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Reverse mortgage counseling requirements

Reverse mortgage counselor with borrowersBefore completing a loan application or paying any fees, prospective borrowers must meet with an exam-qualified, independent third-party counselor authorized by the US Department of Housing and Urban Development (HUD).

A home equity conversion mortgage (HECM) is a kind of home equity loan. The counseling receivers will be given a counseling certificate at the conclusion of the counseling consultation as evidence that the treatment was successful.

Without the necessary counseling certificate, lenders are unable to complete a reverse mortgage. The mandatory counseling session is designed to ensure that the applicant(s) fully understand the reverse mortgage program.

The Department of Housing and Urban Development requires the counseling service to provide an information packet to the applicant prior to the counseling session (s).

This information package must contain the following items:

  • A paper with information titled “Preparing for Your Counseling Session”.
  • The Federal Reserve Board's Total Annual Loan Cost (TALC) Disclosure, which is required for all reverse mortgage transactions.
  • This form calculates how much a loan will cost if it is overdue for different amounts of time.
  • A printout of loan comparisons (created by the lender or the counselor) so the counselor can explain the costs and payment options.
  • A loan amortization schedule.
  • If no payments are made, the loan-amortization schedule illustrates how the reverse mortgage loan amount will grow over time.
  • The pamphlet “Use Your Home to Stay at Home –  “Use Your Home to Stay at Home – A Guide for Homeowners Who Need Help Now

Who provides HECM counseling?

HUD's Approved Counselor Roster now has about 800 individuals on it.

A counselor must satisfy the following requirements to be added to the HECM Counselor Roster:

1.Appointment with a HUD-approved Housing Counseling Agency or a subsidiary of a HUD-approved intermediary or State Housing Finance Agency

2. Passed the standardized HECM examination given by HUD or a third-party exam selected by HUD;

3.Had HECM-related education and training in the previous two years;

4.Have access to technology that enables HUD to track each HECM client's counseling results; and

It does not appear in any of the following:

The General Services Administration's suspension or debarment list; HUD's Limited Denial of Participation List; or HUD's Credit Alert Interactive Response System

To remain active on the roster, a counselor must provide proof of training or continuing education every two years and pass the HECM exam every three years.

These timeframes begin the day the counselor is added to the roster. Therefore, the counselor must finish training or continue studies within two years after joining the roster.

In addition, an organization's approved housing counseling work plan must include reverse mortgage counseling, as well as the specific geographic areas where reverse mortgage counseling would be offered.


Topics to be covered in the HECM counseling session

In accordance with HECM statute and requirements of the National Housing Act Section 255 (f) , Counselors must provide potential HECM borrowers with all the information outlined below:

A. Alternatives and Options. Counselor reviews information on the client's other options as available and appropriate.

B. Reverse Mortgage Information. The counselor reviews basic information on reverse mortgages. The counselor may present this information within the context of the HECM program. The topics most essential to an understanding of reverse mortgages include:

  • Borrower obligations - especially taxes & insurance
  • Factors that determine loan amounts and loan limits
  • Fees and fee financing
  • Impact on public benefits
  • Leftover equity (implications for borrower and their heirs)
  • Nonrecourse limits
  • Refinancing a reverse mortgage
  • Repayment- requirements, when, how much
  • Retention of title and other title issues
  • Rising debt, falling equity

C. HECM - Specific Information. The counselor should discuss key HECM program features and information, including:

  • Eligibility
  • Principal limit (the amount the borrower can receive from a HECM)
  • Expected Rate- The expected rate is fixed throughout the life of the loan and is used to determine payments to the borrower.
  • Claim Amount
  • Payment plan options and changes
  • Credit line growth
  • FHA home standards, required repairs
  • Loan costs (reference Appendix “Reverse Mortgage Product Features and Impact of Change”)

a. Application fee, appraisal fee, credit report
b. Closing costs
c. Origination fee
d. Servicing fee
e. Mortgage insurance premium

Interest rate: Adjustable and Fixed and adjustment frequency

9. Repayment

a. Requirements
b. When
c. How much
d. Open-end credit v. Closed-end credit

10. Borrower obligations
11. Tax implications
12. Estate planning services
13. Loan application
D. Financial Implications
E. Client Concerns and Questions

Rotating question markFrequently Asked Questions About Reverse Mortgage Counseling

Q. Can I get a reverse mortgage counseling by phone?
A. Yes! HUD highly advises potential reverse mortgage borrowers to visit with a counselor in person to fulfill the reverse mortgage program's counseling requirement.

Face-to-face counseling allows the counselor to determine if the client is aware of the many features and reverse mortgage choices available, as well as the financial consequences of a reverse mortgage on his or her family.
For a number of reasons, including restricted mobility and health problems, HUD allows telephone therapy in place of face-to-face counseling.

Q. How long does a reverse mortgage counseling take?
A. The counseling session usually takes 60 to 90 minutes, although, it can take longer.

Q. How much does a reverse mortgage counseling cost?
A. The cost for a reverse mortgage counseling will be approximately $125, however, the Department of Housing and Urban Development declares, "Clients must not be turned away because of an inability to pay counseling fees. Moreover, the housing counseling agency may not withhold counseling or the Certificate of HECM Counseling based on the failure to pay."