NRMLA Proposes Counseling Test for Seniors

NRMLA (National Reverse Mortgage Lenders Association) is expected to announce that in order to receive their HECM counseling certificate, seniors must pass a test given by the HECM counselor. The counselor will have a list of 20 questions to choose from and must ask 10.  The borrower must not get more than 5 wrong in order to get the certificate.

Requiring borrowers to pass a test is not a good way to assess their understanding of reverse mortgages. Many seniors have not taken tests in years.  Taking a test, especially if the test is given orally, requires a level of concentration that is difficult for most individuals and is a stressful experience.

While mandating counseling for borrowers has more upsides than downsides, requiring those borrowers to then pass a test is an undue burden on borrowers.  Although counseling can be a helpful safeguard to ensure that the borrower understands what a reverse mortgage is, some elderly borrowers, such as those with Alzheimers or dementia, likely do not have the ability to pass a test, regardless of whether they have an understanding of the situation.  Even those who do fully comprehend the situation may get flustered and fail.  Often, understanding of a topic is not well summed up on paper or in an oral question and response.  The better gauge of understanding should be the counselor’s conversation with the borrower.  As long as the borrower undergoes counseling, a test is not needed.

Reverse mortgages are often applied for in times of hardship. Requiring a borrower to pass a test, especially an oral one, is an unnecessary requirement that will cause more harm than good within the reverse mortgage process.

 

How Important is Counseling?

 

Mandatory reverse mortgage counseling for seniors

Mandatory reverse mortgage counseling for seniors

The FHA mandates independent third-party counseling for all those who are interested in applying for a reverse mortgage.  While the counseling can be free, it generally costs around $125 and can take in person or over the phone. A certificate of counseling is necessary for the mortgage to close.

 

Few products require such education.  In fact, other than skills such as driving a car or flying a plane, it is hard to think of another product that requires the level of counseling necessary to take out a reverse mortgage.  

On the one hand, counseling is important to ensure that seniors are not railroaded through the process and not taken advantage of.  In a worst case scenario, the counseling is a waste of $125 and an hour to tell a person something they already know.  In the best case scenario, however, the counseling can prevent a senior from being forced into a reverse mortgage by a family seeking to prosper from the proceeds or a lender from committing a fraudulent transaction.  There are few downsides to preventing such scenarios. 

On the other hand, it is not hard for one to question whether it is possible for independent third party counselors to ever really be completely objective.  And time and money are valuable. Most seniors do a fairly good job educating themselves about reverse mortgages.  If they do not, no one else should be responsible.  In the same way consumers can buy a faulty car or get a bad deal when making a purchase, reverse mortgages should be seen the same way as any other product. 

While these arguments have merit,  reverse mortgages are not the same as any other product, because the stakes are higher.  There are many life events for which counseling would be or would have been useful.  Rites of passage such as buying one’s first home, opening a 401(k), and developing an investment strategy, are tasks where knowledge is power and the stakes can be high.  A reverse mortgage is the same way.  Before making a big decision about finances, knoweldge is power.  Mandatory counseling is a good way to prevent against fraud by providing prospective borrowers the same level of counseling many of us wish we could’ve received years ago when making weighty decisions.