New HUD Guidelines Give Counselors Ability to Withhold HECM Certificates

As part of the Department of Housing and Urban Development’s new HECM counseling protocols, counselors are given the ability to withhold a HECM certificate if borrowers can’t demonstrate basic knowledge of reverse mortgage concepts.  The new powers are part of guidelines recently issued to improve the quality of counseling provided to seniors.

According to HUD, counselors are required to ask borrowers a set of 10 questions during the session and if borrowers are unable to answer at least 5 correctly, they’re required to withhold the certificate.  “If the client cannot provide adequate answers for five questions, there may be concern about his or her ability to make an adequately informed reverse mortgage decision,” says HUD.

The agency is instructing counselors to help the client gain the necessary knowledge through another session or ask if they need additional time to look over information.  They can also ask the client if they would like to bring someone with them or join in a phone counseling session at another time.

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There was some confusion over whether counselors had the ability to withhold the certificate, because a section of the protocols states if a senior is insistent and would like to proceed, the counselor should provide the senior with a certificate but “flag” it in FHA Connection.  The “flag” would notify lenders that the client’s level of understanding about reverse mortgages is minimal.

RMD reported earlier this year that counselors would have this ability, but the agency clearly changed its mind since the section was left in the final guidelines. 

RMD confirmed with HUD this is incorrect and that counselors must withhold the certificate if borrowers can’t answer at least 5 of the questions correctly.  The change in policy clearly puts the liability on the counseling agencies to determine whether they have a basic level of understanding and is something that lenders welcome.

“This way the lender isn’t put in the position of proceeding and being held responsible when a counselor does not sign off,” said Sherry Apanay, Senior VP of Generation Mortgage said to RMD in an email.  “It may mean some seniors are denied access but perhaps that is best considering the litigious society we live in.”

Without the counseling certificate borrowers can’t proceed with the HECM and some originators may not agree that counselors should have the ability to stop a senior from getting a reverse mortgage.  However the questions asked during the session are very basic.  They include, “When you have a reverse mortgage, who owns your house (whose name is on the title/deed)?”, “Does the money you get from a reverse mortgage ever have to be paid back?”, ect.

If borrowers can’t answer these type of questions, it’s hard to argue that more education isn’t needed.

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  • I agree with the position that a counselor should be given the authority to withhold a certificate if the prospective borrower cannot answer the indicated five questions.

    But now we come to some difficult issues. If more than one person is attendance, how can the counselor be assured that 1) the borrower is actually answering the questions and 2) the borrower is not being coached? Are counselors even warned about such situations?

    Moving beyond the easy issues, in the case where there is more than one borrower are each required to answer the five questions and are they to be out of each other’s presence when that is occurring? If not, one could simply be parroting the other. Or maybe it is a group issue.

    The problems rarely come when it is one borrower with one counselor but that is all we seem to be concerned about. I find what is presented oversimplified and it ignores real issues beyond authorizing counselors to withhold the certificate.

  • How much liability does the counselor and the counseling agency have if all seems well and the borrower later claims not to have understood the program?

  • Here we go again bureaucrats are changing Congress intention when the HECM program started back in 1989. Seniors are frail and they don't need to be pushed around by counselors mandated to help them. The counselors should teach the seniors the answers as part of being a good counselor not sit in judgement like a good Fed bureaucrat. Counselors should be patient advocates not gatekeepers to government largesse. It is the seniors equity not the counselors. To talk about a litigious society indicates a sympathy for trial lawyers. Seniors shouldn't be pushed around by members of the bar. Has America lost all decency Honor thy father and thy mother is as relevant today as ever. To counsel is not to berate.

    • jerome,

      If your premise and underlying assumptions are correct, your arguments are strong.

      In this case we are not dealing with the pool of all seniors but with the cohort of prospective borrowers. While the average age of the pool of seniors who are over 62 is much higher than 63, the average age of actual borrowers has dropped to 63 years old and the likelihood of a man being a borrower has risen sharply.

      Until this last NRMLA Road Show in Irvine, my mental picture of the most likely borrower was a 74 year old retired widow. After hearing and reading reports about those meetings, it has changed to a 63 year working grandmother or even her twin single brother. Both are active and busy.

      Pushed around? Highly unlikely. Frail? A large minority of the older borrwers, maybe. Should they be questioned about the contract they are about to sign? You bet!! And why not expect them to get one-half of ten simple questions right? On its face none of this should be deemed unreasonable. But if practice shows differently or demographics return us more toward the frail senior, perhaps counseling will need to be transformed once more.

