Required Counseling Fees for FHA HECM Loans
Because of the unique nature of FHA HECM loans, also known as FHA Reverse Mortgages, the FHA requires applicants to get HECM-specific loan counseling before they can commit to the mortgage.
Borrowers have responsibilities under the HECM program which must be met or the loan can be declared due in full. Those issues include timely payment of property taxes and other required fees or payments. The counseling rule insures all applicants know exactly what they must do and what their benefits are under a HECM loan.
HECM counseling is not free, and the counseling agencies are not government entities, though they are referred to the borrower by the FHA. 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.
FHA rules state the HECM counseling fees can be paid by the client (and/or "related parties" according to the FHA official site) directly to the counseling agency. Lenders are required to document such direct payments in FHA loan paperwork including the HUD-1 Settlement Statement.
The cost of HECM counseling may also be paid out of the HECM loan itself. Counseling is required before the loan will be approved, but payment for those services can be delayed until the loan has been issued if the agency agrees to such an arrangement.
In those 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."
The rules for this payment arrangement are the same--it must be reflected in the HUD-1 Settlement Statement.
FHA rules do not allow the lender to pay the counseling fee. "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 every case, no matter how the fee is to be paid and counseling arranged, FHA requires full documentation of the counseling, the payment, and the amount.
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