Lender-Funded Counselors Out, HUD-Funded Counselors In
October 16th, 2008
- HUD — Lender-Funded Reverse Mortgage Counselors Just Fine
- FHA On Counseling Fees — Again
- HUD To Lenders: Okay To Pay HECM Counselors
- And Now A Word From Financial Planners
- HECM Counselors Must Pass HUD-Approved Exam
There’s a new deal with reverse mortgage counseling. HUD has dumped lender-funded counselors in favor of counselors underwritten by HUD itself.
There is much to recommend the new policy. Conflicts under the old plan were obvious and overt, hopefully the new system will be better.
As HUD explains, “Section 2122 of the “Housing and Economic Recovery Act of 2008″ (HERA) (Pub. L. No. 110-289), enacted July 30, 2008, requires that the HECM mortgage must be executed by a mortgagor who received adequate counseling from an independent third party that is not either directly or indirectly associated or compensated by a party involved in 1) originating or servicing the mortgage; 2) funding the loan underlying the mortgage; or 3) the sale of annuities, investments, long-term care insurance, or any other type of financial or insurance product.”
“Lenders,” HUD now says, “can no longer pay HUD-approved counseling agencies, directly or indirectly, for counseling services through either a lump-sum payment or on a case-by-case basis. An example of prohibited indirect funding is Lenders funneling payment for HECM counseling through a nonprofit, foundation, association or any other entity or organization that is a branch of, affiliated with or associated with a lending institution.”
The arrangement is a huge change from what we had before. Last May, HUD said that “based on feedback from reverse mortgage counseling providers and cost data collected by HUD, HUD has determined that a HECM counseling fee of $125 per counseling session constitutes a reasonable and customary fee, and does not exceed a level so as to be generally commensurate with the education and counseling services that are typically provided.”
“Lenders,” said HUD, “may pay HUD-approved counseling agencies for counseling services, through a lump sum or on a case-by-case basis. The Lender payment may be made directly to the counseling agency or disbursed at closing by the settlement agent, as provided in paragraph (3) below. The Lender payment may be made directly to the counseling agency or disbursed at closing by the settlement agent. As required in §214.303(g), counseling agencies must disclose to their clients any funding or relationships with lenders. Lenders that pay agencies for counseling services may seek reimbursement from clients who proceed with the HECM and become HECM borrowers.”
Obviously, if counselors are going to be paid on a case-by-case basis you can pretty much bet that some borrowers will not be well-served and that counselors who are objective will wind up with fewer counseling checks.
The person behind the HUD change is Sen. Claire McCaskill (D-MO). To her credit, McCaskill strongly objected to the use of reverse mortgages to fund annuities, annuities which in too many cases had stiff prepayment penalties and tiny returns.
HUD has now set aside $50 million for reverse mortgage counseling. The catch is that not every state or agency has gotten the same amount. For a list of counseling recipients by state, please press here.
In addition to a HUD counselor, the recommendation here is that seniors should speak with an attorney who specializes in elder law before signing any reverse mortgage paperwork.