New HECM Counseling Protocol Means Longer Sessions, Higher Costs for Borrowers

A month after releasing the new HECM Counseling Protocols, the average time spent during each session has increased substantially and could mean higher costs for borrowers.

“There is no question sessions are taking significantly longer, so sooner or later the cost of the counseling will reflect that,” said Daniel Fenton, Housing Director at Money Management International.  ”Most agencies have not done enough counseling under the new protocol to know just yet exactly how much more sessions will cost to deliver, so it’s a little early to predict the impact on counseling fees or capacity.”

The time spent during each session has increased because new guidelines require that counselors use the Financial Interview Tool to help prospective borrowers consider the immediate financial needs and long-term challenges that can make it hard to stay at home and benefit from a reverse mortgage. Seniors with incomes below 200% of the federal poverty level are also required to complete during the session.  Both were not required prior to the new HECM counseling protocols.

In addition to the longer sessions, borrowers must receive a pre-couseling package prior to the meeting from the agency or the lender.  Despite tools from the Reverse Mortgage Counseling Association and Reverse Vision that allow lenders to send the documents themselves, many are taking advantage of the tools.  A national counseling intermediary told RMD it mails out between 20 and 40 packages to clients each day, increasing the amount of back office support needed and slowing down the counseling process for borrowers.

When the cost of counseling will go up isn’t clear, but the agencies will likely wait until the Department of Housing and Urban Development awards grants in November.  Last year, HUD provided $9.5 million in HECM counseling grants which allowed free counseling sessions for most seniors throughout the year at the larger agencies.  Once the grants were exhausted, most agencies started charging $125 for each session

After speaking with several originators, the response to the new protocols from borrowers has been mixed but not as negative as many anticipated.

“The real key I believe is the loan professional exercising due diligence in preparing there borrower for the questions to be covered,” said Shannon Hicks, VP of Product Development for Reverse Fortunes and originator for Security One Lending.  “No one likes surprises and letting your borrowers know which questions that will be asked in advance shows a level of care and professionalism to the borrower.”

According to Hicks, borrowers would benefit if HUD included some type of worksheet describing the information they need to have or be aware of for the session before hand. “This should be part of the “Preparing for your counseling session” which is pretty much a narrative but lacks the specifics for preparation,” he said.

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