While the estimates are rough as to the overall impact the recent budget cuts to the Department of Housing and Urban Development’s counseling funding will have on the HECM program, there is one particular scenario for which counseling agencies are certain they will suffer.
In cases where a borrower participates in HECM counseling but ultimately does not go through with the reverse mortgage loan, the cost of the counseling can not be financed into the closing costs and the agencies are concerned that they will have to pick up the tab—now, without the help of HUD funding. But how many counseling sessions does this segment include? The actual impact is less clear cut.
One national counseling agency executive told RMD the number of such sessions was around 25%; other industry estimates place the figure closer to 20%.
A quick poll of RMD readers, which clearly span different roles throughout the industry, shows just how disparate the views on this counseling segment are. Our poll, which included 178 votes as of May 16, was divided—nearly evenly—when it comes strictly to opinion on the matter. Twenty-nine percent of readers think that less than 10% of those who go through counseling never close a loan, while 26% think the figure falls between 10% and 20%. Almost a quarter, or 23%, think the number is between 21% and 30%; and the smallest number of respondents, or 22% think more than 30% of counseling sessions do not ultimately lead to a reverse mortgage.
Using data from HUD to estimate the actual number is tricky as well due to the lag time between counseling, application, closing and endorsement data explains Jerry Wagner, of Ibis Software Corportation, which tracks counseling data. Wagner provided an example: When only considering the last 12 months with a two-month lag between counseling and endorsements, 41% of those counseled never closed a loan.
Accounting for the September flux of applications and data discrepancies, Wagner says more accurately the figure is closer to just over one third, but he points to a larger trend in counseling that shows a near-record high in March.
“In March, 11,642 clients were entered into Ibis’ [tracking system],” Wagner told RMD in an email. “That’s a record not counting the September 2010 stampede….counseling has been growing steadily in the last three months.”
Cases where seniors undergo reverse mortgage counseling but never close seem to be causing the most concern from counseling agencies. In recent months, many announced they would waive the fees but without the funding from HUD, they may have to reintroduce them.
“It is impacting our ability to provide free reverse mortgage counseling,” said Helen Raynaud, vice president for national grants for the National Foundation for Credit Counseling. “While agencies have been allowed to charge clients to cover the costs, more and more seniors have been using this product. They’re not people who would necessarily be in the best position upfront.”
Raynaud said there is an option for the agencies to be reimbursed at closing, but that the process hasn’t been very smooth and that NFCC’s agencies have not always been reimbursed successfully. In instances when there is no closing and the potential borrower opts out of the loan, the $125 fee falls back on the agency.
“We’ve had limited success with client fees,” she said.
Written by Elizabeth Ecker
