Background

In 2000, a "pre-test" for a HECM counselor exam was administered by the AARP Foundation under a grant from the U. S. Department of Housing and Urban Development (HUD). It was developed with help from a credentialed psychometrician (testing expert) and participation from experienced HECM counselors selected by AARP and HUD.

Following the pre-test, the Foundation sponsored a detailed psychometric analysis of the pre-test results. Based on this analysis, the Foundation updated, revised, and replaced individual questions and answers in consultation with its psychometrician. This work was reviewed by the highest-scoring counselors on the pre-test, which led to additional revisions in the 2002 HECM Counselor Exam that was administered by the AARP Foundation with HUD support early in 2002.

The results of the 2002 exam were then subjected to the same detailed analysis, revision, and updating that followed the pre-test. The results of that work were incorporated into the 2004 HECM Counselor Exam administered by the AARP Foundation with HUD support in 2004. The results of the 2004 exam were then similarly analyzed, and the exam was again revised and updated in 2005.
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Content Categories

The four major content categories for the HECM Counselor Exam are presented below, along with the 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.  

Content Specifications

1. Reverse Mortgage Basics (25%)
   1. Basic definitions and descriptions
      1. reverse mortgage

      2. home equity loan

      3. "forward" mortgage

      4. debt, equity, appreciation

      5. nonrecourse limit

      6. use of loan proceeds: consumer choice,
         foreclosure prevention, home purchase
         repayment requirements

      7. first mortgage requirement

      8. cost financing

      9. title retention

      10. lender default

      11. basic loan economics: calculating loan amounts (age,
          home value, loan program), loan balances, residual equity

   2. Reverse mortgage programs
      1. HUD's Home Equity Conversion Mortgage (HECM)

      2. Fannie Mae's "Home Keeper" loan

      3. Financial Freedom's "Cash Account" loan

      4. Roles of HUD, FHA, Fannie Mae

   3. Eligibility
      1. age

      2. number of borrowers

      3. ownership: joint, living trust, life estate

      4. residency

      5. property type

      6. countable equity: equity limits,
         multi-unit properties

      7. pre-existing debt or delinquency

      8. property standards

      9. required repairs: standards, set asides, riders

   4. 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

   5. Loan documents

   6. Loan process

   7. Loan servicing
      1. timely payment standards and penalties

      2. statements to borrowers

      3. default and foreclosure procedures

      4. refinancing

      5. pay-off procedures

2. Reverse Mortgage Costs and Benefits (50%)
   1. Loan Advances
      1. determining loan amounts: loan program, age, home
         value, equity limits, loan costs, cost options (interest
         rate adjustability, equity sharing)

      2. program definitions: maximum claim amount, adjusted
         property value, 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

   2. Itemized Costs
      1. application fee

      2. origination fee: purpose, limitations

      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, limitations, 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, limitations); interest rate adjustability; HECM interest rates (initial, expected, and compounding rates); HECM interest rate options, including impact on loan advances and loan balances

      7. HECM set-asides

   3. 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

   4. Residual Equity
      1. potential importance

      2. calculation

      3. creditline use

      4. annuities

   5. Financial Implications
      1. impact on estate and heirs

      2. impact on public benefits: Social Security and Medicare,
         SSI (loan advances, annuity advances) Medicaid (loan
         advances, annuity advances), other programs

      3. income tax: taxability, deductibility
         
         

3. Options and Alternatives (13%)
   1. Selling and moving
      1. income from sale proceeds

      2. impact on public benefits

      3. housing options: types, definitions, advantages
         & disadvantages, locating programs

   2. Sale leaseback

   3. Refinancing current debt

   4. Home equity loans: advantages & disadvantages

   5. Home repair/improvement loans
      1. locating programs

      2. advantages & disadvantages

   6. Property tax deferral loans
      1. locating programs

      2. advantages & disadvantages

   7. Annuities
      1. definition

      2. advantages & disadvantages

      3. impact on public benefits

   8. Investing loan proceeds

   9. Aging network programs and services

   10. SSI: description, application

   11. Medicaid: description, application

   12. Legal services

4. Reverse Mortgage Counseling (12%)
   1. consumer education role

   2. independence
      1. referrals

      2. lender materials

      3. fee disclosure

   3. confidentiality

   4. counseling stages
      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

      9. record-keeping

      10. post-counseling contact

   5. consumer competency
      1. conservators and guardians

      2. durable power of attorney

   6. consumer education resources
      1. websites: www.aarp.org/revmort/, www.hud.gov, www.fanniemae.com, www.reversemortgage.org, www.aarp.org

      2. booklets: Home Made Money, Money From Home

   7. HUD policies for HECM counseling and housing counseling in general

   8. program information sources
      1. websites: www.hud.gov/offices/hsg/sfh/hecm/hecmhome.cfm, www.hudclips.org, www.hecmresources.org, www.efanniemae.com

      2. HECM: statute, regulations, handbook, mortgagee letters

      3. Home Keeper: consumer booklet, lender letters

      4. Cash Account: fact sheet

   9. counselor education and training resources

   10. counselor ethics

Texas & Effective Date

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. Texas counselors should answer all questions based on the national HECM program, and ignore program variations in their state. All counselors should be alert to the effective date of any new federal law, regulation, handbook, mortgagee letter, or other official HUD policy or program change. The exam's questions and answers will be modified as needed on the effective date of any such changes.

Texas
If you are a Texas counselor, you are responsible for knowing how the national HECM program operates, and you are being tested solely on the national program. You must know, for example, how the HECM creditline works and be prepared to answer questions about it or that involve or otherwise reference it. For more information on how the HECM program differs in Texas, go to Study Materials and look for "Texas Variations" under "Technical Topics."

Effective Date
Assume, for example, that it is November 1, 2005, and you learn that a HUD mortgagee letter has announced that a change in HECM eligibility rules will become effective on January 1, 2006. If you then take the exam prior to 1/1/06, you should ignore this information because the change will have not yet gone into effect. But if you take the exam any time on or after 1/1/06, you should base you answers on the new eligibility criteria. This exam site's Study Materials also will be updated to reflect any forthcoming changes and their effective dates. 

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