If you want to get a reverse mortgage, odds are you'll have to get counseling first.
The government requires applicants for a Home Equity Conversion Mortgage (HECM) – the type that makes up about 95% of the reverse mortgages underwritten – to complete a session with a reverse mortgage counselor before the loan can close. Some borrowers, and counselors too, see this as a tedious, go-through-the-motions procedure. But if you’re genuinely interested in this step (and you should be, given the risks – see Reverse Mortgage: Could Your Widow(er) Lose the House?), here are some suggestions for finding someone who'll offer you good, unbiased advice.
You don’t just have to complete reverse mortgage counseling to get a reverse home loan; you have to complete it with a counselor approved by the Department of Housing and Urban Development (HUD), one of the two main regulators of the reverse mortgage industry. If you want to meet with someone face-to-face, you’ll need to find a local counselor using HUD’s approved housing counselor roster. Select your state, then use your browser’s search tool to find all the counselors that offer reverse mortgage counseling.
HUD-approved HECM counselors have met several requirements, including completing an approved training course; passing a 100-question, timed HECM exam covering reverse mortgage basics, costs, benefits and alternatives; and working for a HUD-approved agency. They also have to take one approved training course every two years.
HUD recommends that borrowers get face-to-face counseling whenever possible: It’s a better way for borrowers to be engaged in the session and for counselors to make sure homeowners understand the reverse mortgage product. If you’re comfortable completing the counseling by phone or if there aren’t any reverse mortgage counselors near you, use one of HUD’s approved national counseling agencies. Be aware that some states require face-to-face counseling so it's possible that some federally approved national counseling agencies can't provide reverse mortgage counseling in some states.
One place you shouldn't seek advice: your reverse mortgage lender. HUD forbids them from steering, directing, recommending or otherwise encouraging borrowers to work with a specific reverse mortgage counselor. At most, the lender can offer you a list of five local agencies (not a bad place to start, of course, though it shouldn't replace your own research), plus the HUD list of national counselors.
Counselors can’t talk to lenders about you or your situation, either; nor should they recommend a specific reverse mortgage product or lender. The purpose of this separation is to make sure that borrowers get unbiased counseling.
Now that you have a list of local or national counseling agencies, it’s time to narrow your options. You can check the usual online sources, like the Better Business Bureau and Yelp, to try to vet agencies you’re considering, but don’t be surprised if you find little to nothing in the way of customer reviews, good or bad. In addition, many of these agencies provide a wide range of consumer credit counseling services, so even if you do find reviews, they might not pertain to reverse mortgage advice. Still, they can give you a sense of the company’s overall professionalism and competency.
One of the credit counseling agencies approved for national counseling, GreenPath, has reviews online at NerdWallet.com and other financial-advice websites. You may or may not find reviews of local reverse mortgage counselors on these sites.
Another possible resource is a local financial planner who specializes in seniors. He or she might know which reverse mortgage counselors are the best options in your area. But don’t pay for a financial planning session just to get a counseling recommendation.
The next step is to contact the agencies on your short list and ask them a series of screening questions.
You’ll read in many places that counseling tends to cost around $125, but there is no set amount that counselors must charge, nor is there a minimum or maximum amount that counselors must abide by. The fee only has to be “reasonable and customary” for your location and for the level of counseling provided. The counselor should be able to explain how the agency determined the fee size, and must inform you up front of how much that fee will be.
You may be able to find out a counseling agency’s fees from its website. It’s a good sign when an agency publishes its fees, as long as the information matches what the agency tells you verbally. Seeing what different agencies are charging online gives you a good reference point to see whether the a fee is “reasonable and customary” in your area. Use common sense: If $125 seems a valid local benchmark, an agency charging $175 isn't out-of-line; one charging $400, on the other hand….
If your income is below 200% of the federal poverty level, you can delay paying for counseling until you close your mortgage as long as you are willing to document your income and expenses, to prove your need to have the counseling fee waived. Counseling agencies aren’t allowed to turn away clients who can’t afford the fees.
According to HUD, a typical reverse mortgage counseling session should take at least 90 minutes to be thorough and in-depth. That being said, one of the nationally approved providers says on its website that counseling will take about an hour. If the counselor says the session will take 15 to 30 minutes, that’s not a good sign that you’ll get the attention you need. Also ask how long it will take to get an appointment; if there’s a long wait and you’re on a deadline, you’ll want to look elsewhere.
Your reverse mortgage counseling session should cover the pros and cons of taking out a reverse mortgage, not just in general, but given your specific financial and life circumstances. It should explain how getting a reverse mortgage will affect your eligibility for Supplemental Security Income and Medicaid, if you rely on either of these programs. The counselor should also help you understand the different ways you can receive reverse mortgage proceeds and the circumstances under which the reverse mortgage becomes due and payable.
The answer to this question should be yes, since HUD requires that reverse mortgage counselors discuss other options during your counseling session. If difficulty making ends meet is your main motivation for getting a reverse mortgage, the counselor should help you look for solutions like public and private benefits and community services that help seniors maintain their independence. The counselor should also discuss the possibility of downsizing by selling your home and buying a less expensive one or renting instead.
If and when you finally meet, HUD also recommends that your children and other advisors participate in the session if possible.
A good reverse mortgage counselor will help you understand reverse mortgages and figure out whether a reverse mortgage suits your needs. The reverse mortgage counselor you select must be HUD-approved and issue a counseling certificate after you complete the session. Being well-informed about what reverse mortgage counselors are supposed to discuss with you, how long your session should take and what it should cost can help you weed out any advisor who might just be going through the motions – versus one who truly wants to help.
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A look at Regulation of Reverse Mortgages
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