HUD Expected To Issue Guidance Regarding Payment For Reverse Mortgage Counseling

imageWhen the Housing and Economic Recovery Act of 2008 was signed into law by President Bush, the Bill called for HUD to consider utilizing some of its FHA Mortgage Insurance Premium income to pay counseling costs.  The provision was supposed to allow borrowers to receive counseling from an independent third party not associated with the lender or any other company.  Prior to the Bill being signed most lenders were paying for counseling upfront.While the Bill was signed into law, HUD’s attorneys determined that the provision is flawed and would violate federal credit reform requirements which makes it impossible to do.  So how does HUD expect seniors to receive independent counseling for reverse mortgages?Late Friday afternoon NRMLA sent out an email about FHA’s plan to issue guidance to counseling agencies regarding client payment for counseling.  According to NRMLA, the counseling agencies will be allowed to require payment “up front” from the client.  This would not apply in hardship cases where the counseling fee should not be paid by the client in any circumstance.  I’ve yet to see anything about how the agencies are determining a hardship case but I would think this would be part of FHA’s guidance.The agencies also have the option of allowing clients to pay the fee from their closing proceeds.  Agencies won’t be required to offer this option to borrowers and I have a hard time believing many will since there is no guarantee the borrower will go through with the reverse mortgage.Last week I received a few calls from RMD readers who were unable to schedule counseling sessions for borrowers who couldn’t pay upfront.  Both companies were located in Massachusetts and the borrowers either weren’t able to pay the $125 up front in cash or didn’t have a credit card.  The borrowers were hesitant to pay $125 because that money would otherwise go to pay for things like food, bills, ect.  Sounds like a hardship case right?When the originators explained their borrowers should qualify as a hardship case, the agencies either said they wouldn’t provide counseling or they would require seniors to “jump through hoops” in order to schedule counseling unless they paid upfront.  Apparently borrowers who are considered hardship cases have to fill out loads paper work to qualify.All of us understand that counselors need to pay the bill just like the rest of us, but how HUD will handle this remains to be seen.  Are any other originators experiencing anything like this?  If so leave your comments below about how you handled it.

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  • We are using a firm out of Florida that is still allowing us to pay of the counseling (until the mortgage letter is posted) at $75.00. We add the fee to the closing cost.

    Once again, who is really looking out for the CLIENTS?
    Seems to me, more of the originators look out for the seniors then the group that represent them.

  • You are dead right on this. What we have seen is that the borrower is required to fill out a personal finacial statement and a detailed budget if they want to qualify for hardship. That is crazy!

  • I am finding it hard to add yet another fee to an already high cost loan. I am continuing to pay for counseling but may be a little more reluctant to cut the servicing fee while I do that. Before I begin charging the client, I want to let the systems get worked out. If they have to jump through a bunch of hoops, I will just continue to pick up that cost. Seniors can get frustrated through this process and I’d rather make it easier for them to get the counseling. They are already bombarded with red tape issues sourrounded around aging. Easy processes make for happy clients. Happy clients is my goal!

  • greg,
    I agree happy client is a goal. I would be more than happy to continue to pay for counseling to make things easier for clients. Although, how are you paying for the counseling now that agencies are no longer accepting lender paid counseling? That is partially what this article is about counseling companies not allowing lender paid counseling.

  • To start with, the counselors in our area are working with us very well right now. I am not aware of any counseling sessions that are outstanding. But I can see the writing on the wall……. We can all thank a few unethical reverse mortgage lenders and/or some “in the dark” family members for this.

    Who ever said there was logic in politics?? This is just one more example of someone in Washington DC throwing the baby out with the bath water. In this case they want to prevent lenders from having any influence over the counselor so they throw the senior homeowners into a situation where they may not even be able to afford the one thing that stands between them and financial security.

    ETHICS… is the buzz word in our industry. As originators we are to look out for the well-being of the senior homeowners. We are to deal with our clients as if they were our own parents or grandparents not as a paycheck. Where is that same ethical mind set in counseling?

  • The mortgage letter stopping originators from paying for, etc., has not gone into affect yet. So if the counseling agency is not letting you cover the cost, look around. The one we use only charges $75 if it comes in from the lender and is done within 48 hours.

