HUD Issues Warning on Reverse Mortgage Counseling Conflict of Interest

The Department of Housing and Urban Development says it has received reports of steering on the part of reverse mortgage lenders who have encouraged borrowers to specific counseling agencies. 

In a notice sent this week, HUD reminded lenders and reverse mortgage counseling agencies of the anti-steering protections in place that prohibit a lender from pointing a borrower to a specific counseling agency as well as a counselor from directing a borrower to a particular lender. 

“The Department has received reports and concerns regarding FHA-approved Reverse Mortgage Lenders steering potential borrowers to specific Home Equity Conversion Mortgage (HECM) counseling agencies, lender representatives being present or even participating in counseling sessions, and lenders providing advance copies of borrower review questions used by counselors with potential HECM borrowers,” HUD writes. 

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Reminding all participants of the prohibitions, HUD notes that lenders are required to provide all clients with a list of counseling providers that includes the national intermediaries as well as five local agencies including one within driving distance of the borrower. 

HUD said it has received reports of lenders providing a list of counseling questions to borrowers in advance of their participation in counseling, another practices that is prohibited and which HUD says must stop immediately. 

“The Department has been advised that some FHA-approved reverse mortgage lenders are providing advance copies of the HECM counselor’s review questions with answers to clients prior to attending their mandatory reverse mortgage counseling session. …Having the lender provide the answers in advance of the session interferes with the counselor’s duties to assure that client(s) are fully engaged and understand the complex information being presented in the counseling session.”

View the notice at HUD.gov

Written by Elizabeth Ecker

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  • This ML is one of the most interesting issued to date. Here FHA has the questions published on its website but tells the industry to keep them a secret from borrowers. Perhaps FHA is concerned about the lender providing the answers but aren’t the answers to these questions exactly what we are supposed to provide consumers? Writing down the questions and answers and covering them with the senior before counseling does not seem inappropriate. So is the problem with writing down the questions and then supplying the answers in writing?

    While never participating in the practice described, I have talked about the questions and described appropriate answers with the seniors to illustrate what the questions are about and how simple answers can be so as not to leave seniors nervous about what will be covered and what is expected in their answers.

    • Hi Critic,

      Personally, I ask my questions as part of the presentation. I doubt most of the seniors I counsel ever realize that I asked the questions. I get my answers and they don’t have to feel like they are being quizzed.

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      [email protected] –work
      [email protected] –private

    • As a counselor, I personally have no problem with lenders reviewing the questions with clients ahead of time, or giving them the questions/answers in writing. The point is that the client is supposed to understand these facts about the reverse mortgage. It doesn’t matter if they acquire that learning from the counselor or the lender, preferably both, so it gets reinforced.

      The only real problem I can see is if the client is receiving phone counseling and the lender coaches them to have the list of questions in front of them so that they can just read the answers. Since I do nearly all my counseling face to face, it’s rarely an issue for me, but I did have a phone counseling session recently where it was clear that the client was looking at something to find the answers to the questions I was asking.

      • rmcounselor,

        It is perfectly understandable why HUD would not want lender employees in on counseling sessions. There is absolutely nothing wrong with that.

        What you detected in an answer could be the senior looking at the required literature seniors receive before counseling. HUD itself is creating a problem they do not seem to realize. Perhaps the counselee should be swearing under penalties of perjury that during the question and answer time they will ONLY use NOCA docs to answer questions.

        People get nervous and sometimes answer poorly even though they actually know the answers. Allowing telephone counseling sessions encourages the use of crib sheets and why not?

        The very reason HUD has the twenty questions it does is to see if the senior understands the most crucial points about a HECM. There are no difficult questions about how tenure payments or servicing fee set asides are determined. So should the lender not emphasize these same points and make sure the borrower understands them before counseling? (Yeah, yeah, this goes against the most teachable nonsense counseling execs promote about how that moment should be preserved to counselors. We have all heard that silly “girly man” dogma.)

        Starting with ML 2011-09, the HUD position on counseling has been getting odder and odder.

