Counseling Requirements For A Reverse Mortgage

To provide safeguards and protection to perspective reverse mortgage applicants, the Department of Housing and Urban Department (HUD) requires that borrowers receive financial counseling from a HUD-approved counselor before applying for a reverse mortgage. However, some feel that these counseling sessions are not impacting borrowers the way they should because they can be done over the phone or in person. A national study by RealtyTrac Inc. found that in 2011 nearly 1.2 million people are at risk of having their home repossessed. To try and ease this surge of foreclosures, many states are pushing for guidelines to require face-to-face counseling to ensure seniors fully understand their reverse mortgage.

Counseling Requirements for a Reverse Mortgage

Currently, HUD counseling sessions are designed to provide a borrower with non-biased information on reverse mortgages. Last year, HUD put in place stricter counseling requirements for a reverse mortgage to protect seniors. Part of these requirements state that a counselor must prepare a household budget for the borrower to review. This helps ensure that a reverse mortgage will meet a borrower's financial needs and help the counselor correctly advise a borrower on the reverse mortgage.

In addition, counseling requirements for a reverse mortgage mandate that a number of pamphlets and reading materials must be supplied to the borrower. Here is a list of the information that a counselor must provide to an applicant:

1) HUD's "Preparing for your Counseling Session."
2) Loan printout showing the TALC (Total Annual Loan Cost) Analysis.
3) Loan printout showing the Amortization Schedule.
4) Loan comparison print.
5) The National Council on Aging booklet, Use Your Home to Stay at Home - A Guide for Homeowners Who Need Help Now.

Final Requirement for a Successful Counseling Session

At the end of a counseling session, a counselor will quiz the borrower to make certain they completely understand the reverse mortgage. Counseling requirements for a reverse mortgage demand that an applicant must answer 5 out of 10 questions correctly to show that they fully comprehend the reverse mortgage. If the borrower does not pass the test they must wait 7 days to come back for another shortened counseling session.

Some States Already Have Additional Counseling Regulations

Some states are considering even stricter counseling requirements for a reverse mortgage. In 2010, Massachusetts and North Carolina signed into law regulations that require seniors to receive counseling in person. However, these regulations have currently been put on hold until August 1, 2012 as a study by the National Reverse Mortgage Lenders Association researches the impact of face-to-face counseling. Additionally, seniors with an income of less than 50% of the average area income or assets estimated less than $120,000 need to receive written certification, from their counselor, that they fully understand the transaction.

HUD mandates counseling requirements for a reverse mortgage to protect seniors from being taken advantage of and assure that borrowers are fully educated on a reverse mortgage. For more information on counseling requirements for a reverse mortgage, talk with a loan specialist today!