The most important consumer protection built into the reverse mortgage program is the requirement that a prospective borrower must first 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.
No other consumer product requires this same protection.
For low and moderate income borrowers, another mandatory counseling tool, called BenefitsCheckup.org, helps identify other state and federal resources that can be used 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.
Prior to the mandatory counseling session, HUD requires that all 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)
The protocol also requires that a counselor explain and review alternative options and reverse mortgage information, such as:
- 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 protocols require that a counselor discuss fraud prevention and educating consumers on how to protect themselves.
Counselors can withhold a certificate if they believe that a client is not fully comprehending how a reverse mortgage works or what their obligations are if they get one. The counselor may schedule subsequent meetings until they feel that the consumer understands these issues. 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 from Neighborworks America and passed an exam.
Counselors can meet clients face-to-face or over the telephone. The one exception is Massachusetts, which permits face-to-face only. California requires face-to-face counseling, but consumers can opt out of the requirement and get counseled over the phone if they so choose.
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.
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. On June 2, 2015, HUD published a memo to counselors reiterating its policies on HECM counseling fees, which you can read by clicking here.
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
- National Foundation for Credit Counseling: 866-698-6322
- Money Management International: 877-908-2227
- ClearPoint Financial Services: 800-251-2227
- HomeFree: 301-891-8423
- Greenpath: 888-860-4167
- Neighborhood Reinvestment Corporation: 888-990-4326
- 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, “before, 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. HUD enforces Handbook 4610.1, the HECM Counseling Protocol, that provides guidance to counselors on what they can and cannot say during a counseling session.
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.