Does Counseling Warrant Criticism?

By Peter Bell

One of the aspects of the reverse mortgage process that we believe to be a unique and essential safeguard is mandatory counseling.  As we have said previously, there is no other financial product that requires counseling by an independent third-party before purchase.

The counselors must conduct each counseling session in accordance with a protocol developed by HUD in collaboration with consumer interest groups and the industry.  And every individual counselor must pass an exam administered by HUD—not just to get started, but every three years. The protocol has been scrutinized regularly and continually improved over time.  It now includes two valuable tools developed by the consumer advocate group, National Council on Aging—the Financial Interview Tool (FIT), that helps a counselor discuss a clients’ financial resources, expenses and plans to stay in the home, and Benefits Checkup, which allows the counselor to identify any government benefits, federal, state or local, that may be available to the client.

Many reverse mortgage counselors have a background in social work, consumer advocacy or elder-law. Others, come to counseling from the banking, lending and financial services industries.  “They are people who decided they would rather be on the consumer’s side of the conversation and working for non-profits,” says Sue Hunt of CredAbility.   

Why would anyone choose such a profession?   You know the answer: because they are those special people whose primary commitment is to helping others.

So now the CFPB has issued a report on reverse mortgages that questions not the validity but the quality of counseling.  What are the sources of their criticism—especially given the fact that they have acknowledged doing no interviews with borrowers:

·         According to a footnote, a small sample of consumers who sent written complaints to the Bureau since it was formed in July 2011.

·         A GAO report issued in June 2009 that mystery shopped 15 counseling sessions early that year.  The CFPB report includes the complete list of GAO 2009 conclusions.  But they are now out of date.  Since then counseling has been vastly revamped and improved , all counselors must be HUD tested and the new protocol that includes FIT and BenefitsCheckup has been implemented.

·         And, we can assume, consumer advocates.  The Bureau has explained their methodology: They interviewed 30 industry participants—none of whom complained about counseling.  Five counseling agencies, none of whom complained about counseling.  And five consumer advocates.  I confess to making an assumption here.

I wonder if these consumer advocates have ever sat through a counseling session?  NRMLA members had the chance to experience a demonstration of counseling firsthand when we offered a session on a live webinar and then published the transcript in Reverse Mortgage Magazine.  We also surveyed 600 reverse mortgage borrowers about their experience.  The results included high marks for counseling as well as 90% claiming they felt that they understood the product well-enough to make an informed decision, for which counselors must receive some of the credit.

The report says that “Borrowers reported to the CFPB frustration that certain topics either were not addressed in the counseling process, not adequately explained, or not understood. Borrowers commonly cited issues surrounding when the loan becomes due and payable, taxes and insurance, costs and fees, and whether family members would be able to pay off the mortgage after the borrower passed away.”

Each of these issues is specifically explained as a part of the counseling process.  Each of these issues is explained by any qualified loan originator.  And each is very clearly explained—and in many different ways—on our consumer website, reversemortgage.org as well as in our booklet, Your Road Map to Reverse Mortgages.

Among the reports other conclusions on counseling are that borrowers did not take the counseling seriously, but just considered it a hurdle between them and their goal.    But that’s a criticism of human behavior, not reverse mortgages.   The Consumer Financial Protection Bureau can’t fix that one.  And the report questioned (incorrectly) whether the fact that counselors only receive payment when a mortgage is closed undermines impartiality, implying counselors may push clients into the loan to assure payment.  But we have already dealt with the fact that this does not mesh with the sensibility of those people who choose this line of work.

Now, all of this said, I am not arguing that there might not be room for further improvement in the counseling process.  And NRMLA would eagerly participate in such a process as we have historically.  In fact, we would be thrilled to be given specific, substantiated evaluations of the process and thus know what areas still need to be addressed.

But what I do argue with is the fact that the CFPB has some anecdotes and some impressions, but does not have anywhere near the evidence required to reach its conclusions.  Regulation by speculation is not in anyone’s best interest—especially consumers.