The Department of Housing and Urban Development (HUD) now requires that a third-party counselor be involved in every FHA guaranteed Home Equity Conversion Mortgage (HECM).
Why is this so important in the protection of the borrower’s interests? Because in the old days older homeowners were getting into loans that were poorly understood and, prior to 2013, were as many times as not the absolute worst product for them. And those loans lead to a great deal of heartache.
Now, with the changes to HECM loans by HUD, borrowers, co-borrowers and non-borrowing spouses must attend counseling, whether in person or by phone. Heirs are also encouraged to take the counseling course, which can take from 60 to 90
minutes. Why should you include your heirs? If they are indeed going to be heirs, the last thing anyone wants to hear from an executor is… there’s a mortgage on your parent’s property”.
How do you know where and when? The loan originator will provide a list of counselors to the borrower, however, in protecting the borrower even further, the originator is forbidden from recommending any particular counselor to the borrower. They are all FHA/HUD approved, but your mortgage originator just cannot recommend one over the other.
What happens during the counseling session?
The counselor makes sure that the HECM loan is well understood, that the borrower understands the risks of the product and what the borrower’s responsibilities are to make sure the loan does not unintentionally come due… Just like any mortgage.
So, what are those items that can cause the loan to come due?
- The last primary occupant borrower vacates the home for more than 12 months.
- Taxes, insurance, other required property fees (HOA, Flood insurance, etc,) are not paid.
- The home is not kept in good repair.
Other than the first bullet, all these items are typical of any mortgage. Liens and lack of maintenance directly impact the lenders collateral and can cause a default on a mortgage. Remember, it’s still your house and still just a lien against the property that has to be satisfied at the end of the loan.
Think the new HUD/FHA Home Equity Conversion Mortgage is too good to be true? As with any loan product, there is always additional information to discuss. Give Richard McWhorter of McWhorter Reverse Mortgage a call, text (404-313-9785) or email ([email protected]) and find out why what you use to know about reverse mortgages is keeping you from one of the best long term financial products on the market today.
