HUD Reverse Mortgage Counseling

Does This Apply to You, Your Spouse, or Your Parent?

The question underneath this section is usually simple: does this apply to me, and to my spouse? Under 24 C.F.R. § 206.41, "The borrower, any Eligible or Ineligible Non-Borrowing Spouse, and any non-borrowing owner must receive counseling." A non-borrowing spouse is a husband or wife who is not named as a borrower on the loan.

The timing starts early. At the first contact with a prospective borrower, the lender must hand over a list of HUD-approved HECM counselors, with their names, addresses and phone numbers, under the same regulation. The law treats counseling as something the borrower has received before the loan is made. HUD's guide for lenders describes the session as a "consumer information session" with an approved counselor "to determine the feasibility of a HECM," and the lender records a counseling certificate number on the loan file, according to the HUD FHA Connection guide.

One exception concerns refinancing an existing HECM into a new one. There, the borrower may waive counseling only if the borrower received a cost disclosure, the increase in borrowing room exceeds the refinancing cost by an amount HUD sets, and no more than 5 years have passed since the original loan closed, 12 U.S.C. § 1715z-20(k).

For a first HECM, the session is the homeowner's protected time to ask questions.

What the Counselor Will Walk You Through

Federal law spells out much of the conversation. Under 12 U.S.C. § 1715z-20(f), the counselor must discuss information including options other than a HECM (housing, social service, health and financial options), other ways to draw on home equity such as sale-leaseback financing, deferred payment loans and property tax deferral, the financial implications of the loan, and a disclosure that a HECM "may have tax consequences, affect eligibility for assistance under Federal and State programs, and have an impact on the estate and heirs."

How the loan works. The borrower makes no monthly mortgage payment, but "interest and fees are added to the loan balance each month and the balance grows," as the CFPB explains. As the balance rises, the equity left for the homeowner or heirs falls. The loan comes due when the last borrower dies and the home is not another borrower's principal residence, or when the borrowers sell or move out, subject to a deferral for an eligible non-borrowing spouse, 24 C.F.R. § 206.27.

Ongoing duties. The homeowner must pay property taxes and homeowners insurance, use the home as a principal residence and keep it in good condition, per the CFPB. Failing to pay property charges, or to meet another loan obligation, can make the loan due under 24 C.F.R. § 206.27.

Payment choices. The law lets a borrower choose a line of credit, monthly payments over a set term, monthly payments for as long as the borrower lives in the home, combinations of these with a line of credit, or another basis HUD approves, 12 U.S.C. § 1715z-20(d). The counselor explains these without picking one.

Costs. Federal rules limit the origination fee, the lender's charge for making the loan, and the lender discloses it. Mortgage insurance premiums, charges that pay for the FHA insurance, also apply. The FTC suggests asking about Total Annual Loan Cost rates, which show the projected yearly average cost.

Alternatives. The FTC lists a home equity loan or line of credit, refinancing, and selling and downsizing. A home equity loan or line of credit may cost less but usually has monthly payments and depends on income and credit; comparing a HELOC shows that trade. A cash-out refinance replaces the current mortgage with a larger one and a new payment. Selling frees equity but means moving. Help from family and a budget and benefits review cost nothing to explore; the CFPB notes local programs that help with utilities, repairs and property taxes. For a homeowner who feels house rich, cash poor, each of these is a real option.

How to Find a HUD-Approved Counseling Agency

Finding a legitimate counselor starts with HUD itself rather than a lender's referral. HUD's HECM page points to the HECM Counselor Roster for finding a counselor nearby, and to HUD's phone line at (800) 569-4287. The same page lists HUD intermediaries that provide telephone and face-to-face counseling nationwide, so a session does not depend on having an office close by.

The CFPB also directs homeowners to a HUD-approved reverse mortgage counseling agency, and notes that a homeowner can talk to a counselor while still just considering the idea, as explained on its page about questions to ask a counselor.

A family member helping a parent can check that an agency appears on HUD's roster before booking. If the parent already spoke with a lender, the CFPB suggests telling the counselor what the lender recommended or tried to sell.

What the Counseling Fee Costs and When It Can Be Waived

Cost worries are reasonable on a fixed income. The FTC says counseling agencies usually charge a fee, that the fee "can be paid from the loan you get," and that "you cannot be turned away if you can't afford the fee."

The amount varies, so the agency can confirm its fee when a session is scheduled. A homeowner who cannot pay can raise that at the same time; the fee's existence does not put counseling out of reach.

What Happens After Counseling

Finishing the session does not commit anyone to anything. The counseling is recorded with a certificate number that the lender enters on the loan file, according to HUD's lender guide, and a homeowner who decides against a HECM simply does not apply. HUD may even fund counseling for homeowners who choose not to take a loan, 12 U.S.C. § 1715z-20(l).

There is no deadline to decide. A homeowner can take time, talk with family, and look at reverse mortgage eligibility rules, such as the requirement that the youngest borrower be at least 62 at closing, 24 C.F.R. § 206.33. A homeowner who goes forward would work with an FHA-approved lender, which reviews the property against FHA standards and must give disclosures, including a statement of the projected total cost before closing, 12 U.S.C. § 1715z-20(e). After closing, the CFPB describes a three-business-day right to cancel with most reverse mortgages.

A HECM is one option among several. If the session shows that property tax deferral, a line of credit or selling fits better, the homeowner is free to choose that instead. A primer on what a reverse mortgage is can help the family review the basics afterward.

Completing the session leaves every door open, including the door to walking away.