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What is Reverse Mortgage Counseling and Why Do I Have to Do It?
The National Council on Aging explains that…“Counseling is an impartial educational resource to help seniors and their family members make an informed decision about reverse mortgages.”
Counseling is designed to do two things:
- Make sure people understand how the loan works and their responsibilities, and
- Protect seniors from bad actors – sometimes a relative – who may be trying to get their equity or from losing their home by defaulting on the loan.
HUD certifies and approves reverse mortgage counselors around the country to provide homeowners with impartial education about reverse mortgage loans. Reverse mortgage counseling is a mandatory requirement of the application process and is typically completed before an application for a reverse mortgage loan is taken. Reverse mortgage counseling can be performed face-to-face or by telephone with an approved HUD counselor.
What Reverse Mortgage Counseling Covers
Counseling is usually done over the telephone. Everyone on the deed should attend. The call usually lasts less than an hour. There is an upfront fee, paid by the borrower, which is typically $100 – $200.
During the call, the counselor explains:
- How reverse mortgages work
- How the borrower gets their money
- Costs
- Benefits
- Drawbacks
- Tax implications
- Borrower obligations
- Loan repayment
Common Questions and Concepts
- You own your home, not the lender. Your name is on the deed. The lender has a lien on title – just like a conventional mortgage – but they do not go on the deed.
- You do not have to make monthly payments to the lender.
- You must continue to pay property taxes, homeowners insurance, maintenance, and HOA dues (if applicable) or the loan will go into default. The bank does not pay these property charges for you.
- There are 3 ways to access your money: (includes paying off any existing liens), a line of credit, money at closing, or a monthly check from the lender. You can have a combination of the three choices and you can change your mind later.
- When you’ve taken out all the money you’re eligible for, you cannot get more. That said, just because you’ve accessed all your money doesn’t mean you have to move, sell, or pay the loan back.
- The loan must be paid back when the last borrower passes away, moves, or is out of the home for twelve consecutive months.
- It is not your problem or responsibility if the loan balance is more than the house is worth. If there is a shortage, FHA insurance takes care of the lender.
- A reverse mortgage may result in you or your heirs getting less in the future, if the loan balance grows more than the house appreciates.
- You can make payments, to lower your balance, any time you want, without a prepayment penalty.
- The house does not have to be sold, the loan can be refinanced or paid off with other funds.
What HECM Counselors Do Not Do
- Pull credit
- Discuss past credit issues
- Make judgments about your budget or spending habits
- Make loan approval decisions
- Steer borrowers to specific lenders or loan choices
8 Steps to Reverse Mortgage Counseling
- Lender prepares a summary of numbers based on the borrower’s unique situation.
- Lender sends a Proposal package with a list of counselors and the client’s counseling code – this allows the counselor to talk about the borrower’s specific numbers.
- Borrower calls any counselor to schedule their appointment
- Borrower completes the counseling telephone call
- Counselor emails counseling completion certificate to borrower
- Borrower forwards that email to lender
- Counselor mails (US Postal Service) 2 copies of the counseling completion certificate
- Borrower forwards one physical copy to lender
Counselors want to help seniors understand the reverse mortgage loan, be clear on their responsibilities as borrowers, and understand the steps to get a reverse mortgage. The following is a list of rules around HECM counseling.
HECM Counseling Rules
- Lender cannot steer or suggest a specific counselor or counseling agency
- Lender cannot pay the counseling fee
- Counseling can be done before choosing a lender