From funding problems to assessment tools and claims about biased advisors, we take an inside look at the counseling world from three very different perspectives.
I must confess that when I was first approached about writing this article, I could barely contain my excitement. Counseling is one of the most hypnotic and mesmerizing elements of the HECM process, and I knew that industry professionals would be giddy at the prospect of reading more about this fascinating topic!
OK, all sarcasm aside, the counseling component of the reverse mortgage loan process is often misunderstood, and that lack of understanding between counselors and lenders can easily lead to mistrust on the part of senior borrowers. That shouldn’t happen.
So what are the most serious misconceptions? At the NRMLA conferences I’ve attended, the questions asked of me by loan officers often indicate an unsettling undercurrent of suspicion about the counselor’s role, as if we’re focused on talking seniors out of applying. That’s simply not the case. Over the years I’ve met many HECM counselors and can honestly say that the majority of us genuinely believe in the product and the positive difference it can make for seniors. Our primary mission is to educate senior borrowers and ensure that they’re making informed decisions. To that end, we do our best to answer questions factually, to discuss the positives and negatives of various HECM loan features and to function as an impartial resource for information.
That doesn’t mean that counselors don’t make mistakes, but we’re doing our best to eliminate them and stay current with the reverse mortgage product. In 2009, the HECM protocol was updated and the counselor roster was established to ensure that all counselors are properly trained and certified
One of the biggest changes introduced under the revised protocol is the required Financial Interview Tool (FIT). The FIT helps create a dialogue with seniors about their finances, goals, health and lifestyle needs, and provides them with a report of possible “yellow flags” to consider before taking out a reverse mortgage. Another new element, the Benefits Check-Up (BCU), is required for any applicant who falls below 200 percent of the federal poverty level or who receives disability income. Through the BCU, seniors are provided with a report listing all of the various public and private benefits they may qualify for, especially programs that may supplement the reverse mortgage. The FIT and BCU also open up conversations about how the HECM might affect any public benefits the senior is currently receiving and open the door to discussing long-term hurdles they may face.
I’ve also been asked on a number of occasions why some counselors insist on sending copies of the Loan Comparisons, TALC, Amortization Schedules and the other HUD-required materials. The short answer is that it’s a matter of policy at any counseling agency. HUD will allow us to use lender-provided documents as long as the counselor also has a copy of the same documents that were provided to the applicant. At this point, however, some agencies still require their counselors to mail or email their own documents to the borrower.
Allow me to turn the tables for a moment, please. If you’ve experienced a problem with the counseling received by one of your applicants, did you contact the executive director at the agency and discuss it with them? Nine out of 10 times the answer to that question is no. The fact of the matter is that counselors and lenders are only human—they make mistakes. The agency directors I’ve spoken to want to know about any issue arising from the counseling process as soon as possible. The need to keep an arm’s-length distance between the counselor and the loan originator doesn’t mean it’s wrong to make a call to express a concern or raise a question about what was said to an applicant. Doing so will only help erase the myth that counselors are against reverse mortgages, and it may enlighten the originator as to why we say what we say.
At the end of the day, if a reverse mortgage is the right option for the senior and they understand the product and its benefits, counseling is only going to give them some much-needed peace of mind about their decision. If they were unprepared or reluctant to ask you questions, a counselor can provide answers, and possibly open the applicant’s eyes to other programs that can make their golden years more comfortable. As an industry we should have one goal: to help our seniors make financial decisions that are best for their circumstances. If we do that, we’ll build our own reputations in the process.
All prospective borrowers are required by law to attend a counseling session before taking out a HECM loan. No news flash there—the counseling component of the reverse mortgage loan process is intended to be a necessary failsafe instituted by HUD to help ensure clever loan officers and their respective lenders are not abusing their superior expertise to trap seniors into loans that are not in their best interest. There must be an identifiable net tangible benefit. For all intents and purposes, this step in the process can be interpreted as a benevolent gesture to protect any potential victims of elder abuse. And it’s not going away; it’s here to stay.
I’m a loan officer, and a damn good one. Many of you reading this article may say the same thing about yourselves. And if you’re like me, there was probably a time in your career when you distrusted HECM counselors. You might have had one bad experience or heard stories from your co-workers. I know so many loan officers who have no idea what goes on in an actual HECM counseling session, and some of them just assume their prospective borrower is being brainwashed and told not to apply for the loan. (Certainly this sentiment ran rampant when the TALC first came out.) Have I struck a nerve yet?
Assuming that the majority of HECM loan officers are good, honest, ethical people—and accepting that the purpose of HECM counseling is to protect the senior borrowers—is it a logical conclusion that all potential borrowers should be receiving very similar information from the LO and the counselor? I think so. But let’s explore further.
Would you be a history teacher if you didn’t enjoy talking about history for several hours a day? Would you be an athlete if you despised exercise? What do you think musicians enjoy doing for several hours each day? Painters? Chefs? Doctors? I’m willing to bet that the majority of HECM counselors—who spend hours and hours every day covering the myriad facets of this unique program—have at least some belief in the good that our program does for many.
It’s a versatile product that can serve many needs for many seniors, but to be fair, it’s not a miraculous panacea or a proper fit for everybody. The primary mission is to educate senior borrowers and ensure that they are making informed decisions by receiving accurate, thorough, impartial and (perhaps most importantly) easily understandable and digestible information about both the positive and negative aspects of the loan. A decent loan officer may have already provided that same information!