  • I do not understand why seniors are being penalized by having to pay upfront when it can be easily collected at closing. If an originator has done their job correctly most times the counseling agency will receive their money and for the ones that don’t close, it should be considered in the cost of doing business, just like any other business. Our seniors should not have to pay this upfront. This will totally turn them off to the product which is supposed to be in place to help them.

  • Man-O-Man, do you mortgage people have it good. No wonder we have the Sub prime mess. Some are worried
    about losing an occasional $75 to $125 when he/she
    may make $2,000 to $6,000 or a lot more (Jumbos) on a
    client! I”m a Senior who has spent his working life
    selling in the direct advertising business where the commission was a few hundred dollars per sale. I am now in this reverse mortgage business to help my
    fellow Seniors first and myself second. I am certain FHA will soon correct this directive but until
    that time you youngsters quit complaining.

  • In response to James, I don’t believe any of us are having an issue with the $125.00 fee, for a long time most of us paid the fee for our clients, the issue is now that clients are responsible for the fee – many of them do not have the money to pay for their counseling. Us youngsters are, if at all, complaining about politics getting in the middle of us trying to help our senior clients!

  • I have an idea …

    If money is allocated to the housig agencies to help defray costs for HECM counsling, then,

    1. Set up a revolving fund and the counseling is paid out of that, then …

    2. Each borrower who closes a reverse mortgage is charged $125 which is placed back into the fund.

    This makes the fund revolving and self-generating.
    Those who do not take out the reverse mortgage are charged the $125

    I know there’s holes in this suggestions and “what if’s”, but is it possible to come up with a resolution to the problem that makes the counsling money self-sustaining?

  • Thank you, Ms. Felicia, for your courteous and intelligent response: In time, you will learn life is, in one way or another, all about politics–especially when one depends upon his/her Government to facilitate economic activity. May I suggest that you write your Congressman, Senators, and FHA/HUD. These people do
    wish to hear from enlightened people like you who are
    actually “out in the trenches”. The suggestion by Mr.
    Nixon is an excellent one.

  • Good day,

    The issue of counseling has been a major one. I am finding borrowers very reluctant to give their credit card number to agencies, some are not going through with the loan because of it. Some borrowers just do not have the additional funds to pay this fee up front.

    If the fee was collected at closing, we would not have a problem. I feel if a loan does not go through, HUD needs to pay for it in this case. HUD paid for all the counseling for years. The 20% or so that do not go through is a far cry from paying 100% of the fee.

    HUD needs to look at this dilemma very seriously, it is a major problem, With many seniors being in a delinquent stage and some close to foreclosure, how can HUD expect the borrower to pay this fee up front.

    HUD has a problem with understanding the real world for what it is. We need to unite and make our voices heard on this subject, it is to critical of an issue.

    Best regards,

    The Great American Philosopher

    BY: John A. Smaldone

  • If HUD is going to claim to protect seniors then they need to do it instead of hiding behind their government skirts! Some seniors have credit cards, but many don’t. Some may have kids who can help, but many don’t. This situation has gone beyond silly. My experience echos the one above. It appears that most of the LO’s care more about the seniors than the counseling agencies or the government! Everybody should care!

  • I strongly agree with the comments made by my fellow originators. It seems that the ethics and caring that originators have for our clients is not shared by most of the counseling agencies. It’s amazing that, when HUD allowed counselors to charge “up to $125”, that most of the fees charged are at $125. And, when HUD announced that counseling agencies can collect up front fees and have the option to collect fees out of the closing proceeds, that many of these agencies opted only the “pay up front” option.

    HUD needs to understand that most of the seniors that are looking for a reverse mortgage are doing so because of financial hardships. By asking the client to take money out of their household funds to pay the fees up front, creates an additional hardship on the client. The government needs to consider the client and their needs before making rash decisions that negatively affects them.

  • I work for one of the larger counseling agencies that counsels tens of thousands of seniors on reverse mortgages a year. As many of you have expressed, we are also perplexed with challenges handed to us with the new law and guidance put out by HUD.

