A Comprehensive Guide to HECM Counseling

(Note: The following FAQ was last updated on June 4, 2012.)

Arguably the most important consumer protection built into the reverse mortgage program is the requirement that a prospective borrower must first meet with an 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.

No other consumer product requires this same protection.

To help educate our members on the basic components of HECM counseling, and common questions that arise, NRMLA has developed the following FAQ.

What New Consumer Safeguards Has HUD Implemented to Improve Counseling?
New federal counseling requirements designed to help senior homeowners independently evaluate, with assistance from a HUD-approved, exam qualified, professional housing counselor, whether a reverse mortgage might be an appropriate option for them, took effect on September 11, 2010. 

These new counseling requirements, which are supported by National Reverse Mortgage Lenders Association (NRMLA), mark a further strengthening of the consumer protections associated with this federally insured, seniors-only loan program.

The new counseling protocol requires use of a Financial Interview Tool (F.I.T.), developed by the National Council on Aging, to assess whether or not individual borrowers will be able to maintain the financial wherewithal to sustain themselves in their home and meet their financial obligations after obtaining a Home Equity Conversion Mortgage (HECM) loan.

For low and moderate income borrowers, another mandatory counseling tool, called BenefitsCheckup.org, is utilized to help borrowers identify other sources of potential income that they can tap in lieu of, or in conjunction with, a reverse mortgage. Benefits Check-up is mandatory for counseling clients below a certain income threshold and offered as an option to those with higher incomes.

The counseling regime operates independently of lenders and is conducted by third-party elderly advocacy organizations and housing counseling agencies, such as the National Council on Aging, CredAbility, National Foundation for Credit Counseling and  Consumer Credit Counseling Services around the country. The US Department of Housing and Urban Development oversees the selection and certification of counseling groups, and monitors their performance.

Prior to the mandatory counseling session, HUD requires that the individual borrowers receive an information packet.  This information packet must include the following materials:

• An informational document called "Preparing for Your Counseling Session" (click HERE to view a copy)
  
  
• A printout of loan comparisons (counselor generated or lender generated) so the counselor may review “the numbers”
  
  
• 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 Loan Amortization Schedule
  
  
• The National Council on Aging (NCOA) booklet “Use Your Home to Stay at Home – A Guide for Homeowners Who Need Help Now"
  (Click HERE to view a copy)
  

Rising debt, falling equity
Repayment information (how much, when)
Nonrecourse limitations
Leftover equity (implications for borrowers and their heirs)
Borrower Obligations –especially taxes and insurance
Factors determining loan amounts
Fees and fee financing
Retention of Title
Impact on Public Benefits
Refinancing a reverse mortgage
 
The new protocols require that the counselor discuss Fraud Prevention and educate the consumer about how to avoid becoming a victim of fraud.

HUD’s new counseling protocols also mandate that a counseling agency must withhold a counseling certificate from a client who cannot successfully answer five of ten specified review questions.  This aspect of the protocol is designed to ascertain the client’s comprehension of the counseling session content.  A lender may not process a Home Equity Conversion Mortgage without the required counseling certificate.

Who Provides HECM Counseling?
HUD has approved roughly 800 individuals to be on its Approved Counselor Roster. These counselors have received special training and passed an exam to be listed on the roster.

Counselors are able to meet clients face-to-face or over the telephone. The only exception is North Caroline, which permits face-to-face only.

Nationwide telephone counseling is also conducted by the National Foundation for Credit Counseling (NFCC), Money Management International (MMI), National Council on Aging, CredAbility, ClearPoint Financial Solutions, HomeFree, Greenpath, Neighborhood Reinvestment Corporation and Springboard.

What Criteria Does HUD Use to Approve Counseling Agencies?
A detailed memo on the topic written by our general counsel for members can be accessed by clicking HERE. In general, an organization seeking to become a HUD-approved counselor must submit evidence of non-profit status; must have operated for at least one year in the geographic location that it proposes to serve; must have successfully administered a housing counseling program for at least one year; and must have sufficient resources to implement its proposed counseling plan.

Does a Consumer Incur a Fee for Counseling?
Some counseling agencies provide free counseling because they're able to cover the cost from grants they receive from HUD and other charitable organizations. In 2008, HUD issued Mortgagee Letter 2008-12, which established a maximum fee of $125 that counselors could charge.

More recently, HUD published Mortgagee Letter 2011-09, which gives counseling agencies the authority to increase the counseling fee from $125 to an amount they feel is “reasonable and customary” based on the level of service provided.

With the introduction of the Financial Interview Tool (FIT) and BenefitsCheckUp in 2010, counselors are now spending a minimum of 90 minutes (sometimes longer) with prospective clients. As a result, counseling agencies may charge more than $125 for HECM counseling, as long as the fee does not exceed a level commensurate with the counseling services that are provided.

If the client’s income falls below 200 percent of the federal poverty level, a counselor can only collect a fee when the loan closes.

What are Some Important Rules that Lenders Must Follow?
1) A lender may not steer, direct, recommend, or otherwise encourage a client to seek the services of any one particular counseling agency.

2) A lender must distribute the names of at least five local counseling agencies to a prospective client, plus the toll-free numbers for NFCC (866-698-6322), MMI (877-908-2227), CredAbility (800) 251-2227), NCOA (800-510-0301), ClearPoint Financial Services (877-877-1995), HomeFree (301-891-8423), Greenpath (888-860-4167), Neighborhood Reinvestment Corporation (888-990-4326) and Springboard (800-947-3752). If a lender can't locate five local agencies, which can be the case in more rural states, a list of counseling agencies located in an adjoining state can be provided.

3) As stated in ML 04-25, “[b]efore, during, or after the counseling session is completed, the lender may NOT contact a counselor or counseling agency to refer a client; discuss a client’s personal information, including the timing or scheduling of the counseling; or request information regarding the topics covered in a counseling session.”

4) HUD recommends that a lender refer a client to counseling prior to taking initial application. However, if a lender chooses to discuss the program with a potential borrower and/or take initial application prior to counseling, the lender is limited to the following activities: a) explaining the HECM program; b) discussing whether the potential borrower is eligible for a reverse mortgage; c) providing information on fees; d) describing the potential financial implications; and e) providing the borrower with copies of the mortgage, note, and Loan Agreement.

5) Lenders are strictly prohibited from assisting a senior in scheduling counseling; borrowers are not to be pressured in any way and must contact a counseling agency at their own pace.

6) As mandated in mortgagee letter 2008-28, a lender may no longer pay for counseling,

Are There Certain Rules That a Counselor Must Follow?
Yes. Most rules that pertain to HECM counselors are found in HUD Mortgagee Letters 2004-25, 2004-48, 2005-44, 2006-25, 2008-12 and 2008-28. HUD enforces a protocol that provides guidance to counselors on what they can and cannot say during a counseling session.

A new version of the protocol was published on July 14, 2010 and can be accessed by clicking HERE or downloading at copy at the bottom of this page.

A frequent concern is when a counselor "steers" a senior to a specific lender. HUD prohibits any form of steering. Lenders are instructed to contact HUD directly if they encounter any steering. Provide as much information as possible—including the name of the counselor, the name of the counseling agency, the name of the borrower, and contact information for both—so that HUD can properly investigate the matter.

Who Can I Contact At HUD for Additional Information?
Following is a list of people at HUD's four regional Home Ownership Centers who can provide assistance with any HECM counseling questions or concerns you may have:

Office of Housing Counseling
John Olmstead
(802) 951-6290 ext. 3008
or John.R.Olmstead@hud.gov