So I decided to do some primary research, to visit the other side and get to the bottom once and for all! I recently sat through three counseling sessions with three different, well-known and respected counseling agencies. What I discovered may astonish you.
(Let me preface what I am about to say very carefully: I understand that counselors are not perfect. But neither are loan officers. By sitting through multiple sessions, my aim was to get an accurate cross-sampling of what most borrowers experience. These observations are based on my experience on these three separate occasions.)
Surprise! I did not learn anything new. Not one tidbit. HECM counselors share much of the same information that we do in our sales and education pitches. Their curriculum checklist is designed in a fairly straightforward, logical progression of thought, and they give a rather impartial survey of both the positive and negative aspects of each option. They don’t badmouth the product at all; they describe it as a government-insured loan for seniors that has no required monthly payment for the rest of their lives, as long as they remain in the primary residence. (How would we LOs describe it in 30 words or less?) They explain the benefits of having a line of credit that grows over time, how the Saver has cheaper MIP but also a lower principal limit, and how origination fees give them lower interest rates. They talk about the fact that borrowers can be foreclosed upon if they fail to pay property taxes or maintain homeowner’s insurance, that the loan becomes significantly more cost-effective the longer they keep it, and available options when the loan becomes due and payable. Don’t we do all those things?
Also, let’s not forget that counselors are required to be certified and go through annual continuing education—just like us! They have something called a Benefits Check-Up, which is eerily similar to our Net Tangible Benefit worksheet. We cannot steer, and neither can they. All
these facts seem to underscore one main theme: We all have a fiduciary duty to protect potential senior borrowers, whether it’s federally mandated or self-mandated.
In a perfect world, if both parties are doing their jobs properly with the needs and best interests of the clients in mind and at heart, the entire counseling process should feel like one hand washing the other. That’s fair and impartial. Both sides should avoid lies and errors, and both sides should act honestly, ethically and professionally. No matter how you slice it, if a reverse mortgage is the right option for the senior, and he or she understands the product and its benefits, then unbiased counseling is only going to give them some much-needed peace of mind about their decision. That should bring some peace of mind to the loan officer too.
As an industry, both sides should have one overarching goal: to help our seniors make financial decisions that are best for their specific circumstances. Both parties should feel responsible for helping the client find the ideal solution to a happier existence, and both sides should hold themselves accountable.
Funding for HECM counseling is a hot topic generating buzz in our industry right now. Industry leaders seem to be in agreement that changes need to be made to completely fund counseling for the good of the HECM program, but what changes (if any) are coming down the pike for agencies are yet to be seen.
There are several ideas being tossed around to help solve the problem, and one of them is the possibility of a lender-funded pool. The idea would require lenders to contribute to a pool based on the volume of loans they close on a quarterly or annual basis, and that funding would be passed down to counseling agencies. The agencies would then be compensated for all the HECM counseling sessions that take place in that time period, thereby achieving 100 percent funding with little to no federal assistance.
Another idea up for debate is increasing the overall cost of each counseling session to $350. Only $125 would be listed on the HUD-1 settlement statement for every HECM closed, payable to the agency that performed the counseling services. The remaining $225 would be diverted to a pool and disbursed on an annual or quarterly basis to counseling agencies based on the number of sessions they completed, regardless of whether or not the counselee opted to move forward with the loan. This would alleviate the burden created by 45 to 50 percent of sessions that currently go unpaid for some agencies, and help close the gap that has arisen as a result of inconsistent federal funding. We need to be prepared—government funding was cut totally for a short time, and it could be once again.
If we were to raise the price of counseling sessions and establish a pool to disburse surplus funds from sessions that do not lead to loans, we could prevent agencies from having to request money from the seniors upfront. In both of these steps, the federal government is also taken out of the equation in terms of subsidies. I think this is a must if HECM counseling is going to continue in the long term. There is so much uncertainty surrounding the acquisition of government funding; to ensure the longevity of the program, it’s essential that we find a method that generates funds without relying on the government.
These ideas may take some time to become a reality, but one thing is certain: As an industry, we need to take a look at how everyone is utilizing the funds we do have available. We need to look at the funds that are available right now and make a solid plan of action with the resources we have so that we can assist seniors in the best and timeliest manner possible.
We also need to take another look at how critical funding is disbursed. In theory, the national intermediaries have the highest volume and should receive the majority of the funding. However, in recent years, smaller, local and regional agencies have become more prevalent and are seeing a large demand for services in their market. If we continue with the current course, 90 percent of funding will automatically go to the national intermediaries due to their classification with HUD. With the rise of local and regional counseling offices, this idea for funding is becoming obsolete; market conditions have changed and we must change with them. Funds should be distributed based on the number of seniors that are helped through counseling services, not according to HUD classification.
The bottom line for agencies is that we need to play the cards we have been dealt and make the best out of the circumstances until the program is revised and a solution can be reached. That means fine-tuning processes to make them more efficient and looking for new, innovative ways to provide services. We need to work to service an increasingly tech-savvy and active senior demographic and we need to establish new ways to help and educate these people about their financial options. (I’m proud to say that QuickCert is currently working on an innovative system that reinvents traditional methods for relaying information to senior counselees, which we hope to release later in 2013.)
Counseling agencies provide a valuable service—I don’t think anyone would argue with that point. We know there is much to be done to address our funding issues, so let’s get to work in 2013! Thousands of seniors are counting on us to find a solution.