    Funding for counseling has a history of challenges and they continue today. There is a commonly held belief that HUD funds counseling agencies to provide reverse mortgage counseling that is simply not true. Counseling agencies are granted very little funds to help support all of their housing counseling activities (foreclosure prevention counseling, pre-purchase counseling, reverse mortgage counseling, etc.). Under our HUD mandate, we must still provide counseling although we might go literally ten months without funding for counseling. Although this is the mandate, most agencies simply cannot do this. I’m sure that many of you experienced in the past the evaporation of timely counseling after the first month or two of the year.

    With that being said, many of you have supported counseling by helping to pay for the counseling over the years. With the restrictions put into place with HERA, however, as of 10/1/2008 originator/lender sponsored counseling is out the door. Obviously FHA/HUD had their hands in this part of the legislation which has led to challenges that need to be worked out. JNixon brought up an interesting point, one in which the counseling agencies have been pushing for years. Unfortunately, there was not wide-spread support for the idea by industry leaders.

    For those that have made comments questioning the ethics of counseling agencies or whether we really care about the senior, I believe the ponderance of your frustration is misdirected. If a fund such as the one suggested by JNixon or the MIP funding of counseling existed (as was intended in the law), I don’t believe anyone would be questioning counseling agency’s ethics.

    Despite all the finger-pointing and wrangling over who is looking out for who, we all have the same goal: we want seniors to be make well-informed decisions to better their lives. The question is how are we going to make this system work the best for seniors.

  • In all the hoopla with the Housing Bill, it is rarely discused that while the Fed is cutting origination fees, they are not, AT ALL, cutting their own MIP fees, front or back end. There have been recent studies done that say that clients already overpay by around $1000 per loan for MIP. When the Cap goes up, Origination fees will be lower, but MIP fees will be skyrocketin, bringing the overall fees higher than they are now. How is this helping our seniors?? Everyone has complained for years about high fees, and this new bill is really not doing much to change that. The MIP is a HUGE rip off, esp. with the extra .5% on the back end.


  • Estimated Reverse Counseling Finance in Summary:

    Cost of program : $25,000,0000
    HUD Funding: $4,000,000

    Lender Funding: Not Permitted
    Investors /Tooth Fairy: Unlikely

    Someone has to make up the $21,000,000 shortfall and $125 per closed loan won’t do it.Even if we could get neutralize the conflict of interest issue. (130,0000 @ $125= 16.25 million)

    Insult counselors all you like, but it does not change the maths. I think HUD will step in and try to fund the shortfall, as this is a clear unfunded mandate, and congress obviously wanted them to do it, but in the short term if anyone has a better idea I think we’d all like to hear it.

  • When the Housing Bill was first introduced Barney Frank thought that this Hecm MIP surplus could be put into the affordable housing fund. The Senate compromise put it on Fannie/Freddie to fund. On October 1st the MIP fees go up on all but the Hecm program. Maybe when the FHA MIP account is built up to their satisfaction the 2% Hecm MIP will be reduced.

  • We’ve also run into the same issue… It appears that the mandate to pay up front is not law, but rather each counseling companies own opinion. By calling some of the major counseling agencies listed on the HUD website, I have found other companies that DO NOT take the counseling fee up front. Like the song goes… “You better shop around…”

  • When counseling was free it was good for our clients, but some counselors were apparently selling the leads to other lenders. Some of our clients were getting calls from lenders as soon as they returned home from the counseling session.

    By the time a senior goes to counseling, the lender has spent hundreds of dollars in advertising to obtain that client. If we are allowed to pay another $125, at least we could protect our investment through the counseling phase.

    The requirement that the homeowner pay a hefty fee up front has eliminated the very people who need help the most!

  • We anticipate that loan officers will simply instruct borrowers to provide income and expense info that will allow for a hardship instead of having to pay.

    This is likely as loan officers are already producing “cheat sheets” for borrowers to answer questions from when new protocol takes effect 9/11/10

  • We anticipate that loan officers will simply instruct borrowers to provide income and expense info that will allow for a hardship instead of having to pay.rnrnThis is likely as loan officers are already producing “cheat sheets” for borrowers to answer questions from when new protocol takes effect 9/11/10

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