Since its inception when HUD started insuring reverse mortgages 20 years ago, anyone considering a reverse mortgage must receive counseling from a 3rd party HUD approved counselor. Now effective this October a new protocol has been put into affect. To remain on HUD’s Counseling Roster, counselors must have passed the National HECM (Home Equity Conversion Mortgage) Counseling Exam. Only counselors who are employees of HUD-approved housing counseling agencies can take the exam and then be eligible to counsel potential reverse mortgage borrowers. Additionally they must have completed at least one HECM related training course within the past two years and meet some background check requirements.
With the intention to keep lenders from influencing counselors, lenders are required to provide potential borrowers with a list of 10 counselors, 5 are to be local and the additional 5 are the national counseling agencies. Also according to HUD’s requirements lenders are prohibited to provide only one or two counselors and/or steering to a particular counselor.
The purpose of the third party counseling is to make sure potential borrowers are familiar with the terms of the loan, the costs, and advise them of other potential options. The advantages can be if the potential borrowers have not talked with a lender or a lender has not provided the details they are getting the basics of the reverse mortgage. If they have talked with a lender and the lender has done a good job explaining the reverse mortgage, the counselor will reiterate what the lender has explained. Counseling sessions should generally take about an hour and HUD allows counselors to charge up to $125 commensurate with the time of the counseling session.
Through the years we, the ethical lenders, have been amazed how counselors have not followed HUD’s requirements, steered to particular lenders, told borrowers they shouldn’t do the reverse mortgage, how they should take their reverse mortgage funds, charged the full allowable amount of $125 for only 15 minutes of counseling time, and a number of other violations of HUD’s regulations.
When we from Prestige Mortgage, LLC, Reverse Mortgages SIDAC, meet with our prospective borrowers we usually take an hour to two hours going through the details and the calculations, reviewing their situation and discussing options for their situation. After the counseling session when we ask our borrowers how the counseling session went, we consistently hear, “They covered just what you did.” This means our borrowers have received enough education to have a good understanding of the loan.
Besides the new protocol to be a counselor, there will be a new protocol for the counseling session. Prior to the counseling session HUD is requiring that prospective borrowers receive calculation pages comparing programs, the amortization schedules, the Total Annual Loan Cost (TALC) and a booklet titled, “Use Your Home to Stay at Home” published by the National Council on Aging.
From what we understand counselors will be doing a financial analysis. Additionally counselors will be asking 10 questions in which borrowers will need to answer at least 5 correctly in order for them to receive the counseling certificate. If they can’t answer the questions correctly then they will not receive the certificate and will need to wait a minimum of 7 days and then go through another “limited” counseling session to review the topics they didn’t understand. And if counselors feel the prospective borrowers don’t comprehend the basic reverse mortgage details, they can withhold the counseling certificate.
The intention is to help borrowers assess their situation and whether the reverse mortgage is right for their financial situation. While on the surface this sounds like a good idea, the concern is whether the counselor will be passing along their opinion and not letting the borrower really make their own decisions and withholding the counseling certificate if they choose based on their opinion. This has happened in the past with counselors telling borrowers they should cut back on getting their hair done, not using the proceeds for a trip, shutting off their cable TV, etc.. I believe the discussion should be held however, the final decision should still be the borrowers. And we have to consider what provides seniors their security, independence, dignity, control and choices of their life. Visit my Blog articles: “Who Are We To Judge How Reverse Mortgage Funds Should be Used?” and “Is Your Opinion of Reverse Mortgages Denying Seniors?”
I’m proud that we take so much time educating our borrowers and discussing their situation and options so they can make their decision based on the facts of the reverse mortgage. Also that they have the information and knowledge to be able to answer the questions they will be asked during the counseling session.
With the new protocol of the counselors, I believe (hope) the best counselors will remain and the counseling sessions will provide the education without the opinions of the counselors being shared. I also hope that the counselors will be following the required protocol knowing that if they don’t HUD is likely to pull their ability to counsel. Time will tell if the new protocol of the counselors and the counseling session will benefit borrowers or make it more cumbersome and/or discouraging for the borrowers.
The best I can do is continue to educate borrowers on the facts of reverse mortgages, discuss their situation and options and respect them to make the decision best for their own situation and have the information they need when they go through the counseling session.
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