HUD Establishes New Reverse Mortgage Counseling Guidelines

The US Department of Housing and Urban Development (HUD) published the long awaited HECM Counseling Protocols to provide counselors guidance on what must be covered during HECM counseling session.

The new protocol requires that agencies provide clients with an information packet prior to the counseling session and in enough time so the client has time to review the information and prepare questions.  The information packet can be sent via regular mail, priority mail, fax or email and must include, “Preparing for Your Counseling Session”, printout of loan comparisons and total Annual Loan Cost (TALC), loan amortization schedule, and the National Council on Aging (NCOA) booklet “Use Your Home to Stay at Home – A Guide for Homeowners Who Need Help Now”.

One of the most sensitive issues addressed is when a HECM counseling certificate can be withheld.

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According to HUD, counselors must withhold the counseling certificate if they reasonably believe that the client does not have an adequate understanding of a reverse mortgage, its implications for the client’s unique situation, and the client’s own responsibilities as a reverse mortgage borrower.  They also must withhold the certificate if the client is being coerced into obtaining a reverse mortgage or is a potential victim of fraud.

New guidelines also state that clients must be asked ten general questions (provided in the protocol) about reverse mortgages and those appropriate to their specific situation.  “The counselor will ask questions in the spirit of a review throughout the counseling session, rather than an exam at the end of the session, in order to avoid intimidating or insulting the client,” says HUD.

If the borrower cannot answer five of the ten question correctly in during the first session, counselors must withhold the certificate and note in the client file that the certificate was withheld and the reason why.  Additionally, they must then offer four alternatives to the borrower in order to help them understand the product.  If all options are exhausted and they’re not able to answer five out of ten questions correctly, the counselor will offer them additional time to further understand reverse mortgages.

If the client is insistent that it would like to proceed, “the counselor will issue a certificate and will flag the certificate in FHA Connection so the lender is aware that the client’s level of understanding of reverse mortgages is minimal,” says HUD.

The new protocol starts September 11, 2010, read about it here.