Finding a Trustworthy Reverse Mortgage Counselor

With the recession of the past few years causing retirement funds to disappear more quickly than Lily Tomlin in The Incredible Shrinking Woman, many seniors are extremely nervous about keeping up their standard of living. The lucky ones, who have accumulated substantial equity in their homes, have the luxury of tapping into that equity with a reverse mortgage if their financial situation becomes precarious.

Reverse mortgages are complicated, though, so the FHA mandates free counseling for all seniors who are interested in exploring this path. Here’s how to get the most out of your counseling session.

Reverse mortgage counselor role

In 2009, the Government Accountability Office (GAO) sent undercover investigators, who posed as borrowers, into counseling sessions. The government Sherlocks discovered that none of the counselors were covering all the mandatory topics, including discussions of alternatives. (This is important because reverse mortgages are expensive, and they may not always be the most appropriate path for a senior to take.) Because of this neglect, the GAO determined that borrowers weren’t receiving the complete education that they needed to make informed decisions.

As a result, the FHA passed new, more stringent, testing requirements for people who want to qualify as reverse mortgage counselors. In addition, they’re required to pass a re-test every two years.

Who are these counselors?

Counseling training is offered to people who work for a HUD-approved counseling agency, a law office, or people who have experience in local and regional aging services programs. Potential counselors can take an all-day training workshop, and then must pass a written test. But it isn’t an easy one to ace.

Earlier this year, only 995 counselors had passed the exam. Many people failed who had been in the industry for 20 years or more, and complained vigorously. But HUD didn’t back off the exam—all the people will be able to take the test again, until they pass.

When you apply to a bank for a reverse mortgage, HUD requires that the lender provide you with a written list of the names and addresses of third-party information sources to provide counseling. Or, if you want more information before you’re ready to apply, you can find a counselor online by visiting the HUD website.

What to expect

At your counseling session, you should thoroughly expect the following discussions:

•  An analysis of your budget, to determine whether a reverse mortgage will help meet your finanicial goals
•  Explanation of alternatives to reverse mortgages
•  Understanding the tax consequences and financial implications of reverse mortgages
•  An explanation of the entire reverse mortgage process, so that you thoroughly understand it

Lily Tomlin’s character eventually falls into a chemical puddle and begins to grow again. But if you don’t understand how a reverse mortgage fits into your financial life and the cost implications, you may spend money and home equity that no magic chemical can help you get back again.