HUD took a dim view of what had become the accepted practice in the reverse mortgage industry to take care of the independent HECM counseling requirement. Up until October of this year the process was:
- Lenders would sign up for a billing account with national service such as Direct Connect
- When a borrower had completed an application the Lender would notify Direct Connect that counseling was needed
- Direct Connect would schedule an available counselor call the borrower within 24 hours
- The borrower would have an average 30-minute conversation over the phone
- Direct Connect would send out the Certificate of HECM Counseling
- Direct Connect would bill the lender $125 immediately
- The lender would add $125 to the borrower’s closing costs and get reimbursed at closing
HUD determined that this practice was undermining the intent of the counseling requirement – to provide borrowers with independent, unbiased education – and prohibited lenders from paying for counseling. The HUD Mortgage Letter 2008-28 was published on September 29, 2008.
Now, two months later, lenders are beginning to see the impact of the change in the form of lower origination volume (down 6% in November from year-ago levels).
When interviewed, lenders said that paying for counseling out of pocket is an obstacle for many customers. Services such as Direct Connect continue to schedule phone counseling appointments but reportedly require the customer to provide a credit card number at the time of the counseling for immediate billing.
The HUD Mortgage Letter provides for counselors to be able to defer receiving payment by choosing to receive payment directly from the title company at closing but lenders are reporting that the counselors who are willing to defer payment are so inundated with counseling requests that they are backlogged by weeks and sometimes months.