As part of the ongoing overhaul of the reverse mortgage industry, HUD (via the FHA) has revamped the test that counselors are required to pass before they can work with prospective borrowers. According to the front lines, the test is quite hard!

Some background: HUD reverse mortgage rules clearly stipulate that borrowers are  “required to receive consumer information from an approved HECM counselor prior to obtaining the loan.” Previously, this session was treated as perfunctory (it probably still is by many participants), as counselors breezed through a list of caveats and pitfalls to prospective borrowers. These sessions were (and still are, to some extent) conducted by phone, often involving individuals other than the actual borrower.

There were many reports of abuse and conflicts of interest (counselors were using their positions to refer customers to specific lenders on a commission basis), which the General Accountability Office (GAO) identified in a recent report, completed after participating in 15 interviews on an undercover basis. As a result, the rules were tightened, and the counseling requirements enhanced. Prospective borrowers are now encouraged to complete the session in person and must sign an affidavit stating that they understand the risks, etc.

In addition, the certification test for counselors has become more difficult, to the extent that even veteran counselors are finding it difficult to pass. The result is not necessarily that unqualified counselors will be prevented from counseling, but rather than all counselors should be more knowledgeable in the both the benefits and drawbacks of reverse mortgages, and should be able to pass this on to potential borrowers.

From the standpoint of borrowers, this means that the counseling session should theoretically be more useful. If you are even considering obtaining a reverse mortgage, you may as well as undergo counseling as early as possible in the process, before you have committed (either psychologically or to a lender) to going forward. This way, you can fully weigh what the counselor tells you, and make a better-informed decision afterward. If you wait until right before you sign the documents to complete the counseling session, you risk treating it as perfunctory, since it won’t possibly be able to influence your decision.

From the standpoint of counselors, meanwhile, you had better study hard!