Reverse Mortgage: New Counseling Requirements

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The U. S. Department of Housing and Urban Development (HUD), now requires that homeowners interested in pursuing a Home Equity Conversion Mortgage (HECM) receive information about reverse mortgages from a counselor. This ensures that homeowners fully understand the implications of a Reverse Mortgage on their home before they commit, and to ensure that the lender is offering them the most suitable loan for their individual circumstances. The counselor must adhere to all of FHA’s guidelines and provide the potential borrower information in a counseling session, tailored to the unique financial circumstances of the household taking a reverse mortgage.

Under the new requirements, the Federal Housing Administration requires the prospective borrower to initiate the request for counseling on their own, without the guidance of a lender. Also, the lender must provide a list of counseling agencies to the borrower. Counselors must review and document a client’s unique financial situation as well as to document the fulfilled requirements.

The lender may not contact a counselor or counseling agency to refer a client before, during, or after the counseling session is completed. They may not 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. HECM counseling must be provided by an independent third party that is not associated with the mortgage transaction and borrowers must initiate communication with the counseling agency independent of the lender.

Lenders also must provide all clients with a list of at least ten HUD-approved counseling agencies that can provide HECM counseling. At least five of these must be in the local area of the borrower, with at least one agency located within a reasonable driving distance for the purpose of face-to-face counseling.
Counselors must promise to provide to the homeowner the following stipulations:

Options other than a Home Equity Conversion Mortgage that are available to the homeowner, including other housing, social service, health and financial options; other home equity conversion options that are or may become available to the homeowner, such as other reverse mortgages, sale-leaseback financing, deferred payment loans, and property tax deferral; the financial implications of entering into a Home Equity Conversion Mortgage; a disclosure that a Home Equity Conversion Mortgage may have tax consequences, affect eligibility for assistance under Federal and State programs, and have an impact on the estate and heirs of the homeowner; whether the homeowner has signed a contract or agreement with an estate planning service firm that requires, or purports to require, the mortgagor to pay a fee on or after closing that may exceed amounts permitted by the Secretary or in Part 206 of the HUD regulations at 24 CFR; if such a contract has been signed, the extent to which services under the contract may not be needed or may be available at nominal or no cost from other sources, including the mortgagee; the Home Equity Conversion Mortgage will be due and payable when no remaining borrower lives in the mortgaged property, or when any other covenants of the mortgage have been violated.

These requirements are in place for the protection of both the borrower and the lender, so that all parties have a thorough understanding of the circumstances surrounding the loan, the details of the agreement and the future life of the loan.

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Tags: free reverse mortgage counseling, HUD reverse mortgage counselors, reverse mortgage counseling services, reverse mortgage information

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