Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators (MLOs). This video breaks down counseling requirements for consumers considering a Home Equity Conversion Mortgage. For course credit toward renewing your NMLS license, visit

A home equity conversion mortgage (HECM) or home equity line of credit (HELOC) may be used by a homeowner to borrow by pulling the equity out of their homes.

This section will focus on HECMs, also known as a reverse mortgages.

Most reverse mortgages are insured under the Federal Housing Administration’s HECM programs.

Those who borrow with an HECM are at greater risk of becoming delinquent on taxes and insurance. In turn, they are more vulnerable to foreclosure. [Consumer Financial Protection Bureau Report to Congress on Reverse Mortgages, 2012]

Unlike a fixed rate mortgage, reverse mortgages are complex, atypical financial arrangements. As such, borrowers frequently do not understand their terms or their consequences.

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Further, HECMs are a favorite financial product of scammers.

Thus, to promote the proper use of HECMs, mortgage counseling — unimpeded by mortgage lenders — is required to ensure the borrower better understands the risks, benefits and design of reverse mortgages before they take out an HECM.

HECM housing counseling is available for free or at very low cost from housing counseling agencies throughout the country.

To initiate the counseling, the lender needs to provide the homeowner with a list of HUD-approved housing counselors.

At least one of the agencies needs to be local, within driving distance for face-to-face counseling with the homeowner. [12 USC §1715z-20(e)(1); 24 CFR §204.41(a)]

While the lender assists the homeowner locate a counseling agency, the lender may not direct or encourage the homeowner to use a specific counseling agency. This unlawful conduct is called steering. [HUD Handbook 7610.1 Chapter 4-11]

Also, to avoid intimidation or disruption, the lender may not attend the counseling session with the borrower.

Further, the lender may not contact the counseling agency to arrange an appointment for the borrower as in a referral, or discuss a borrower’s personal information or any issues which might be covered in the counseling session.

Finally, lenders may not make copies of questions used by reverse mortgage counselors available to the HECM borrowers in advance of the counseling session. [HUD Handbook 7610.1 Chapter 4-11]

During the counseling session, information communicated will cover:

  • the potential of mortgage fraud;
  • the standard ways a borrower accesses their HECM proceeds; and
  • predatory lending practices, including a warning against assigning their HECM funds to MLOs or other parties involved in the transaction. [HUD Handbook 7610.1 Chapter 4-7]

When the HECM counseling session is concluded, the agency will provide the homeowner with an HECM Counseling Certificate to evidence the borrower’s completion of counseling. [HUD Handbook 7610.1 Chapter 4-18]

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