  • What about counselors who steer to lenders? Or hold counseling certificates not because the homeowner doesn’t understand the reverse mortgage but because they (the counselor) feel the borrower shouldn’t do the reverse mortgage? Or the counselors giving financial advice, i.e. telling borrowers how to utilize their retirement funds? Or the counselor telling the borrowers they should ask for a reduction in the origination fee? Or telling homeowners which reverse mortgage program they should be doing and how they should be taking their funds? What is HUD doing regarding these situations? The counselors have been reported to HUD but it seems nothing is done because these situations continue time after time.

    • What about Loan Officers who tell their clients they won’t have to pay the counseling fee no matter what, and instruct them to tell their counselor they have NO money and try to get it for free. What’s ethical about that?

      I do 100% agree counselors are not authorized to give financial advice if they aren’t a CPA and if they are doing that, it needs to stop, they can’t steer to a lender and have to remain impartial, etc.

      • Loan Officers steering, advising their clients how to get out of paying for the counseling session, or otherwise not following the rules is not ethical and I didn’t imply that it is. I posted as “Ethical” because I am an ethical loan officer and abide by the rules and think the counselors should also.

    • Hi “Ethical,”

      >What about counselors who steer to lenders?

      They should be removed, as no counselor should ever steer anyone to a lender. However, that being said, I have sent friends to certain lenders that I trust, but I will not do their counseling. The moment I have suggested a lender, it becomes a conflict of interest for me to do the counseling.

      That being said, I do tell everyone that I counsel that they should speak to more than one lender. I don’t steer them to a second lender and I do not even maintain a list of lenders. I suggest that they talk to their own personal bank (without ever asking who their bank is or even if they do reverse mortgages) or suggest that they look at HUD’s list on HUD’s website.

      >Or hold counseling certificates not because the
      >homeowner doesn’t understand the reverse
      >mortgage but because they (the counselor) feel
      >the borrower shouldn’t do the reverse mortgage?

      Again, they should be removed. My opinion, as a counselor, about what the senior does with his or her money is totally irrelevant.

      >Or the counselors giving financial advice, i.e.
      >telling borrowers how to utilize their retirement
      >funds?

      “Telling,” yes, that is wrong. “Suggesting” is part of my job as a counselor. I often suggest people to look into alternate ideas to a reverse mortgage, not take them, not tell them, but suggest, because that is what I am supposed to do.

      >Or the counselor telling the borrowers they should ask
      >for a reduction in the origination fee?

      Counselors have a *duty* to tell seniors this. We should also be telling them to look for reductions in the servicing fee as well. To not tell them to do this is a violation of the protocol.

      >Or telling homeowners which reverse mortgage
      >program they should be doing and how they
      >should be taking their funds?

      “Telling” is wrong, however pointing out the pros and cons of each program, particularly as it relates to what the senior tells me what *they* want to do with their funds or what the senior expects to be able to do with their funds is part of what counselors should be doing. The goal is to make sure the senior understands what it is they are getting into before they get into it.

      >What is HUD doing regarding these situations? The
      >counselors have been reported to HUD but it seems
      >nothing is done because these situations continue
      >time after time.

      We get updates of what to do and not to do all of the time. In the end, I believe that HUD doesn’t do anything because the vast majority of counselors that violate the protocol don’t stick around all that long. I think it would be be smarter to discipline the agency, but that is for HUD to chose and not for me to say.

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      [email protected] –work
      [email protected] –private

  • Is this all coming about because of the article in Reverse Review last week where Matt Marovich proclaimed to be a “damn good loan officer” but stated he sat in on at least 3 different counseling sessions with well known agencies, so probably meaning a national intermediary that knows better than to let that happen? He may be a damn good loan officer, but doesn’t know anything about compliance…

    • Hi No Free Lunch,

      The real question is why the counselors let him sit in with the seniors on the clients? Did they even know? This is why I only do face to face counseling.

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      [email protected] –work
      [email protected] –private

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