Reverse Mortgages Made Safer With HUD-Approved Counseling

Financial counseling is an integral stepping stone on the path to getting a reverse mortgage. Before any homeowner age 62 or older can take out a reverse mortgage, they must undergo mandatory counseling to participate in the Federal Housing Administration (FHA) insured Home Equity Conversion Mortgage (HECM) program.

The Department of Housing and Urban Development (HUD), which administers the HECM program through the FHA, requires mandatory counseling for all prospective reverse mortgage borrowers. This safety measure helps ensure homeowners can make an informed decision about borrowing against their home equity with a reverse mortgage. The purpose is for the prospective borrower to talk with an independent third party who is not incentivized based on whether someone ultimately takes out a loan.

What Is Reverse Mortgage Counseling?

Reverse mortgage applicants must meet with a HUD-approved counselor to discuss their understanding of a HECM, including the various reverse mortgage product options, loan disbursement options, and costs.

Counselors must use the Financial Interview Tool (FIT) developed by the National Council on Aging to gather information from the prospective HECM borrower. This will help counselors better determine whether the senior can meet mandatory obligations after getting a reverse mortgage, such as payment of taxes and insurance and property maintenance. The FIT also highlights whether the client may need other services besides a reverse mortgage to continue living in the home.

Counselors are instructed to cover all the following areas thoroughly:

• Client needs and circumstances
• Features of reverse mortgages
• Client responsibilities under a reverse mortgage
• Costs to obtain a reverse mortgage
• Financial/tax implications of a reverse mortgage
• Financial or Social Service alternatives to a reverse mortgage
• Warnings about potential reverse mortgage/insurance fraud schemes and elder abuse

Where Does Counseling Take Place?

Depending on where you live, counseling sessions can take place either face-to-face or over the phone. Some states require HECM counseling to be done in person. Once counseling is completed, both the counselor and the applicant will sign a certificate to verify that the required counseling has been fulfilled.

To view a list of all the HUD-approved HECM counselors, you can visit HUD’s online directory to find a counseling agency in your area. You can also contact a reverse mortgage lender, as they are required by law to provide prospective borrowers with a list of HECM counseling agencies.

This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.