HUD — Lender-Funded Reverse Mortgage Counselors Just Fine
May 13th, 2008
- FHA On Counseling Fees — Again
- Lender-Funded Counselors Out, HUD-Funded Counselors In
- Counseling Fees on Hold
- HUD To Lenders: Okay To Pay HECM Counselors
- Reverse mortgage counseling fees
HUD has come out with new reverse mortgage regulations. The Department now says that “based on feedback from reverse mortgage counseling providers and cost data collected by HUD, HUD has determined that a HECM counseling fee of $125 per counseling session constitutes a reasonable and customary fee, and does not exceed a level so as to be generally commensurate with the education and counseling services that are typically provided.”
It is entirely understandable that counseling agencies want to be paid and should be paid. Like us all, counselors also need to eat and pay their bills. While one can argue whether the right number is $125 or something different, $125 seems well within the realm of reason — a bargain, actually, considering the huge economic stakes involved for borrowers and what is likely to be their largest asset.
What is troubling, however, is HUD’s continued view that it’s just dandy for lenders to pay such fees.
“Lenders,” says HUD, “may pay HUD-approved counseling agencies for counseling services, through a lump sum or on a case-by-case basis. The Lender payment may be made directly to the counseling agency or disbursed at closing by the settlement agent, as provided in paragraph (3) below. The Lender payment may be made directly to the counseling agency or disbursed at closing by the settlement agent. As required in §214.303(g), counseling agencies must disclose to their clients any funding or relationships with lenders. Lenders that pay agencies for counseling services may seek reimbursement from clients who proceed with the HECM and become HECM borrowers.”
Is this really a good idea? Is not the purpose of counseling to get information from an independent source — and also a source that like Caesar’s wife appears independent?
“Mortgagees are reminded,” says HUD, “that, as explained in Mortgagee Letter 2004-25, the lender may not steer, direct, recommend, or otherwise encourage a client to seek the services of any one particular counseling agency.”
Right. Is it okay if several local counselors compete for lender fees?
Could the potential for conflict be any more obvious? Will not some savvy lawyer start a class-action suit against a lender the moment a borrower is steered into an undesirable loan? Do you think a jury will believe the lender or an elderly citizen who happens to have been a local — and now impoverished — town minister for forty years?
And, really, paying counselors on a case-by-case basis? Is this a pay-for-performance deal — or does it just seem that way?
How many borrowers will understand the paperwork, disclaimers and disclosures?
HUD’s rules plainly provide that counseling fees can be paid at closing from reverse loan proceeds, but this is also an approach which requires some caution because the equation it produces is this: no loan = no fee.
HUD has produced a counseling system with suspect funding and thus suspect results. One solution to the problem is counselors who are fairly paid from public funds, by consumer groups unconnected with any lender and by the borrowers themselves. But a better solution is this: HUD is collecting huge reverse mortgage insurance fees — and to date has paid out few claims. Perhaps some of the insurance money could be used to fund an independent counseling system based on services provided and not the appearance of loans originated.
For the full HUD letter, press here.