HECM counseling is a requirement that applicants must fulfill before they can take out a reverse mortgage. The purpose of this counseling session, which can be completed either face to face or over the phone, is to ensure that potential revere mortgage borrowers fully understand the requirements of the loan and the potential outcomes that the loan can have. During the session, the counselor discusses the applicant's budget, current mortgage balance, terms of the loan, disbursement options and alternatives to a reverse mortgage in case a better type of financing would better fit that individual's needs. At the end of the session, the counselor provides a certificate to the applicant that shows that he or she completed the session. The certificate is supposed to also show that the applicant fully understands reverse mortgages and what they require, but now that may not always be the case.
Reverse Mortgage Comprehension May Not Be Necessary to Secure a Certificate
As part of the new HECM counseling protocols that will soon be announced by the Department of Housing and Urban Development, financial counselors will no longer be able to withhold financial counseling certificates from applicants, even if they believe that the applicant does not understand what a reverse mortgage is or what it requires. At first, the new protocol was going to require that applicants answer questions, provided by HUD, at the end of the counseling session to ensure that they understood the concept of a reverse mortgage. If applicants did not get at least five questions right, they would not be able to receive the counseling certificate. The counselor could then suggest further counseling, and then they could receive their certificate if they answered at least five questions correctly the next time around. But this idea was pushed aside in favor of providing the certificate to the applicant, regardless of how much information the applicant retained.
With this proposed protocol, applicants could lack a necessary understanding of reverse mortgages and still receive their counseling certificate, which would allow them to continue on with the process of getting a loan. If HECM counselors feel that the applicant does not fully understand a reverse mortgage at the end of a counseling session, they can suggest additional counseling, but that does not necessarily mean applicants will oblige. If this new protocol is passed, the responsibility of ensuring that applicants fully understand how a reverse works will soon fall on the lender, rather than the responsibility resting with the financial counselor.
Will the Importance of HECM Counseling Be Undermined by Protocol?
Lately, in the reverse mortgage industry there has been much emphasis placed on the necessity of financial counseling and the importance of ensuring that eligible homeowners are aware of the requirements of the loan. Counseling helps applicants determine if the loan is most suitable for their financing needs, and it can also help prevent them from becoming victims of mortgage fraud by arming them with valuable reverse mortgage information. Some individuals in the industry feel that ensuring that applicants are well informed about the product they are getting should still mostly be the responsibility of the financial counselor. After all, isn't that the point of financial counseling in the first place? While, some do agree that lenders should share part of the responsibility, they should not now be required to also fill the intended role of the HECM counselor. Should applicants be allowed to continue with the process of getting a reverse mortgage even if they do not understand the basic concepts of the loan? At what point has the counselor or loan officer violated the homeowner's right to make his or her own decisions? It could be a recipe for disaster.
Homeowners interested in getting a reverse mortgage to finance their homes should make sure that they fully take advantage of their counseling session. At the end of the session, there should not be any confusion or lingering questions on the part of the applicant. Applicants should want to be well informed so that they can have the best experience possible. Interested applicants can find a list of HUD-approved financial counselors on HUD's website. Information about the type of financing an applicant chooses is key to ensuring a positive, successful reverse mortgage loan experience all around.