Reverse Mortgage Advisor Highlights Origination Issues to Resolve

Reverse mortgage counseling is an important part of the process of the Home Equity Conversion Mortgage (HECM) program sponsored by the Federal Housing Administration (FHA), and although the industry and regulators have done much to past years to solve the persistent problems, there are still some problems that need to be solved.

That was the view shared by Brenda Grauer, reverse mortgage counselor with Housing Options Provided for the Elderly (HOPE), Inc. based in St. Louis, Mo. HOPE says he sees more than 3,000 clients per year for HECM counseling sessions. , and is the only nationwide HUD housing advisory intermediary that focuses exclusively on reverse mortgages.

To better understand the current HECM advisory landscape, Grauer presented the issues she and others in the space see on both the deal origination side as well as the default side in a meeting. in August from the HUD Housing Counseling Federal Advisory Committee.

On the origination side, the issues boil down to the reduced amount of product available on a HECM compared to a year ago; poor communication with loan officers which may distort the length of advice; and issues related to a misunderstanding of the repayment process after a borrower dies or leaves home.

Reduction in loan proceeds due to volatility in rates, PLFs

Grauer first addressed issues with the loan product on the origination side, surprising clients who might revisit the prospect of a reverse mortgage after familiarizing themselves with the process at some point before. . Specifically, it relates to the October 2017 changes to the Key Limiting Factors (PLFs), she explained.

“Those [PLFs] have been increased [in October 2017], thereby reducing the amount of money people could get from a reverse mortgage to varying degrees, in some cases by as much as 15-20%,” Grauer said. “Due to the low interest rates we experienced in the United States and globally from 2017 to 2021, this change in [PLFs] didn’t really have a huge impact on how much money someone could get from a reverse mortgage.

That has changed over the past year, however, as the one-year Treasury rate used to calculate how much money borrowers could get from a reverse mortgage has soared from 0.07% in July. 2021 at 3.11% a year later, she said.

“It’s had a huge impact on how much money people can get from a reverse mortgage,” she said. “And so, it becomes more difficult. [F]or those baby boomers who have those term mortgages [and are ssking] enough money from the reverse mortgage to pay off their existing loan, which HECM [has become] a less viable option at a time when more and more borrowers have term mortgages to repay.

Looking at her own data, she compared the change in circumstances with the circumstances of a pair of clients Grauer saw in 2021. They are 65 and 66 with a $300,000 unencumbered home and were looking for a lender with a 2% margin. .

“Last year, doing the math, the gross loan proceeds – what we call the capital available limit, the loan proceeds before fees – this couple would have received on a $300,000 home without an existing mortgage. [total proceeds of] $162,600 and then the fees would be deducted from there.

That same couple with the same situation 12 months later would see a 28% decrease in funds available to $127,200, she explained.

“So the people we call are a bit surprised to find out how much money they’re actually getting from the reverse mortgage,” she said.

Miscommunication with Reverse Mortgage Agents

Grauer also described a problem on the origination side that has persisted for many years related to communication issues between counselors and loan officers that can manifest in several different ways.

“[I have seen] difficulties with some loan officers telling clients that counseling sessions last 20 to 30 minutes,” she said. “It tends to discredit the role of housing counselors to the extent that we as housing counselors are simply seen as another hurdle to jump through in the process rather than being collaborative and taking a holistic approach to the customer’s situation.”

She also described scenarios in which loan officers may try to schedule counseling sessions for their clients, and other counselors who prepare narrow product estimates, she explained.

“We have volume advising agencies, as I call them, that don’t necessarily prepare their own individual loan estimates for clients prior to the advising session,” she said. “Advisors end up really talking about a particular product offered by a particular lender, rather than just talking in a more general sense [about] what is available in the market.

She also cited what she called “a very quick turnaround” in scheduling counseling sessions, as well as the lack of opportunities for some clients to independently review information, she said. she stated.

“And also you have counseling agencies that accept direct referrals from lenders, which of course they’re not supposed to,” she said. “So these are just general issues that we’ve seen over the years.”

Understand HECM gain processes, consultancy capability

Grauer also alluded to issues that can arise for advisors with borrower information about what the process looks like after a borrower dies or leaves home, making a reverse mortgage go through. in due and payable status.

“[We have seen issues with borrowers needing] a better understanding of what the loan repayment process is after the death of the borrower, and really wanting to try to get better and clearer information about what the heirs are supposed to do with the end of the loan,” she said. “We find that service agents can provide limited assistance for this purpose, and there is a lack of funding and advisory capacity on the back-end to help these borrowers. This is not an origination, nor is it really a PCLM situation, a default situation.

Council capacity has been a problem that has spread to several individual localities. In Massachusetts, for example, legislative pressures on reverse mortgage advice have repeatedly threatened the ability of any reverse mortgage business in that state, and what have been seen as onerous requirements for advice. in person extended a list of five-to-six advisers to try to find ways to operate in a state encompassing 10,565 square miles.

Relief has allowed telephone and video counseling in that state to resume for the time being, until 2023.

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