New HUD Counseling Rules Take Effect on Reverse Mortgages

On September 11, 2010, the U.S. Department of Housing and Urban Development (“HUD”) put into effect new procedures for counseling elders for reverse mortgages.  These new procedures require that more detailed information be provided to the prospective borrower in advance of the counseling session, and specify what must be covered, who must attend and the issues the counselor should and shouldn’t discuss with the prospective borrower. These new HECM Counseling Protocols can be found here.

Before the counseling meeting, the elder must be sent an information packet that includes detailed loan information with comparisons, a document entitled Preparing for Your Counseling Session, and a 28-page booklet entitled Use Your Home to Stay at Home – A Guide for Older Homeowners Who Need Help Now.

During the processing counselors must now gather information from the prospective reverse mortgage borrower to examine the elder’s ability to maintain the reverse mortgage, including taxes and insurance premiums. The point there is to attempt to prevent foreseeable foreclosures due to cash flow problems. 

As part of the process, counselors must ask 10 questions to ensure that the elder understands the reverse mortgage’s key elements. If the elder fails to give the correct answer at least 5 of the questions, or appears to be coerced or a possible victim of fraud, the counselor may withhold the counseling certificate. Thereafter, if the elder is insistent on proceeding, HUD states that “the counselor will issue a certificate and will flag the certificate in FHA Connection so the lender is aware that the client’s level of understanding of reverse mortgages is minimal.” Once that occurs, presumably it will be up to the lender and the lender’s counsel to decide whether to give the loan to the elder, especially where mental incapacity would then appear to be a possible problem.