The Department of Housing and Urban Development sent a notice to counseling agencies warning them of prohibited marketing practices it has seen recently.
According to HUD, a number of agencies that provide Home Equity Conversion Mortgage (HECM) counseling are marketing their services directly to lenders and requesting they place their name at the top of the list lenders are required to provide to borrowers.
“Marketing to lenders in this manner is a violation of program requirements,” said HUD in an email obtained by RMD. “As Mortgagee Letter 2011-26 states, lenders are prohibited from steering a prospective borrower to a particular HECM counselor or agency for counseling. This marketing gives an appearance of a conflict of interest between the HECM counseling agency and the lender.”
Borrowers who obtain counseling from agencies using these methods are often not receiving adequate counseling said HUD.
“HUD has determined that in many of these cases, the length of the counseling session is 30 minutes and is not effective counseling,” said the agency. “The client does not get the quality of service for which they are paying. The information in the HECM Counseling Protocol that is required to be covered during the counseling session cannot be conveyed by the counselor and understood by the client in less than 60 minutes.”
The agency has not taken action against counseling agencies for these types of marketing practices said a spokesperson for HUD in an email to RMD.