HECM Counselor Exam Guide
Exam Content
Exam Revision Date: May 2, 2009

Background
Content Categories
Content Specifications
Effective Date & State Variations

Background

HUD's HECM exam was developed with help from a credentialed psychometrician (testing expert) and participation from experienced HECM counselors selected by HUD and the AARP Foundation

Most Recent Revision of Exam Content: May 2009

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 Content Categories

The four major content categories for the HECM Counselor Exam are presented below, along with the approximate percent and number of multiple-choice exam questions that will be included in each category. Following the table is a complete outline of the specific topics (content specifications) that may be addressed within each of the four content categories. The exam's 100 multiple-choice questions will not cover all of the specific topics listed but questions on any of the listed topics may appear on the exam.

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Content Specifications

I. Reverse Mortgage Basics (35%)

• Basic definitions and descriptions
  1. reverse mortgage
  2. home equity loan
  3. "forward" mortgage
  4. debt, equity, appreciation
  5. Open-ended credit/Closed-ended credit
  6. nonrecourse limit
  7. use of loan proceeds: consumer choice, foreclosure prevention, home purchase, lien repayment requirements
  8. first mortgage requirement
  9. cost financing
  10. title retention
  11. lender default
  12. basic loan economics: principal limits, loan balances, residual equity
• Reverse mortgage programs
  1. HUD's Home Equity Conversion Mortgage (HECM)
  2. Proprietary reverse mortgages in general
  3. Roles of HUD, FHA, Fannie Mae
• Eligibility
  1. age
  2. number of borrowers
  3. ownership: joint, living trust, life estate
  4. residency requirements
  5. property types
  6. countable equity: equity limits, multi-unit properties
  7. pre-existing debt or delinquency
  8. property standards
  9. required repairs: standards, set asides, riders
• Borrower obligations/conditions of default
  1. residency
  2. ownership
  3. property condition
  4. property taxes and homeowner's insurance
  5. fraud or misrepresentation
  6. bankruptcy
  7. Repayment
• Loan documents
• Loan process
• Loan servicing
  1. timely payment standards and penalties
  2. statements to borrowers
  3. default and foreclosure procedures
  4. refinancing
  5. pay-off procedures

II. HECM Costs and Benefits (45%)

• Loan Advances
  1. determining loan amounts: loan program, age, home value, equity limits, loan costs, interest rate options
  2. program definitions: maximum claim amount, principal limit, net principal limit
  3. payment plans: payment plan options, payment plan changes
  4. initial lump sums: definition, timing, advantages & disadvantages
  5. creditlines: definition, advantages & disadvantages, creditline growth (concept, rate, growth vs. nongrowth, residual credit vs. residual equity), accessing creditlines
  6. tenure advances: definition, advantages & disadvantages
  7. term advances: definition, advantages & disadvantages
  8. combinations of loan advance types
  9. using HECM for home purchase
• Itemized Costs
  1. application fee
  2. origination fee: purpose, limits
  3. third-party closing costs: appraisal, credit report, title insurance, document preparation, recording fees, endorsement, escrow/settlement fee, inspections, flood zone certification, title search, mortgage/intangible tax
  4. servicing fee: purpose, limits, set-asides, timing
  5. mortgage insurance premium (MIP): purpose, amounts charged; reduced MIP for HECM refinances
  6. interest: compounding of interest; interest rate basics (indexes, margins, limits); fixed vs. adjustable rates; HECM interest rates (initial, expected, and compounding rates); HECM interest rate options, including impact on loan advances and loan balances; 5.5% floor on expected rate
  7. HECM set-asides: servicing, repairs, tax/insurance
• Total Costs
  1. Total Annual Loan Costs: definition, description, calculation; Truth-in-Lending disclosure requirements, including assumptions about appreciation, loan term, and creditline usage; treatment of annuities purchased with reverse mortgage proceeds
  2. TALC patterns: basic pattern, major variables (appreciation, tenure, payment plan) early magnitude, changes over time, exceptions
  3. evaluating TALCs: projections in relation to loan term, appreciation, payment plan
• Residual Equity
  1. potential importance
  2. calculation
  3. creditline use
  4. annuities
• E. Financial Implications
  1. impact on estate and heirs
  2. impact on public benefits: Social Security and Medicare, SSI (loan advances, annuity advances); Medicaid (loanadvances, annuity advances), other programs
  3. income tax: taxability, deductibility

III. Alternatives to Reverse Mortgages (12%)

• Selling and moving
  1. income from sale proceeds
  2. impact on public benefits
  3. housing options: types, definitions, advantages and disadvantages, locating programs
• Sale leaseback
• Refinancing current debt
• Home equity loans: advantages & disadvantages, comparison to HECM
• Home repair/improvement loans
  1. locating programs
  2. advantages & disadvantages
• Property tax deferral loans
  1. locating programs
  2. advantages & disadvantages
• Annuities
  1. definition
  2. advantages & disadvantages
  3. impact on public benefits
• Investing loan proceeds
• Aging network programs and services
• SSI: description, application
• Medicaid: description, application
• Legal services

HECM Counseling (8%)

• Consumer education role
• Independence
• Who must receive counseling: all borrowers, non-owner spouse, trusts, owners of remainder interest, holders of POA
• Counseling fees: limits on, disclosure, waivers for hardship
• Communications and referrals to/from lenders
• Confidentiality
• Counselor ethics
• Counseling process
  1. screening
  2. intake: consumer data, detecting potential abuse (pre-counseling loan fees incurred, fees owed to third parties, purchases from third parties, undue influence by third parties)
  3. consumer objectives
  4. consumer protection: "estate planning service firms"
  5. consumer resources and budgeting
  6. consumer options
  7. consumer advisories: suitability, eligibility
  8. certificate: content, issuance, expiration, waiver
  9. record-keeping
  10. post-counseling follow-up
• Consumer competency
  1. conservators and guardians
  2. durable power of attorney
• Consumer education resources
  1. websites: www.aarp.org/revmort/, www.hud.gov, www.reversemortgage.org
  2. booklets: Reverse Mortgage Loans: Borrowing Against Your Home (AARP); Using Your Home to Stay at Home (NCOA)
• HUD policies for HECM counseling and housing counseling in general
• Program information sources
  1. websites: www.hud.gov/offices/hsg/sfh/hecm/hecmhome.cfm, www.hudclips.org, www.hecmresources.org,
  2. HECM: statute, regulations, handbook, mortgagee letters
  3. counselor education and training resources

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Effective Date & State Variations

To meet HUD's requirement for a "uniform national exam," this exam is based solely on the national HECM program and related information as of the date the exam is taken.

All counselors should be alert to any new federal law, regulation, handbook, mortgagee letter, or other official HUD policy or program change that relates to the HECM program. The exam's questions and answers will be modified as needed based on the effective date of any such changes.

All counselors are responsible for knowing how the national HECM program operates, and you are being tested solely on the national program. If your state has additional restrictions or limitations, such as those in Texas, North Carolina, Massachusetts, and some other states, you will need to understand that information for your counseling but it will not be on this test.

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