According to a New York Times article released last week, borrowers who complete a counseling session are less likely to default on their Federal Housing Administration (FHA) loans.
In response to the study cited in the article, the U.S. Department of Housing and Urban Development (HUD) awarded hundreds of housing counseling agencies over $40 million in grants to incentivize borrowers to take advantage of counseling programs and subsequently decrease the number of foreclosures.
Based off of the results of this study, the FHA will use the grant money to create programs that will train counselors and support home counseling services so that counseling agencies can best advise and inform borrowers.
One program, “Blueprint for Access,” will extend FHA loans to homeowners with poor credit. Currently, many borrowers with credit scores lower than 640 are denied loans. This program is the FHA’s attempt to extend loans to a more borrowers without increasing default rates.
Secondly, FHA will offer borrowers who attend housing counseling through a HUD-approved counseling agency a 0.5% reduction on their UFMIP -the upfront mortgage insurance premium that is collected on FHA loans at closing.
Additionally, the annual premiums would be lowered by 0.1% for borrowers who attend housing counseling prior to closing with an added incentive of a 0.15% reduction on annual premium payments for those who make their payments on time over the course of two years and complete a second follow-up counseling session after closing the loan.
This could amount to reducing insurance costs by nearly $325 per year, or approximately $10,000 over the course of a 30-year loan for an average FHA loan with a balance of $180,000. That’s a lot of money that you could be saving in retirement.
Although reverse mortgages do not deal with monthly payments like in a traditional mortgage loan, the reverse mortgage loan is ahead of the game when it comes to these counseling ideas.
Part of the reverse mortgage process is that all clients are required to attend a counseling session. The purpose of the counseling session is to allow an unbiased 3rd party to ensure that all borrowers understand their financial options and are in no way blind-sighted by the process.
Reverse mortgages are often mistakenly criticized for trying to take advantage of seniors. The counseling program is just one of the ways that we ensure that our clients never feel cheated by the process. In fact, the counseling session is so valuable that it has become a mandatory part of the reverse mortgage process. The counseling session eliminates any confusion, answers outstanding questions, and creates transparency between the lender and borrower so that clients can independently make an informed decision when it comes to taking out a reverse mortgage loan.
A good counseling session will reiterate everything that your licensed expert has reviewed with you over the phone. Your licensed banker will provide you with a list of HUD approved counselors who you can choose from when scheduling an appointment for your session.
A reverse mortgage values the independence of the homeowner. This is reflected in the way that the borrower will always remain on title as the homeowner of the property. We want this same independence to be reflected throughout the process which is why we want you to attend a counseling session in order to understand all of your financial options. Your retirement goals are important which is why it is our job to help you make the best decision for your situation.
Following your counseling session you will be mailed a HECM Counseling Certificate upon completion of the program. This will allow you to continue with the application, appraisal, and closing process of your loan. The full process typically takes about 30-40 days through completion.
Get started now: A licensed expert at One Reverse Mortgage will be more than happy to answer any outstanding questions you have related to the counseling process and discussing whether a reverse mortgage could benefit your retirement.
We want your feedback! How did a counseling session influence your experience when receiving a loan?