Perhaps one of the most powerful borrower safeguard components of the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program is the mandatory requirement for all parties to the transaction to undertake FHA-approved HECM counseling.
The counseling protocol is designed to increase borrower understanding of the product options, features and benefits. Additionally, counselors discuss loan details, financial stability issues and the borrower desire to remain in their home. These discussions help and educate the prospective borrower in gaining a greater understanding of financial risk and other factors necessary to consider when making an informed decision as to whether a reverse mortgage is the right choice for their situation and goals.
Counselors also utilize a Financial Interview Tool (FIT) to assess whether or not the borrower should be able to sustain themselves in their home and meet their financial obligations after obtaining the HECM, including the payment of real estate taxes and maintenance of hazard insurance.
Generally, the discussion of counseling requirements occurs at the time of pre-qualification. The borrower is provided a list of approved counseling agency contact information by the loan originator, in addition to program information and a loan comparison summary of at least three available products. Further information on approved counseling agencies and session details can also be accessed by visiting HUD’s Web site to check the HECM Counseling Roster at www.hud.gov.
Many lenders require counseling with a HUD-approved counselor MUST be completed prior to application. All participants to the transaction are required to be counseled, including attorney’s, non-borrowing spouses, individuals being claimed on or off the title and remainderman.
The resulting session certificate of counseling must be signed by all borrowers and parties to the transaction, before any processing action or fees incurred for the application or services ordered on behalf of the borrower(s) can take place.
There are two types of HECM counseling available:
►Face-to-face counseling: Borrower(s)/participants must always be provided with an option to attend face-to-face counseling.
►Telephone counseling: Borrower(s)/participants complete the required counseling session via telephone.
The counseling session is required to be an arm’s length transaction with no significant involvement by the loan originator or any other interested loan transaction support provider. Except for providing basic session information and agency contact information, the focus of the loan originator should be to educate the borrower. Borrower(s) MUST pay for counseling if unable to find a no-cost counseling source. The counseling session fee charged by the approved agency ranges from no-cost to $75-175. The lender is not permitted to pay for counseling or participate in the session.
RMS provides complete HECM Program training, product availability and partnership access to mortgage professionals through the company RMPath wholesale and correspondent channels. For more information on the HECM Program, e-mail [email protected]
or [email protected]
Ralph E. Rosynek Jr. is senior vice president, national production manager for RMS, Reverse Mortgage Solutions Inc. He may be reached by phone at (281) 404-7970 or e-mail [email protected]