Breaking News: FHA Implements New HECM Counseling Standards and Protocol

The FHA released a final rule today that made the new HECM counseling standards official. The rule goes into effect on October 2, 2009.

Among the new standards, the rule establishes standards for certification testing for HECM counselors and a national Roster of HECM counselors. The final rule establishes that:

1. HECM counselors who have passed the exam by October 2, 2009 will be automatically included in the HECM counselors Roster.

2. HECM counselors who have been removed for the Roster may apply for reinstatement by explaining in writing how the deficiencies that were the cause of their removal have been addressed and how their program has been improved so as to warrant reinstatement of the counselor.

3. To be eligible for the HECM counselor Roster, counselors must not be listed on any of the following lists: General Services Administration’s Suspension and Debarment List, HUD’s Limited Denial of Participation List, or HUD’s Credit Alert Interactive Response System.

4. Counselors have a 30 day period to submit a written appeal of their proposed removal from the Roster.

5. A counselor may be removed for a maximum period of one year.

Counselors will be tested every 3 years to remain on the Roster and must complete continuing education requirements.

The final ruling can be read in its entirety as it appears in the Federal Register. Hopefully the ruling will help improve the HECM counseling process.

UPDATE: The FHA HECM counseling protocols have yet to be released. An update will go out when it is published.  The Final Rule published today only covers the HECM counseling Roster and the standards that accompany it.

 

NRMLA Proposes Counseling Test for Seniors

NRMLA (National Reverse Mortgage Lenders Association) is expected to announce that in order to receive their HECM counseling certificate, seniors must pass a test given by the HECM counselor. The counselor will have a list of 20 questions to choose from and must ask 10.  The borrower must not get more than 5 wrong in order to get the certificate.

Requiring borrowers to pass a test is not a good way to assess their understanding of reverse mortgages. Many seniors have not taken tests in years.  Taking a test, especially if the test is given orally, requires a level of concentration that is difficult for most individuals and is a stressful experience.

While mandating counseling for borrowers has more upsides than downsides, requiring those borrowers to then pass a test is an undue burden on borrowers.  Although counseling can be a helpful safeguard to ensure that the borrower understands what a reverse mortgage is, some elderly borrowers, such as those with Alzheimers or dementia, likely do not have the ability to pass a test, regardless of whether they have an understanding of the situation.  Even those who do fully comprehend the situation may get flustered and fail.  Often, understanding of a topic is not well summed up on paper or in an oral question and response.  The better gauge of understanding should be the counselor’s conversation with the borrower.  As long as the borrower undergoes counseling, a test is not needed.

Reverse mortgages are often applied for in times of hardship. Requiring a borrower to pass a test, especially an oral one, is an unnecessary requirement that will cause more harm than good within the reverse mortgage process.