FHA Reverse Mortgage Loan Counseling Rules

FHA Reverse Mortgages, also known as Home Equity Conversion Mortgages, have unique requirements because of the nature of the loan. HECM loans, which are intended for seniors age 62 and older, require no mortgage payments during the lifetime of the loan. HECM loans are paid off when the borrower dies or chooses to sell the property secured with the reverse mortgage.

FHA rules state all HECM applicants must receive counseling to insure they are informed borrowers, fully aware of the responsibilities and requirements of a HECM loan as well as the benefits. This counseling must happen before the borrower commits to a reverse mortgage.

According to Section 255(d) of the National Housing Act and FHA regulations found in 24 CFR 206.41, “all prospective Home Equity Conversion Mortgages (HECM) borrowers must receive reverse mortgage counseling prior to obtaining a HECM, and the counseling must be received from eligible counselors working for participating agencies approved to provide this statutorily required counseling.”

The required counseling cannot be a group session. It must be “individual counseling” and the HECM loan applicant must get a certificate at the end of the session as proof the counseling took place. FHA requirements also state, “A group of related family members, if they are documented on the deed together, are also required to receive reverse mortgage counseling by a HECM counselor.”

The rules are flexible as to whether the counseling can happen over the phone or in person, and while in-person FHA HECM loan counseling is the best option, the FHA recognizes that some–especially those who live in remote areas–may have difficulty arranging an in-person session.

FHA rules for these situations are clear. “FHA allows prospective HECM borrowers the option of meeting face-to-face with the lender and/or reverse mortgage counselor, or participating in loan origination and counseling activities by telephone or other HUD-approved mutually agreed upon format for counseling. A prospective HECM borrower who decides to forego participation in face-to-face counseling is still required to fulfill FHA’s mandatory reverse mortgage counseling requirement (for example, completing a telephone counseling session).”