Subcontracting (under Foreclosure Counseling Fee Structures)

The next most common funding models are focused within the sub-contracting model of funding. This funding model involves an HCA subcontracting with a mortgage investor to complete a statement of work including provision of counseling services to the investor’s portfolio of borrowers. This funding model is based on a fee for service model, wherein the HCA receives either a payment for services rendered or payment based on a set of prescribed outcomes. In many cases a base fee for service is provided with an incentive payment for a borrower’s resumed steady payment history. This fee structure is generally designed to provide the housing counseling agency with a payment between $300 and $1,000 per client to complete work related to resolving the mortgage delinquency on behalf of the mortgage investor.

Pre-Purchase Counseling Fee Structures Lender Paid

Pre-purchase counseling provides mortgage lenders with educated and confident customers, which can make the application process proceed more smoothly, with fewer surprises and a higher chance for high performance across the life of the mortgage loan. The investment into pre-purchase housing counseling is likely to return a greater profit margin than those who choose to not promote and invest into pre-purchase counseling.

Homeownership Counseling

The most common form of fee for service within pre-purchase counseling is the payment of a fee by a mortgage lender to an HCA for counseling prospective borrowers about the pro and cons of homeownership. In many cases this payment is irrespective of whether the client chooses to proceed with a loan closing.

Pre-purchase Counseling

In other cases the mortgage lender has defined pre-purchase counseling as an underwriting requirement that must be completed prior to a loan closing. The fees paid by a mortgage lender can range from $25 for a customer’s attendance at a homeownership education workshop, to a payment of $500 for a combination of pre-purchase counseling and post-purchase education. In some cases a mortgage insurance company or other party with a financial interest in the transaction will invest in this service.

Down Payment Assistance Counseling

Many down payment assistance programs have a pre-purchase counseling/ education requirement. In many cases a down payment assistance program will pay for the cost of pre-purchase counseling services.

Define Strict Conflict Of Interest Statements And Disclosures

In any funding model, it is important to define strict conflict of interest statements and disclosures to avoid even the appearance of a conflict of interest. When developing a fee structure for a pre-purchase counseling program, it is very important to avoid a fee structure where an HCA’s compensation is based on the terms, conditions, or size of a mortgage loan transaction. See the HUD Housing Counseling Handbook for both conflict of interest guidance as well as steps to avoid lender steering issues. Once an HCA decides to enter into a relationship with a lender, HUD requires that the HCA enter into a Memorandum of Understanding (MOU), signed by both parties, to formalize the relationship. This MOU must state that:

1. The client will choose between comparable products from at least three different lenders.
2. The fee income is based on services rendered, NOT on the amount of the loan.
   

Client Paid

Charging a client for pre-purchase counseling is an effective manner in which to engage the client in the counseling process. By charging a fee for pre-purchase counseling a client is more invested in the process of learning. While HUD requires any client based fees to allow for a hardship waiver, it is acceptable and commonly practiced to charge clients for pre-purchase counseling.