To protect borrowers, reverse mortgage counseling is often required. Counseling is an important step in the reverse mortgage process as it allows the applicant to move forward with a concise understanding of the reverse mortgage product they are pursuing.
The FHA requires borrowers to complete counting in order to proceed with a traditional HECM reverse mortgage. When it comes to proprietary reverse mortgages, counseling is not legally required but often used because reverse mortgages are complex products. Counseling can help applicants determine which reverse mortgage product is best for them given their current finances and future goals.
This session also explain the different fees, closing cost, and terms of the reverse mortgage loan so the borrowers have a through understanding of the reverse mortgage.
While there are many similarities between HECM and proprietary counseling, they are not interchangeable programs.
It is important to note that counselors are not lenders and have no interest in the lending transaction. Counseling agencies are uninterested third parties operating directly for the borrower’s benefit. To ensure that counselors remain impartial, any form of compensation from lenders is prohibited. Thus, the applicant is responsible for the reverse mortgage counseling fee, which is about $125. These fees are typically required at the time of counseling, however, reverse mortgage applicants may not be turned away if they are unable to afford the fees. For this reason, some counselors allow borrowers to defer payment and use loan proceeds for compensation.
To further explore the cost requirements for reverse mortgage counseling, visit the HUD website or location page to find approved counselor in your area. While lenders typically suggest counseling agencies, the borrower is permitted to use any HUD-approved counselor of their choice. The applicant is responsible for scheduling an appointment with their chosen counselor.
After an agency has been selected and an appointment is booked, the counseling agency will provide the borrower with an information packet that will prepare them for their session. Before the session, the counselor will also collect some key information from the applicant to enable them to properly prepare.
It is important that all borrowers and interested parties are present for the session including any non-borrowing spouses or any other parties who hold title to the property. It may also be beneficial for other family members or heirs to be present for counseling, as the information provided may aid in making future decisions in regards to the reverse mortgage.
The actual counseling can be completed over the phone or in-person, depending on the agency’s policies. During this 30-60 minute session, the counselor is required to follow specific guidelines designed to protect the borrower against abusive lending and enable them to make informed decisions regarding their reverse mortgage. To do so, the counselor and borrower will work together to determine the best course of action for the reverse mortgage borrower, keeping their current financial assessment in mind. Subsequently, the applicant should be prepared to answer any questions in regards to income, debts and expenses. For this reason, it may be helpful for the borrower to have documents such as recent pay stubs or credit statements handy during the session.
Upon completion of counseling, the borrower and other attendees should have a comprehensive understanding of the reverse mortgage product. They should be aware of all benefits and drawbacks, as well as, the potential costs, payment options, tax implications. The borrower is encouraged to ask any questions they may have during this counseling session to ensure they are fully informed and equipped to proceed.
Once the counselor is confident that the borrower understands the fundamental elements of a reverse mortgage, they will issue a counseling certificate which is valid for 6 months. If the borrower wishes to proceed with the reverse mortgage process, they must sign and provide a copy of this certificate to the lender. Without this verification of complete counseling, the lender is unable to proceed with ordering third party services.
With reverse mortgage, the borrowers are fully protected than any other loans. Your reverse mortgage broker must also sign forms that they do not sell or cross-sell insurances.
Counselors often make themselves available to the borrower if they should need further guidance or assistance post counseling.
As mentioned, counseling is required for all reverse mortgage borrowers. An exception can be made if the applicant has completed counseling in the past 5 years. Although, if counseling is waived, the borrower will not be eligible for other exemptions later in the reverse mortgage process. For this reason, borrowers are typically advised to complete counseling to safeguard future hiccups in the process.