      Remember it is not one counseling session and the senior is either in or out. Seniors can have as many counseling sessions with as many different counselors as needed. While we may yet disagree, I fully support the position that the counseling situation needs to revisited again and again. If it is not working, it needs to be changed.

  • I think that counselors should be required to go to the homes of these Borrowers and do the couseling face to face with them since some are house bound but mostly because the assesment will be on the spot and if something is a bit cloudy for the senior address it right then an thier. Seniors are intelligent people.

    If we are going to do this to the Reverse Loans we should then do this to anyone who is considering any type of mortgage gov/conv.

    Its is our responsibility to educate our borrowers but too its the borrower to learn and understand or say I don't understand please go over this again!

    I'm all for making sure people know what they are getting into and the counseling. But as some point I see problems

  • I think this is an excellent idea. I listened in on a counseling session for my father, who is well educated and smart about financial matters. However, because of age and health, he is completely baffled about the ramifications of a reverse mortgage if he is able to find a buyer for his home or wanted to sell at a later date. I in fact commented to a family member that I was shocked that his level of confusion had not raised “red flags” to the lender, counselor or the attorney that handled the execution of the loan application documents. It is clear he does not understand. As a Banker and former mortgage lender I can understand the ramifications and try to steer him to a lender that won;t take advantage of him. This alarms me because most seniors and the average person are not as financially astute. Just like folks didn't understand negatively amortized loans so popular in the early '80s. Like many mortgage products, this one is only as good as the ethics of the originator. The borrower does have an obligation to speak up, but much like cash out refi's, desperate borrowers tend to focus on the check at the end of the deal and not the consequences of the deal.

  • My mother went through a reverse mortgage and as a daughter I sat in on all of it. I told my mother to ask questions when she was unsure and I asked a million the poor LO.That experience set me up to be what I feel is a good LO.

    When I meet with my borrowers and go over the program I'm very sensitive to going slowly. I ask them to stop me the counselor or anyone that is involved with the process when something is confusing after all they have to know. I always meet my customers face to face I think its important to get a feel if they are understanding. I always ask to have a family member or thier adviser to attend if possible. I also go over the closing with my borrowers to make sure they are at ease. I never want to hear the words ” you didn't tell me that”. The 1st appointment should be for education only, then counseling, then a recap and application only if the borrower is comfortable and understand the process.

    face to face should be the only way to do these loans and counselors should go to them. unless the borrowers want a different arrangement.

    This is just my view and how I work. I love what I do and my customers are dear to me.

  • I have seen situations where counselors have squashed deals time and time again, without the newly appointed ability to pull certificates. They do much more than assess whether or not a borrower is knowledgeable about the loan. I have seen counselors giving impromptu financial advise, tax advise, legal advise and all of it without any training or licensing in those areas. This is another layer of regulation that is too far reaching and overboard. No matter what the comments are, here, about Mom or Dad not understanding, these loans are not ending bad for the vast majority. The numbers speak for themselves. Reverse Mortgages are not a nightmare and the program is needed much more now than ever. More barriers to entry are not necessary and the thought of having a “counselor” overseeing and over ruling every financial decision borrowers have to make in this industry is way beyond what its needs to be. Why are credit card issuers and other consumer lending types not held to these strict guidelines when issuing credit lines and helocs to borrowers over the age of 62? My experience has been that most older borrowers that have helocs don't think they are mortgages. They either were never told or they were lied to. Look at the damage that has been done by these overwhelming debt issuers. Again, the reverse mortgage industry is tiny and does not need all of this regulation.

  • I have seen situations where counselors have squashed deals time and time again, without the newly appointed ability to pull certificates. They do much more than assess whether or not a borrower is knowledgeable about the loan. I have seen counselors giving impromptu financial advise, tax advise, legal advise and all of it without any training or licensing in those areas. This is another layer of regulation that is too far reaching and overboard. No matter what the comments are, here, about Mom or Dad not understanding, these loans are not ending bad for the vast majority. The numbers speak for themselves. Reverse Mortgages are not a nightmare and the program is needed much more now than ever. More barriers to entry are not necessary and the thought of having a “counselor” overseeing and over ruling every financial decision borrowers have to make in this industry is way beyond what its needs to be. Why are credit card issuers and other consumer lending types not held to these strict guidelines when issuing credit lines and helocs to borrowers over the age of 62? My experience has been that most older borrowers that have helocs don’t think they are mortgages. They either were never told or they were lied to. Look at the damage that has been done by these overwhelming debt issuers. Again, the reverse mortgage industry is tiny and does not need all of this regulation.

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