In May HUD approved borrower paid counseling for reverse mortgages as long as the borrowers are not considered hardship cases. Recently NRMLA issued a “Best Practice” for members to consider adopting as a way to increase uniformity and efficiency in the administration of the borrower paid billing process for the benefit of all industry stakeholders and, especially, the seniors we all serve.
On May 23, 2008 FHA also revised the Counseling Certificate to include a section that notates for those borrower paid cases, whether the payment will be paid “up front” or “financed” from closing.
NRMLA suggests that the process for generating a “borrower paid counseling transaction” where the borrower chooses to finance the counseling (instead of paying “up front”) follow these general steps:
- The Invoice: In all counseling cases (hardship and non hardship), the counseling agency would/should use a completed Counseling Certificate as an actual invoice. This can be done by attaching an invoice to the Certificate and/or, by using the newly revised Counseling Certificates to include the billing amount to be “financed”. The agencies could, in theory, begin attaching invoices to completed certificates immediately.
- Pay From Closing (or “Financed”)Scenario: In this case, the counseling invoice is treated as an expense to be paid from closing. Note that the ML states “upon agreement of both the lender and the borrower, the closing agent can assume responsibility for remitting payment to the counseling agency that performed the service”. The counseling invoice would be treated as another expense and paid from closing and reflected in the 800 series of the HUD-1.
- Loan Moves To Another Lender (to Pay From Closing): In these cases, the unpaid invoice would be forwarded from the former lender to the new lender so that the new lender can arrange payment from closing.
- Loan “Falls Out” And Does Not Close”: In these cases the counseling agency would use alternative funding sources at its disposal (e.g., grant funds, HUD funds, lender funds).
As noted in the Mortgagee letter 2008-12, unless agreed to be the HECM borrower, fees to counsel related parties cannot be paid out of the HECM loan proceeds.