HECM Counseling Requirements Causing Seniors Problems

In their continuing efforts to try to protect seniors, HUD continues to update and refine their reverse mortgage counseling protocols and requirements.  In HUD’s Mortgagee Letter 2009-10 which they issued on March 27, 2009, HUD clarified some policies outlined in their earlier Letters and also stated that lenders had to give a list of counseling agencies to the borrower(s) which included 5 specific nationally recognized agencies (3 of which included AARP, the National Council on Aging, and the National Foundation for Credit Counseling) and then instructions that the lender must also give the borrower five additional agencies in the local area/state, including one agency which is within reasonable driving distance should the borrower(s) wish to receive face to face counseling. 

The purpose of this was so that borrowers could take the initiative to get their own counseling and not be coerced into doing so in any specific timeframe or through any specific company.  We recently have had the first borrowers who wished to actually drive into the counseling agency and receive their counseling face to face and we are still trying to rectify the damage which was done.

The problem is that we never had an opportunity to talk to this counseling agency or to determine their level of expertise…we HAD to recommend this agency because it was the only agency which met the terms of the HUD Mortgagee Letter. 

As far as we could see, it was the only agency that was within a reasonable driving distance from the borrowers. However, when the borrowers called us after the session, they were extremely angry and felt that they had been given a terrible program because the counselor gave them examples using a reverse mortgage software that was not a web-based program (for anyone in the industry for longer than 2 years, you probably already know what they are using), it had not been updated and the examples the counselor gave the borrowers was for 1.10% LIBOR, 1.50% CMT and 1.75% CMT margins! 

The counselor strongly suggested that the borrowers get other reverse mortgage quotes as she felt that the margin we were quoting was too high.  The borrowers have been upset unnecessarily, they won’t find a lower margin than what we have already quoted them and in this economy, where margins continue to rise constantly, if the loan takes too long to get to underwriting and closing, they could actually wind up with even a higher margin.

When we called the counseling agency to ask why they grossly misquoted the available margins in today’s environment, they had no clue as to the current market conditions. The counselor did not know how to update her software and we offered to put her in touch with a new vendor who would keep her abreast of current market conditions, which to her credit she accepted with eagerness. 

We asked her to not even take our word for it but to do the research with any lender, AARP or any source she desired and when she discovered that the margin we had quoted these borrowers was actually the lowest available, that she contact the borrowers personally and inform them of the error. 

At this point, it may and may not help as most borrowers need to trust their reverse mortgage professional and rightly so.  These borrowers felt as if they had been deceived when the HUD approved counselor told them that the margin they were getting was .75% to 1.00% higher than the current market.  Trust is an important thing and sometimes it only takes one very uninformed counselor to destroy that trust. 

This is an example of a policy that was enacted to try to help the borrowers that when the counselor is ultimately proven wrong the borrowers will wonder why we gave them her number to begin with and the lenders have no control over the mandate from the start.  I hope this does not lead to lenders having to interview and qualify every counselor on the HUD list that they ultimately include in their list of 5. 

It would be counter-productive from a time stand-point for the lenders and also from the standpoint that it gets lenders much more involved in the counseling process than HUD wants them to be, thereby nullifying the intent of the Mortgagee Letter in the first place. 

I can only also hope that borrowers who are interested in the reverse mortgage program understand that counselors may not be current in market related information and if they get information that does not sound right from a counselor based on what they have received from their lender, they should verify that information with other websites, with HUD or AARP themselves, but please don’t assume that the lender is trying to cheat them…counselors do make mistakes too!

Related Posts: New Couseling Protocal & HUD Permits Borrower-Paid Counseling

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