CHAPTER 2. BORROWER COUNSELING
2-1 PURPOSE. A borrower applying for a HECM must receive counseling and a
counseling certificate (see Appendix 16) from a HUD-approved housing
counseling agency. This chapter explains the responsibilities of the
lender, the local HUD office and HUD-approved housing counseling
agencies in educating and counseling the borrower about reverse
mortgages and their suitability to the borrower's financial needs and
situation.
2-2 ELIGIBLE COUNSELING AGENCIES. Housing counseling agencies approved in
accordance with the procedures in HUD Handbook 7610.1 are eligible to
provide the counseling services required under the HECM program.
A.Agencies currently approved by HUD to provide comprehensive
counseling are eligible to provide HECM counseling.
B.Agencies not currently approved by HUD may become approved by
contacting the Loan Management Branch at the local HUD office and
fulfilling the requirements of HUD Handbook 7610.1.
C.Counseling agencies that specialize in reverse mortgage
counseling are eligible for HUD approval as long as HUD Handbook
7610.1 requirements for approval are met.
D.Regional Offices of the Administration on Aging (AoA) and state
agencies on aging will assist in identifying agencies suitable
for approval by HUD as HECM counseling agencies.
E.State agencies on aging and area agencies on aging may be
eligible to become HUD-approved counseling agencies.
F.If a public or private nonprofit housing counseling agency is not
available in a particular area, it is permissible for local HUD
office staff to become trained in order to counsel prospective
HECM borrowers. The decision to become trained and to counsel is
fully within the discretion of the local HUD office.
2-3 COUNSELING REFERRAL PROCEDURES. The procedures below should be
followed to ensure that the borrower receives the required counseling
at the time he or she applies for a HECM.
A.If the lender receives a request from a borrower to apply for a
HECM, the lender should refer the borrower to a housing
counseling agency for counseling by providing the borrower with a
list of the names, addresses and phone numbers of the
HUD-approved counseling agencies in the area.
B.At the time that the lender refers the borrower to a counseling
agency, it may provide the borrower with copies of the mortgage,
note and Loan Agreement.
C.The lender may complete the borrower's application before
referral, however, the lender can not charge the borrower for
this service if the borrower does not choose to attend a
counseling session or apply for a HECM after counseling.
The lender can not begin the process of ordering a property appraisal
or any other action that would result in a charge to the potential
borrower until the borrower has received counseling, and the lender
has received the counseling certificate from the borrower.
2-4 BORROWERS LACKING LEGAL COMPETENCY. For borrowers lacking legal
competency, the counseling session may be conducted with a person
holding a power of attorney, or with a court-appointed conservator or
guardian (see Paragraph 4-6).
2-5REQUIREMENTS FOR HOUSING COUNSELING. The borrower must receive
counseling, and a counseling certificate, to be eligible for a HECM.
A.The counseling agency should provide counseling to all interested
persons. A person need not have been in contact with a lender to
receive counseling.
B.The counselor must discuss the following matters with the
potential borrower:
1)The financial implications of entering into a home equity
conversion mortgage;
2)A disclosure that a home equity conversion mortgage may have
consequences for the borrower's taxes, estate, and
eligibility for assistance under Federal and state programs;
3)The other home equity conversion options that are or may
become available to the homeowner, such as sale-leaseback
financing, deferred payment loans, and property tax
deferral;
4)The options other than home equity conversion that are
available to the borrower, including other housing, social
service, health, and financial options; and
5) Any other information that HUD may require.
C.Housing counselors should make every effort to provide HECM
counseling on a face-to-face basis. This method allows for
greater participation by the homeowner, and also allows the
counselor to more accurately determine the homeowner's
understanding of the program. Telephone counseling should be an
alternative only where face-to-face counseling is unfeasible.
Telephone counseling should not even be mentioned as an
alternative to the homeowner unless the possibility of
face-to-face counseling has been completely ruled out.
D.Housing counselors should make every effort to conduct counseling
sessions in the home of the potential borrower and should invite
the participation of the children and other advisors of the
borrower.
E.The counseling agency must issue a certificate to the borrower
certifying that the borrower has received counseling. The
borrower must submit this certificate (Appendix 16) to the lender
for submission to HUD as part of the lender's application for
mortgage insurance (see Paragraphs 4-6E. and 4-7E.).
1)The certificate issued by the counseling agency is not an
opinion or decision by the agency about the suitability of a
reverse mortgage for the borrower.
2)The counseling agency should advise the potential borrower
that the decision to apply for a reverse mortgage is the
borrower's, and the decision regarding the borrower's
eligibility is the lender's and HUD's.
2-6SOURCES OF INFORMATION FOR COUNSELING. The counseling agency must be
able to advise the borrower about the alternatives to reverse
mortgages.
A.HUD has prepared Options for Elderly Homeowners: A Guide to
Reverse Mortgages and their Alternatives, which describes both
alternative forms of home equity conversion and alternatives to
home equity conversion. It is available for $4.00 from HUD USER,
P. O. Box 6091, Rockville, MD 20850. To order using a credit
card, call 800/245-2691 or 301/251-5154.
B.Counseling agencies should call the numbers in the guide for
their State to obtain information on the specific programs
offered by each State, and should update this information at
regular intervals.
C.Counseling agencies should contact the area agency on aging in
their area and establish a cooperative working relationship to
become aware of the resources available to elderly homeowners.
The names and addresses of the area agencies on aging are
available from the state agencies on aging listed in the guide.
| HECM Guidelines |
| Home Equity Conversion Mortgages |
The HECM FHA insured reverse mortgage can be
used by senior homeowners age 62 and older to
convert the equity in their home into monthly
streams of income and/or a line of credit to be
repaid when they no longer occupy the home.
The loan, commonly known as HECM, is funded
by a lending institution such as a mortgage
lender, bank, credit union or savings and loan
association. To assist the homeowner in making
an informed decision of whether this program
meets their needs, they are required to receive
consumer education and counseling by a
HUD-approved HECM counselor.
used by senior homeowners age 62 and older to
convert the equity in their home into monthly
streams of income and/or a line of credit to be
repaid when they no longer occupy the home.
The loan, commonly known as HECM, is funded
by a lending institution such as a mortgage
lender, bank, credit union or savings and loan
association. To assist the homeowner in making
an informed decision of whether this program
meets their needs, they are required to receive
consumer education and counseling by a
HUD-approved HECM counselor.
