If you are currently in process on a HECM reverse mortgage or are looking to apply, please don’t hestiate to reach out to us toll free (1-888-888-4834) with any questions you may have about how a Government shutdown will impact you and your family.

The below chart shows the history of US Government Shutdowns with the length of time from 1976 through 2018.

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This positive increase represents 150 percent of the Freddie Mac national conforming limit of $453,100.

Comparison of Principal Limit

This is good news for higher home value homes, especially since October 2nd changes have caused a reduction in principal limits. As you can see in the chart above, a 72 year old homeowner with a $680,000 home would receive about $22,142 additional proceeds over the prior limits (assuming a rate of 4.25%).

Brief Look at the HECM Lending Limit History

Prior to 2006, the HECM lending limit or MCA varied from county to county. In 2006, a national lending limit of $417,000 was established. Later, in 2009, Congress increased the HECM loan limit to $625,500. Then in 2017, the lending limit was increased to $636,150. Now, starting 2018, the new limit will be $679,650.

If you have questions on how the new reverse mortgage limit affects you, please don’t hesitate to call us toll free at 1-888-888-4834 or Apply Online!

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The purpose of this bulletin is to summarize the key changes to the HECM program in accordance with HUD’s Final HECM Rule. This bulletin summarizes the key changes affecting the origination of HECM loans. Additional guidance on how to implement and apply the below changes is forthcoming.

Implementation

The changes will take effect on all loans with a case number assignment date on or after September 19, 2017. The changes are not retroactive for loans with case numbers assigned prior to September 19, 2017. Existing loans will continue to operate under the existing regulations.

Summary of Origination Changes

Borrower vs Mortgagor

Borrower

The borrower is a mortgagor who is an original borrower under the HECM Loan Agreement and Note. The borrower must be a mortgagor and must be on title to the property which serves as collateral for the HECM.

Mortgagor

The mortgagor is each original mortgagor under a HECM mortgage and his or her heirs, executors, administrators, and assigns. The mortgagor is not required to be a borrower. A non-borrowing spouse is a mortgagor but is not a borrower. All mortgagors shall hold title to the entire property which is the security for the HECM loan. For purposes of this requirement, mortgagor includes a person with remainder or reversion interest.

All non-borrowing spouses and non-borrowing owners of the property that will continue to hold title to the property which serves as collateral for the HECM must sign the mortgage as mortgagors, evidencing their commitment of the property as security for the mortgage.

Reverse Mortgage Counseling

All borrowers, eligible or ineligible non-borrowing spouses, and any non-borrowing owner must receive counseling.

HECM for Purchase

The following seller contributions are now permissible on a HECM for Purchase loan:

• Fees required to be paid by a seller under state or local law
• Fees customarily paid by a seller in the subject property locality
• The purchase of a Home Warranty policy by the seller

Borrower Disbursements

The lender must ask the borrower about any costs or other obligations that the borrower has incurred to obtain the mortgage.

If the borrower requests that at least 25% of the principal limit amount be disbursed at closing to the borrower, the lender must make sufficient inquiry at closing to confirm that the borrower will not use any part of the amount disbursed for payments to or on behalf of an estate planning service firm.

A new disclosure will be required to accommodate this inquiry.

Interest Rate Locks

Mortgagees, with the agreement of the borrower, may simultaneously lock in the expected average mortgage interest rate and the borrower’s margin prior to the date of loan closing or simultaneously establish the expected average mortgage interest rate and the borrower’s margin on the date of loan closing.

HECM to HECM Refinances

In order to exercise the ability to waive counseling on any HECM to HECM Refinance transaction:

The case number must have been assigned on or after August 4, 2014 and the borrower and non-borrowing spouse, if applicable, must have both received counseling, OR
The case number must have been assigned prior to August 4, 2014 and there is no applicable non-borrowing spouse.

PLEASE NOTE: CA, MA, MN, NC, TN, TX, and VT require counseling on all HECM loans, therefore borrowers looking to refinance an existing HECM do not have the ability to waive the counseling requirement in these states.

Repair Set-asides

All repairs shall be set aside at 150% of the estimated cost of repairs, rather than 150% of a contractor’s bid and 200% of an appraiser’s bid.

Property Tax Amounts

Lenders shall use the actual amount of the current annual property taxes, or 1.04 time the prior year tax amount, if the current tax bill has not been released.

