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Reverse mortgage counseling requirements

Reverse mortgage counselor with borrowersThe reverse mortgage program requires prospective borrower(s) to meet with an exam-qualified, independent third-party counselor approved by the U.S. Department of Housing and Urban Development (HUD) BEFORE signing a loan application or incurring any fees. Upon completion of the counseling consultation, a HECM Counseling certificate will be issued to the counseling recipients as proof that the counseling occurred. Lenders may not process a reverse mortgage without the required counseling certificate.

A reverse mortgage is a complicated loan agreement and the mandatory counseling session is designed to ensure the applicant(s) fully understand the reverse mortgage program.

The Department of Housing and Urban Development requires the counseling agency provides the applicant(s) with an information packet prior to the counseling session. This information packet must include the following materials:

  • An informational document called “Preparing for Your Counseling Session”.
  • A Printout of the Total Annual Loan Cost (TALC) Disclosure, the disclosure form required by the Federal Reserve Board on all reverse mortgage transactions. This form illustrates the cost of the loan if it is outstanding for different durations of time.
  • A printout of loan comparisons (lender generated or counselor generated) so the counselor can explain the charges incurred and the payment options.
  • A Loan Amortization Schedule. The loan-amortization schedule displays how the loan balance can grow over time if no payments are made to the reverse mortgage loan.
  • The National Council on Aging (NCOA) booklet “Use Your Home to Stay at Home – A Guide for Homeowners Who Need Help Now

Who provides HECM counseling?

HUD has approved roughly 800 individuals to be on its Approved Counselor Roster. To be placed on the HECM Counselor Roster, a counselor must meet the following criteria:

1.Be employed by a HUD approved Housing Counseling Agency or an affiliate of a HUD approved intermediary or State Housing Finance Agency;

2. Successfully passed the standardized HECM exam administered by HUD or a party selected by HUD;

3.Received training and education related to HECM within the prior two years;

4.Have access to technology that enables HUD to track the results of the counseling offered to each HECM client; and

5.Is not documented on any of the following:
a. The General Service Administration's Suspension or Debarment List;
b. HUD's Limited Denial of Participation List; or
c. HUD's Credit Alert Interactive Response System

In order 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 are effective from the date the counselor gets on the Roster, i.e. the counselor must receive training or continuing education within two years of the date the counselor gets on the Roster.
An agency must also identify reverse mortgage counseling in its approved housing counseling work plan including the specific geographic areas, the agency will provide reverse mortgage counseling.

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 strongly suggests prospective reverse mortgage borrowers meet face-to-face with a counselor to satisfy the counseling requirement of the reverse mortgage program. Face-to-face counseling enables the counselor to assess whether the client understands the alternative features and reverse mortgage options and the financial implications of a reverse mortgage on his/her household. However, HUD permits telephone counseling in lieu of face-to-face counseling for a variety of reasons, including limited mobility and health conditions.

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."