July 10, 2015
There are some cases where a borrower may seek out housing counseling on their own, and others where the applicant is required to do so as a condition of FHA loan approval. FHA foreclosure avoidance programs may require housing counseling, HECM loans definitely require the applicants to get required counseling sessions, and borrowers may choose a pre-purchase counselor based on a referral from the FHA/HUD.
In some cases, such as with foreclosure avoidance, the counseling is free. In other cases there may be fees associated with the sessions that the borrower is expected to pay for. In such cases, the FHA loan program has rules that dictate how the counseling is to be carried out, how the billing is to be done, and what services the borrower must get from the counseling sessions.
At the time of this writing, the counseling rules are found in HUD 4155.2 Chapter One Section A, we learn that one important factor in any borrower-paid counseling session is to avoid “steering” or influencing the borrower to go with a certain lender or loan. A mortgage broker may, in certain cases, be permitted to administer types of housing counseling, but must meet the conditions described below:
“Services that are considered counseling in nature (such as educating a prospective borrower in the home-buying and financing process, advising the borrower about different types of loan products available, and demonstrating how closing costs and monthly payments could vary under each product), may be performed by a mortgage broker, so long as the services provided constitute meaningful counseling, and not steering.”
According to the Real Estate Settlement Procedures Act, or RESPA, when counseling services are performed, the following areas are carefully scrutinized:
–Counseling gave the borrower the opportunity to consider products from at least three different lenders
–The entity performing the counseling would receive the same compensation regardless of which lenders product was ultimately selected, and
–Any payment made for the counseling services is reasonably related to the services performed.
HUD 4155.2 also adds some notes about housing counseling that both lenders and borrowers should be aware of:
–The fee charged must be paid from the borrowers own available assets and must be disclosed on the HUD-1 Settlement Statement at closing.
–A copy of the contract for these services must be included in the loan file submitted for insurance endorsement.
–Under no circumstances may a borrower be charged a fee that is not commensurate with the amount normally charged for similar services.
Since HECM loans require specific counseling, and borrowers negotiating with a lender to avoid foreclosure may also be required to get counseling to get a refinance loan or other loan products intended to get the borrower “caught up” and current with the mortgage, this type of transparency both in the nature of the counseling and how it is billed can be very important. Know your rights and your responsibilities–an informed borrower is much more confident about the process and the commitment they have made.
Do you have questions about FHA loans? Ask us in the comments section. All questions/comments are held for review.
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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