Hazard and Flood Insurance Coverage

The borrower shall insure all improvements on the property that serves as collateral for the HECM whether in existence at the time of origination or subsequently erected, against any hazards, casualties, and contingencies, including but not limited to fire and flood.

Eligibility for Additional HECM loans

Once a borrower has obtained a HECM loan, he/she is eligible to obtain a future insured HECM loan if the existing HECM is satisfied prior to or at closing of the new HECM, or the borrower provides legal documentation evidencing the release of the borrower’s financial obligations to satisfy the existing HECM (such as in cases of divorce, etc.).

Resources

For a redlined version of the HUD Final Rule click here.

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After much anticipation and speculation, the Department of Housing and Urban Development (HUD) has released a multitude of changes to the HECM program. “These changes to reverse mortgages will protect consumers,” according to Carol Galante, Federal Housing Administration (FHA) Commissioner and Assistant Secretary for Housing.

The following is a summary of the changes that were announced by Mortgagee Letters 2013-27 and 2013-28:

Initial Disbursement Limits (Effective September 30, 2013)

The new Mortgagee Letter sets limits on the amount of reverse mortgage proceeds that can be taken at closing or during the first 12-month disbursement period after the loan closes.

Single Disbursement Lump Sum Option (Effective September 30, 2013)

The intial disbursement at closing or 12 months following close is limited to 60% of the principal limit. If there are mandatory obligations, such as existing mortgages or tax liens, the initial disbursment is limited to 60% plus 10% of the principal limit.

If a borrower chooses a line of credit or monthly payment, it will be up to the servicer to make sure that they do not exceed the  of allowable limits in the 12 months.

This option is available for both fixed and adjustable rates.

Changes to Mortgage Insurance Premiums (MIP) and Principal Limit Factors (PLF) (Effective September 30, 2013)

The existing upfront MIP pricing options that were available under the Saver and Standard program have been replaced. HUD will now charge an initial MIP of 0.50 percent (0.50%), of the Maximum Claim Amount (MCA) when a borrower’s initial disbursement at closing or during the initial 12 month period after closing is 60% or less of the Principal Limit.

HUD will charge 2.50 percent (2.50%) of the MCA when a borrower’s intial draw is greater than 60% of the Principal Limit.

The new Principal Limit factors will result in roughly 15% less available proceeds than the current Standard product. To view the new PLFs click here.

Financial Assessment (Effective January 13, 2014)

The purpose of financial assessment is to evaluate the borrowers willingness and capacity to meet their financial obligations, and their ability to comply with the mortgage requirements. This came about because of an increasing number of tax and insurance defaults by HECM borrowers. It is the responsiblity of the borrower to maintain their property taxes and insurance.

Key components of underwriting a HECM includes a credit history analysis, a cash flow/ residual income analysis, analyzing compensating factors and extenuating circumstances. The good thing is that unlike many other companies that only offer reverse mortgages, MLS Reverse Mortgage has been offering both forward and reverse mortgages, which makes us extremely familiar with credit and income analysis, which will allow us to simplify the process for our borrowers.

Set-Asides (Effective January 13, 2014)

If a borrower is deemed to be a potential default risk based on the underwriting results of the financial assessment, the lender is authorized to create a Lifetime Expectancy Set-Aside (LE Set-Aside) to pay for future tax and insurance charges. The amount of the LE Set-Aside will be based on the life expectancy of the yourgest borrower. If the borrower outlives the amount set-aside, they will be required to continue making tax and insurance payments using their own means.

The full Mortgagee Letters are available by clicking here.

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The Fixed Rate Saver Program does not offer the same dollar benefit as the Standard Program, however does have some features that will make it attractive to many borrowers. Due to the lower risk of the program to HUD, the Upfront Mortgage Insurance Premium (UFMIP) is just 0.01% of the lesser of the appraised value or lending limit (currently $625,500) as opposed to the Standards 2% UFMIP. For example, a property valued $200,000 will have an UFMIP with the Saver Program of $20, while the Standard would have $4,000.

Use our reverse mortgage calculator to see how much you qualify for under either program.

For borrowers looking to maximize the amount of money available to them after March 31st, the Adjustable Rate Standard program will still be available and will provide borrowers with a greater draw amount than the HECM Saver Fixed. Some borrowers may also choose to utilize the adjustable rate standard when looking to do a purchase reverse mortgage. There has been some discussion of limiting draw amounts under the Adjustable Rate, but this current news does not address that concern.

