The purpose of this Mortgagee Letter (ML) is to clarify several issues regarding Home Equity Conversion Mortgage (HECM) counseling requirements for prospective HECM borrowers. Specifically, this ML clarifies and/or reiterates: (a) the Federal Housing Administration (FHA) requires the prospective borrower to initiate the request for counseling; (b) requirements for lenders to provide a list of counseling agencies to prospective HECM borrowers; (c) requirement for counselors to review and document a client's unique financial situation; and (d) use of the new Certificate of HECM Counseling.

All of the policies covered by this ML are included in various sources, including Section 255 of the National Housing Act, 24 CFR parts 206 and 214, HUD Handbooks 4235.1 REV-1 (HECM Handbook); 7610.1 REV-4 (Housing Counseling Handbook); and Mortgagee Letters 04-25, 04-48, 00-39, 00-10, 06-25 and 08-12. This ML clarifies the policy documents as they relate to HECM counseling.

Request for HECM Counseling

As stated in ML 04-25, "[b]efore, during, or after the counseling session is completed, the lender may not contact a counselor or counseling agency to refer a client; discuss a client's personal information, including the timing or scheduling of the counseling; or request information regarding the topics covered in a counseling session." HUD wants to reiterate that HECM counseling must be provided by an independent third party that is neither directly or indirectly associated with the mortgage transaction. Prospective borrowers must initiate communication with the counseling agency on their own, without the assistance of the lender. It is very important that the prospective borrower contact a counseling agency on his or her own terms, when he or she is comfortable commencing the counseling process.

HUD is aware of instances in which a lender, or lenders, have dialed a counseling agency's phone number and then handed the phone to the borrower to schedule counseling, or the lender entered the borrower's contact information into a web-based system which automatically put that borrower's name in a queue to be called by a counselor. These two examples run counter to our requirement that the borrower must take the initiative to contact a counseling agency when and if he or she is prepared to pursue the HECM. .

List of HECM Counseling Agencies

Lenders are required to provide every client with a list of no fewer than ten (10) HUD-approved counseling agencies that can provide HECM counseling, five of which must be in the local area and/or state of the prospective HECM borrower with at least one agency located within a reasonable driving distance for the purpose of face-to-face counseling. The lender must provide a list of HUD-approved counseling agencies in the prospective borrower's geographic area so that he/she can choose and receive face-to-face counseling. The other five agencies must be:

These national intermediaries and multi-state organizations have exam qualified counselors that can provide telephonic counseling to clients nationwide.

Budget Analysis and HECM Counseling

HECM counselors are required to review a client's unique financial situation during a HECM counseling session. In order to conduct this review, a counselor must document a client's budget based on financial information (e.g. income, assets, debts, monthly expenses) provided by the client. A budget analysis by the counselor is necessary in order to meet the statutory requirement, Section 255 of the National Housing Act, which mandates that counselors evaluate and discuss appropriate alternatives to a HECM.

New HECM Certificate

ML 2008-12 clarifies conditions under which potential borrowers may be charged fees for HECM counseling. As a result, HUD has updated Form HUD-92902, Certificate of HECM Counseling. The revised certificate provides a space to record how the session will be paid, - either "Upfront Fee for Counseling Session" or "Financed Fee for Counseling Session" - and a box to check if the fee has been waived. To access and view the updated form HUD-92902, go to the following link: http://www.hud.gov/offices/adm/hudclips/forms/files/92902.pdf.

The information collection requirements contained in this Mortgagee Letter were approved by the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). Approval of HECM Certificate is covered by OMB control number 2502-0524. A Federal agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a valid control number.

If you have any questions regarding this Mortgagee Letter, please call FHA's Resource Center at: 1-800-CALL-FHA (1-800-225-5342), and select "Option 2." Persons with hearing or speech impairments may reach this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).

Sincerely,

Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner.