

All non-FHA entities who wish to be”advisors” can provide limited services only, of an educational nature, which may include: educating prospective borrowers about the reverse mortgage lending process, advising the borrower about different types of loan products available, demonstrating how closing costs and payment options could vary under each product, and maintaining regular contact with the lender to keep the borrower apprised of the status of the loan application.

Their description of  what role an “Advisor” can do never mentions the word “origination”.  The role of an advisor is simply to educate the borrower about the process but not actually be involved in the process of “originating” a loan.  It has always been my understanding that the process of originating a loan begins when you take a loan application.  Since the advisor never handles any of the origination process it shouldn’t be eliminated because of this one line in the Bill.

As far as I know the Housing and Economic Recovery Act of 2008 was never meant to eliminate the HECM advisor so why do this?  I think we can all agree that the advisor program needs more defined guidelines, especially in regards to what “reasonable value” really means. 

Here is my proposal to HUD… Instead of taking the easy way out and eliminating the program, how about we sit down and come up with a better set of guidelines?

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