According to Mortgagee Letter 2013-01, HUD states that the elimination of the fixed rate standard product is “to help sustain the HECM program as a viable financial resource for aging homeowners and to strengthen the Mutual Insurance Fund.” Other steps, such as financial assessments or limited draws may be on the table in the near future. It’s anyone’s guess what they think HUD’s next move will be to help preserve the Mutual Mortgage Insurance Fund.

For any questions or to get started today please call us toll free at 1-888-888-4834 or apply online. If you need the full ability and security of the fixed rate standard, now is your time to make your move.

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The CFPB reverse mortgage report spans more than 200 pages of research recently conducted by the Consumer Financial Protection Bureau and highlights several key areas that the Bureau presented to Congress. Here are three of those highlights noted by the CFPB and questions you can ask yourself to make sure you have all the necessary information before taking out this type of loan.

Finding: Spouses of reverse mortgage borrowers who are not themselves named as co-borrowers are often unaware that they are at risk of losing their homes.

The amount of reverse mortgage proceeds you can receive will depend on the amount of home equity you have and the age of the youngest borrower. For a married couple, both spouses must meet the minimum age requirement of 62.

If one of the spouses is removed from the home title, that spouse can not be named as a borrower, and therefore, does not assume home ownership if the borrowing spouse passes away or leaves the home. It is important to understand the implications of removing a spouse from the home title before making this decision.

Finding: Reverse mortgage borrowers are using the loans in different ways than in the past.

The CFPB finds the average borrower age has fallen, with more than half of borrowers in 2011 falling under the age of 70. While borrowers have the option to take the loan as a lump sum, in term or tenure payments or as a credit line, the CFPB found borrowers are most often taking the fixed rate, lump sum option.

Your lender should provide all options to you, and can walk you through the differences so that you can make an informed decision about which option is best. While the CFPB points to the younger borrower average as a concern, several recent studies have found borrowers who take the reverse mortgage as a credit line as early as possible can actually extend their retirement savings the longest.

Finding: Reverse mortgage counseling needs improvement.

The CFPB found that counseling, while designed to help consumers understand the risks associated with reverse mortgages, needs work.

Counseling is a requirement of anyone who submits an application for a reverse mortgage. Independent counseling agencies around the country receive government funding and donations in order to offer their services.

Among the CFPB’s concerns is the way counseling is funded. Typically, agencies receive their funds on an annual basis. Because the funds differ from year to year and sometimes month to month, there can be variations in cost borrowers face. Your lender is required to provide a list of agencies that offer counseling and you are welcome to shop around to find the counseling agency that is best fitting to you.

If you have questions about any of these topics or would like more information on how a reverse mortgage might work for you, contact us. We’re happy to help.

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HUD’s Mortgagee Letter about HECM for Home Purchase

October 20, 2008

MORTGAGEE LETTER 2008-33
TO: ALL APPROVED MORTGAGEES ALL HUD-APPROVED HOUSING COUNSELING AGENCIES

SUBJECT: Home Equity Conversion Mortgage (HECM) for Purchase Program

The Housing and Economic Recovery Act of 2008 (HERA) provides HECM mortgagors with the opportunity to purchase a new principal residence with HECM loan proceeds. Section 2122(a)(9) of HERA amends section 255 of the National Housing Act to authorize the Department of Housing and Urban Development (HUD) to insure HECMs used for the purchase of a 1- to 4-family dwelling unit. Accordingly, eligible mortgagors now have the opportunity to purchase a principal residence with HECM loan proceeds. HECM for purchase transactions, for which the FHA case number is assigned on or after January 1, 2009, must satisfy existing program requirements and the provisions of this Mortgagee Letter.

The Federal Housing Administration (FHA) defines “HECM for Purchase” as a real estate purchase where title to the property is transferred to the HECM mortgagor, which the mortgagor will occupy as a principal residence, and, at the time of closing, the HECM first and second liens will be the only liens against the property. HECM mortgagors must occupy the property within 60 days from the date of closing. Lenders are required to ensure all outstanding or unpaid obligations incurred by the prospective mortgagor, in connection with the HECM transaction, are satisfied at closing.

