We’re often asked, “What is reverse mortgage counseling and why do I have to do it?”
People worry they won’t pass counseling or they’ll have to meet someone or they’ll be asked uncomfortable questions.
This article will eliminate the mystery and fear around counseling and help you pass the counseling questions asked at the end.
Reverse mortgages are also referred to as HECMs, which stands for Home Equity Conversion Mortgage. HECM counseling and reverse mortgage counseling is the same thing. If you would like to see how much you can get with a reverse mortgage, click here.
Below we'll cover:
- What reverse mortgage counseling includes
- 10 things to know to pass counseling
- What is not part of counseling
- 8 steps to reverse mortgage counseling
- Counseling rules
- Additional resources
This article is a summary of the typical transaction. Our goal is to answer the most frequently asked questions. But everyone's situation is unique. If you have an unusual or complicated situation, scroll down to the Resources section at the bottom of this post where you'll find other articles that go into greater depth.
Before we begin, let's cover three things many prospective borrowers don’t know:
- Borrowers can default on a reverse mortgage – usually because property taxes weren’t paid – the house can go into foreclosure
- Borrowers must have a minimum (residual) amount of income
- Borrowers must have good credit for the previous two years
Before 2015, the only requirement to get a reverse mortgage was having enough equity. Now, borrowers must have enough equity, good credit and enough income to cover debts and housing expenses.
Counseling Basics
What Is HECM Counseling?
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: 1) make sure people understand how the loan works and their responsibilities, and 2) 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.
We believe in counseling. We think it is a good thing. If a borrower knows the Reverse Mortgage Facts noted below, counseling will be easy and they’ll have no problem answering the counselor's 10 review questions at the end of the call.
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 $150.
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
If a prospective borrower knows the following ten things, their counseling session will be quick and easy.
10 Facts You Need to Know to Pass Counseling
- 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.
Clients are often concerned that counseling includes things it doesn't. Here are some of the misconceptions.
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
- In CA, can’t do the following until after the mandatory 7-day cooling off period:
- Complete loan application
- Order an appraisal
- Open escrow or order title
- FHA Case Number
If you would like to know how much you qualify for with a reverse mortgage, click the Free Reverse Mortgage Qualifier button below and I will generate a report from our proprietary, industry-leading reverse mortgage calculator, based on your unique situation.
Resources
- Section 255(d) of the National Housing Act and the implementing FHA regulations at 24 CFR § 206.41 state that all prospective HECM borrowers must receive reverse mortgage counseling prior to obtaining a HECM. This counseling must be received from eligible counselors working for participating agencies approved to provide this statutorily required counseling. To meet the statutory requirements for obtaining a HECM, the prospective borrower must receive one-on-one reverse mortgage counseling and be issued a HECM counseling certificate.
- Reverse Mortgage Counseling, National Council on Aging
- Preparing for Your Counseling Session
- NCOA’s booklet Use Your Home to Stay at Home
- HUD Counseling Agency Lookup
- CA AB-1700, Reverse Mortgage Cooling Off Period
About the Author
Kent Kopen earned his Reverse Mortgage Specialist credential in March 2007. In 2016 Kent earned the CRMP®, Certified Reverse Mortgage Professional® designation. Mr. Kopen previously worked at Merrill Lynch and Morgan Stanley as a financial advisor and Chartered Retirement Planning Counselor. He provides education, tools, and strategies to professionals who offer financial and legal advice. "Our resources help financial advisors, CPAs, and estate planning attorneys help seniors optimize their home equity to provide greater security and peace of mind."
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