Housing Counseling Process Evaluation and Design of ... - HUD User

letter are provided accurately by the counselor in a way that encourages client understanding and
protection. The checklist will be shared with counselors and their supervisors in advance so they will
know what is expected of them. This quality check program is in a beta-testing phase as of mid-2008
and is expected to be implemented by the end of the calendar year, or early the following year.
Another challenge of building capacity for HECM counseling is funding. HUD funding alone is not
sufficient to meet demand; as a result, the intermediaries funding HECM counseling have been
working to develop alternative funding sources. One initiative was to have lenders pay agencies for
the counseling provided to their clients, with the understanding that these clients would receive
counseling in a timely manner. 48 Housing Counseling regulations at 24 CFR Part 214 allow agencies
to be paid by lenders, as long as the relationship does not create a conflict of interest and is disclosed
to the client. 49 However, several agencies commented on the potential for conflicts of interest in this
type of arrangement, including one agency that reported that a lender had stopped referring clients to
them after a client decided not to pursue a HECM after receiving counseling. One intermediary went
as far to say that mortgage lenders should not be meeting the need for HECM counseling long-term
and described lender payments for HECM counseling as “the issue of the future.” Another
intermediary interviewed expressed skepticism that lenders would in fact pay for counseling while
HUD funding was still available. In July 2008, Congress passed the Housing and Economic
Recovery Act of 2008, which prohibits lenders from funding reverse mortgage counseling.
Client fees are another possibility for addressing the funding gap for HECM counseling. Some
counseling providers favor charging a fee at closing to those clients who actually take out a HECM,
because these clients by definition have some equity in their homes that can be used to cover the
counseling fee. However, a fee taken at closing would not cover the costs of HECM counseling for
clients who decide not to obtain at HECM. In May 2008, HUD announced that agencies could charge
up to $125 per counseling session for HECM clients and that this fee could be paid in one of three
ways: by the client directly to the agency; by the lender to the agency, either on a case-by-case or as a
lump sum; or the cost of the counseling can be paid out of the HECM borrower’s loan proceeds at
closing. 50
48
49
50
“DirectConnect and MMI launch a lender-pay program to head off impending counseling crisis,”
December 10, 2007. Press release from DirectConnect, https://directconnectcounseling.org/news.php.
The final rule for the Housing Counseling program provides a description of what is meant by conflict of
interest. Examples include of conflicts of interest include a counseling agency employee having a direct
interest in the client as a landlord or creditor, mortgage underwriter, or collection agent, or a counseling
agency employee referring clients to mortgage lenders, brokers, builders, or real estate sales agents in
which he/she has a financial interest. The final rule also requires agency staff to avoid actions that might
result in, or create the appearance of, administering the housing counseling operation for personal or private
gain. Housing Counseling Program; Final Rule (Federal Register Vol. 72, No. 188, September 27, 2007,
pp. 55638-55654)
FHA Mortgagee Letter 2008-12.
Chapter 9. Policy Considerations 145