Before completing a loan application or paying any fees, prospective borrowers must meet with an exam-qualified, independent third-party counselor authorized by the U.S. Department of Housing and Urban Development (HUD).
A home equity conversion mortgage (HECM) is a kind of home equity loan. The counseling receivers will be given a counseling certificate at the conclusion of the counseling consultation as evidence that the treatment was successful.
Without the necessary counseling certificate, lenders are unable to complete a reverse mortgage. The mandatory counseling session is designed to ensure that the applicant(s) fully understand the reverse mortgage program.
HUD requires the counseling service to provide an information packet to the applicant prior to the counseling session or sessions.
This information package must contain the following items:
- A paper titled “Preparing for Your Counseling Session”
- The Federal Reserve Board's Total Annual Loan Cost (TALC) Disclosure (required for all reverse mortgage transactions)
- A printout of loan comparisons (created by the lender or the counselor) so the counselor can explain the costs and payment options
- A loan amortization schedule
- If no payments are made, the loan-amortization schedule illustrates how the reverse mortgage loan amount will grow over time.
- The pamphlet titled “Use Your Home to Stay at Home – A Guide for Homeowners Who Need Help Now”
Key Topics Covered in the HECM Counseling Session
In accordance with HECM statute and requirements of the National Housing Act Section 255 (f) , Counselors must provide potential HECM borrowers with all the information outlined below:
Alternatives and Options
Counselor reviews information on the client's other options as available and appropriate.
Reverse Mortgage Information
The counselor reviews basic information on reverse mortgages. The counselor may present this information within the context of the HECM program.
The topics most essential to an understanding of reverse mortgages include:
- Borrower obligations (especially taxes and insurance)
- Factors that determine loan amounts and loan limits
- Fees and fee financing
- Impact on public benefits
- Leftover equity (implications for borrower and their heirs)
- Nonrecourse limits
- Refinancing a reverse mortgage
- Repayment requirements (when, how much)
- Retention of title and other title issues
- Rising debt, falling equity
HECM Specific Information
The counselor should discuss key HECM program features and information, including:
- Principal limit (the amount the borrower can receive from a HECM)
- Expected Rate (fixed throughout the life of the loan and is used to determine payments to the borrower)
- Claim amount
- Payment plan options and changes
- Credit line growth
- FHA home standards, required repairs
- Loan costs
Frequently Asked Questions About Reverse Mortgage Counseling
Can I get a reverse mortgage counseling by phone?
Yes! HUD highly advises potential reverse mortgage borrowers to visit with a counselor in person to fulfill the reverse mortgage program's counseling requirement.
Face-to-face counseling allows the counselor to determine if the client is aware of the many features and reverse mortgage choices available, as well as the financial consequences of a reverse mortgage on his or her family.
For a number of reasons, including restricted mobility and health problems, HUD allows telephone therapy in place of face-to-face counseling.
How long does a reverse mortgage counseling take?
The counseling session usually takes 60 to 90 minutes, although, it can take longer.
How much does a reverse mortgage counseling cost?
The cost for a reverse mortgage counseling will be approximately $125. However, the Department of Housing and Urban Development declares, "Clients must not be turned away because of an inability to pay counseling fees. Moreover, the housing counseling agency may not withhold counseling or the Certificate of HECM Counseling based on the failure to pay."