Can a Lender pay for the Borrower’s counseling session?

Sunday, 31 August 2008 16:00
Recently, I have been engaged in many conversations regarding HECM Counseling. Borrowers and Originators continue to be confused by the various counseling positions which have shifted in the past year. 


Underwriting the file includes necessary reviews of compliance with HUD/FHA guidelines in addition to the “big 3” of appraisal, credit and title. Process, disclosure and borrower safeguards are as important as the property and profile of the Borrower(s). 


With respect to the Counseling Process review, there have been little or no adjustments or changes to the base policy and procedure which represents a significant consumer safeguard:
• HECM Counseling is required for all borrowers (which includes POA’s, Guardians, Non-Borrowing Spouses etc.)
• The HECM Certificate must be completely “complete” with required signatures of all parties prior to a Lender creating costs, fees and expenses for the Borrower(s)
• The HECM Counseling process is an independent process from the origination and does not provide for the participation of the Loan Originator or Lender
• The HECM Counseling Protocol used by Counselors provides for a wide range discussion of financial stability issues with Borrower(s)
• Counseling choices continue to remain with the Borrower(s) as to choice of face-to-face or phone sessions
• Counseling Certificates, when properly completed, remain effective for 180 days, and the “dates” on the certificate provide benchmarks for continuing the HECM process


What has changed has been the degree of continuing education and “counseling readiness” each of the agencies and counselors has been raised to, the methodology for accessing counseling from both the Borrower and Lender perspective and the source(s) for payment of the counseling session.

Caution is advised for all participants in the HECM process to be fully informed as to policy and procedure changes. The latest HUD Guidance available on counseling was recently issued further clarifying the participation of the Lender (and the Originator) in the HECM Counseling process:


Notice for All HUD Approved Housing Counseling Agencies:


The purpose of this is to provide clarification on HUD policy as it relates to HECM fees. The Housing and Economic Recovery Act of 2008 (H.R. 3221) was enacted into law on July 30, 2008. The new legislation prohibits lenders from paying either directly or indirectly for HECM counseling. This new policy is effective October 1, 2008.


HUD is aware that many HUD-approved agencies have relied on lender funding to support their HECM counseling program since funds from HUD’s grant program do not cover fully the costs of providing HECM counseling services and there are relatively few other funding streams available for this important service.


In order to help mitigate the elimination of this existing funding source for HECM counseling, HUD will now allow HUD-approved agencies providing HECM services to require payment from the client for the counseling session upfront. An agency can also choose to continue to allow clients to pay the counseling fee at the closing of the loan. If the fee is waived as a result of financial hardship, the client will not be required to pay the fee upfront or at the loan closing.


The language in the law does not prohibit lenders from providing funding for counseling services other than HECM.


Please send questions or comments to:
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My thanks to Jerry Mayer of HUD for his continuous stream of HUD based information and clarification. While this is in no way a “paid announcement or endorsement”, I encourage readers to take advantage of the wealth of information and resources provided by Jerry in his e-mail notifications - you can subscribe to his newsletter by contacting him at:
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Mr. Rosynek has been involved in mortgage lending for over 30 years with the last 5+ years exclusively providing reverse mortgage lending solutions. To contact Mr. Rosynek or to learn more about 1st Reverse Financial Services, Please visit www.1streverse.com or call 877-574-1000.
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