In an ever-vigilant effort to protect seniors and the reverse mortgage process, HUD has just released Mortgagee Letter 2009-10 to clarify counseling issues. HUD has 4 reasons for issuing the new Mortgagee Letter; to be certain that all borrowers initiate their own counseling; to delineate the requirements of lenders in the counseling process; to explain the role of the counselor in the documentation of the borrower’s unique financial situation; and to make certain that everyone is using the new HECM Reverse Mortgage Certification of Counseling.
Starting with the first item on the list, a lender is not allowed to set the counseling appointment for the borrower, nor can they even choose the counseling agency on the borrower’s behalf. HUD has put out prior notifications on this subject, but they take the time to reiterate it in this Mortgagee Letter that they want the borrower to initiate their own counseling with a counseling agency of their choosing, when they are good and ready to do so!
HUD does not want lenders to push borrowers into moving forward with the process, they want borrowers to proceed with the loan only when they have decided they are good and ready to do it and have made the effort to place the call on their own. Lenders must give borrowers a list of no less than 10 counseling agencies, 5 of which are mandated by HUD and include AARP and the National Council on Aging. To these 5, the lender must add at least 1 agency which is located within a reasonable driving distance for those borrowers who wish to be counseled in person.
HUD explained the role of counselors and the fact that they are required to review their clients’ unique financial situations during their counseling sessions. What that means is that the counselors are required to ask clients about their income, assets, debts and monthly living expenses in order to perform a budget analysis.
The idea is that once they have completed this analysis, the counselor would then be in a position to discuss appropriate alternatives to a HECM reverse mortgage. HUD states that this is being required “…in order to meet the statutory requirement, Section 255 of the National Housing Act, which mandates that counselors evaluate and discuss appropriate alternatives to a HECM”.
It may be difficult to believe that a counselor who is not a trained financial planner can adequately gauge borrowers’ entire financial picture is a short counseling session, but HUD is not saying that the counselor has to approve of the transaction, merely make certain that borrowers are completely informed regarding all options available to them and make additional suggestions where appropriate.
HUD is also very concerned that the counseling protocol is being followed with regard to using the new counseling certificate since HUD has in place procedures for different options for payment of the counseling fee or even waiver of the fee in its entirety when financial circumstances dictate the necessity.
Borrowers can elect to pay for reverse mortgage counseling at the close of their loan or under conditions of financial hardship, may qualify for free counseling but must request it when they contact the counselor and must be prepared to show evidence of financial hardship.
The biggest thing that borrowers need to realize is that lenders cannot help them by contacting counselors on their behalf or setting appointments for them. Borrowers need to do it on their own and with rising margins, committed borrowers need to be sure they don’t drag their feet or the steps HUD has taken that are intended to protect borrowers, could end up costing them thousands of dollars in interest over the life of their reverse mortgage.
Margins are subject to change in this market and if the margins go up, borrowers could be eligible to receive much less money and pay far more interest over the life of the loan. Borrowers who are nonchalant about getting their counseling done and then the margin they thought they were getting disappears in this environment, could be in for a rude awakening when they see the new disclosures at the higher margins if they are one of the unlucky ones who get caught during a margin shift.
A complete list of Reverse Mortgage Counselors can be found at All Reverse Mortgage Company