Reverse Mortgage Counseling Explained

To be eligible for a reverse mortgage you must discuss the loan with a HUD approved counselor. This is a HUD guideline and an industry standard. Upon completion of the session the counselor will issue you a certificate so your originator can start your loan.
The counseling session is provided by a third party counselor. This is an unbiased confidential session. It is designed as a consumer protection mechanism to make sure the borrower understands the loan and gives them an opportunity to ask questions in an environment that is independent from the loan originator and the lender. I tell my borrowers that if I have done my job correctly, it should simply be a review of the loan.
You must initiate contact for a counseling appointment. The counseling session costs $125. You may pay at the time of the counseling or many agencies will allow you to finance the fee into your loan.
Your loan originator will provide you with 10 HUD approved counselors. 5 are referral agencies, 4 counselors must be within your home state and 1 must be within reasonable driving distance to your home. Most borrowers attend their counseling in a phone session, however if you prefer to sit face to face with a counselor, you have that option also.
Your counseling session will last from 45-60 minutes. It will cover your loan comparison sheet, amortization schedule, and good faith estimates. Recently, HUD has also passed guidelines that require counselors to ask you questions about your financial situation. They will ask you questions about your income and budget. Towards the end of your session, your counselor will ask you a minimum of 10 questions about reverse mortgages. If the counselor feels that you do not have an understanding of reverse mortgages they do have the right to withhold the counseling certificate.
You may ask family members such as a son or a daughter to participate in the reverse mortgage counseling with you.
Reverse Mortgage counseling has improved over recent years. Most of the time clients have a good experience with counseling. Given today’s financial environment, I think counseling is a helpful tool to help consumers set them selves up for success by being fully informed in their choices.

State Law Makers react to the growth of reverse mortgages proposing new laws- Here is what is happening in CA

CA: Assembly Member Feuer introduced AB 329 Reverse Mortgage Elder Protection Act of 2009.
Click here to read AB 329
1. Prohibits a lender from referring a prospective borrower to a counseling agency, or paying for counseling agency. It also will require lenders to provide borrowers to all agencies in their home state. Requires the lender to disclose any payments or business affiliations between the lender & counseling agency.
a. My Thoughts:
i. The lender should be forbidden from paying, contributing or having a business affiliation with a counseling agency.
ii. HUD presently forbids lenders to pay for counseling.
iii. HUD has regulations requiring lenders to provide a list of 5 counseling agencies to all prospective borrowers. A full list will be over 6 pages long for CA. This is a waste of paper and ineffective.
2. The bill will give borrowers a 30 day right of rescission.
a. My Thoughts:
i. Presently there is a 3 day right of rescission.
ii. A 30 day right of rescission will delay borrowers in attaining their proceeds. This will cause significant hardship for many borrowers who need the reverse mortgage to pay for care, are having trouble paying bills or their mortgage.
iii. The HUD 3rd party counseling is an effective consumer protection that IS WORKING. The counselors are HUD approved and are independent from the lender.
iv. 30 day right of rescission will significantly inhibit the reverse mortgage for home purchase program. What seller will consider a buyer using a reverse mortgage for home purchase if they have the right to change their mind for 30 days?
3. The bill also provides lenders to hold a fiduciary duty to the borrower.
a. My Thoughts:
i. Yes, of course this is a no brainer. The profession needs to establish a nationwide professional designation including CEUs and annual ethics training as many other professions have done. The National Reverse Mortgage Association is in the process of creating a Reverse Mortgage Professional designation. Grievances and Ethics board violation processes are included in the designation being established.