May 24, 2011
An FHA Home Equity Conversion Mortgage or HECM loan lets qualified borrowers age 62 or older get a loan on their home which is not paid back in any way until the borrower dies or sells the property.
Borrowers can get a line of credit or cash payments (or combinations of the two) depending on how the loan is set up. There are specific rules and requirements for HECM loans, and borrowers must get mandatory HECM loan counseling through an FHA-approved agency before the loan will be approved.
The FHA is strict about the counseling requirements–an informed borrower is able to make the right choices for their circumstances. But HECM counseling is not free, and the counseling agencies are not government entities. Because the borrower is required to pay a fee for FHA HECM loan counseling, there are regulations governing how the fee can be paid and by whom.
HECM counseling fees can be paid by the client (and/or “related parties” according to the FHA official site) directly to the counseling agency. Any direct payment must be reflected in FHA loan paperwork including the HUD-1 Settlement Statement. Documentation of the payment is required as part of the FHA loan process.
The cost of HECM counseling may also be paid out of the HECM loan itself. That means that while counseling is required before the loan will be approved, payment for those services may be delayed until the loan has been issued. In such cases the FHA allows payment to come from someone other than the borrower. FHA rules state, “Upon agreement of both the lender and the borrower, the closing agent may assume responsibility for remitting payment to the counseling agency that performed the service.”
Again, the payment must be reflected in the HUD-1 Settlement Statement.
FHA rules do not allow the lender to pay. According to the rules, “Lenders may not pay HUD-approved counseling agencies, directly or indirectly, for HECM counseling services through either a lump-sum payment or on a case-by-case basis.” There is also a “transparency” requirement to show how the HECM counseling fee has been agreed to be remitted. “Form HUD-92902, Certificate of HECM Counseling, provides a space to record how the counseling 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.”
In all cases–even where the counseling fee has been waived, documentation of counseling and the fee agreement is mandatory.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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