Eligible Property Types

Only properties where construction is completed, as defined in Mortgagee Letter 2007-06, are eligible for FHA insurance under the HECM for Purchase program. Loan proceeds may be used to satisfy outstanding payment obligations associated with a land contract, contract for deed or other similar purchasing arrangements that will ensure the property, which will be used as collateral for the HECM, meets FHA’s title requirements. Those requirements, as provided in section 255(b)(4) of the National Housing Act and implemented in the HECM regulations at 24 CFR 206.45, provide, in part, that the HECM must be on real estate held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having a remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.

Ineligible Property Types

The following property types are ineligible for FHA insurance under the HECM for Purchase program: · Cooperative units; · Newly constructed principal residence where a Certificate of Occupancy or its equivalent has not been issued by the appropriate local authority; · Boarding houses; · Bed and breakfast establishments; · Existing manufactured homes built before June 15, 1976; and · Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g. data plate and HUD certification label) and/or lack a permanent foundation as required in HUD’s Permanent Foundations for Manufactured Housing Guide.

Property Flipping

Prospective mortgagors should be alert to efforts to coerce them into obtaining a reverse mortgage as part of a purchase contractual obligation, or purchasing a distressed home in need of substantial repairs but being sold at or above market rate.

As such, HECM lenders must take steps to ensure that: a) only current owners of record may sell properties that will be financed using FHA-insured mortgages; b) any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing; and c) for resales that occur between 91 and 180 days where the new sales price exceeds 100% of the previous sales price, FHA will require additional documentation validating the property’s value. Lenders providing HECM financing for purchase transactions must comply with guidance provided in Mortgagee Letter 2006-14.

Refinancing and Existing Upfront Mortgage Insurance Premium (MIP)

The HECM refinance authority is only applicable when the property that serves as collateral for FHA-insurance remains the same. Therefore, existing HECM mortgagors who participate in a HECM for Purchase transaction are ineligible for a reduction of the upfront MIP and lenders must enter the transaction into FHA Connection as a new HECM.

Monetary Investment

Consistent with existing policy, the maximum claim amount and principal limit will continue to be calculated in accordance HECM regulations at 24 CFR 206.3, HUD Handbook 4235.1 REV-1, and applicable MLs. At closing, HECM mortgagors must provide a monetary investment which will be applied to satisfy the difference between the HECM principal limit and the sales price for the property, plus any HECM loan related fees that are not financed or offset by other allowable FHA funding sources. HECM mortgagors may choose to provide a larger investment amount in order to retain a portion of the available HECM proceeds for future draws.

Required Investment Examples

* Appraised Value/MCA is defined as the maximum claim amount and is used to determine the principal limit which is the lesser of the appraised value or the FHA national mortgage limit. The principal limit is the maximum amount available to the HECM mortgagor.

** Assumes the age of the youngest HECM mortgagor is 67 and a principal limit factor of .665 for a 5% expected average mortgage interest rate.

In each example above, loan fees are deducted from the principal limit of the HECM. However, it is not required that loan fees be deducted from HECM proceeds. The mortgagor may pay loan fees as part of the required monetary investment and use all HECM proceeds toward the purchase transaction.

Funding Sources

HECM mortgagors must use cash on hand or cash from the sale or liquidation of the mortgagor’s assets for the required monetary investment.

Verification of Funding Sources

Lenders will be required to verify the source of all funds prior to closing. A verification of deposit, along with the most recent bank statement, may be used to verify savings and checking accounts. If there is a large increase in an account, or the account was opened recently, the lender must obtain a credible explanation of the source of those funds. Such documentation must be provided in the FHA case binder. Failure to provide the necessary documentation may result in a notice of rejection and delay of endorsement.

Gap Financing

Consistent with existing regulatory requirements at 24 CFR 206.32(a), HECM mortgagors may not obtain a bridge loan (also known as “gap financing”) or engage in other interim financing methods to meet the monetary investment requirement or payment of closing costs needed to complete the purchase transaction. This restriction includes subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending commitment that cannot be satisfied at closing.

Gap Financing Example

A prospective HECM mortgagor completes the required reverse mortgage counseling and receives an estimate stating the required monetary investment could be $25,000. The prospective HECM mortgagor has $20,000 in liquid assets but is short the remaining $5,000. The prospective HECM mortgagor cannot take $5,000 from a credit card or obtain interim financing in order to deposit the money into their banking account in anticipation of being required to bring this amount to closing. However, the prospective HECM mortgagor may obtain the $5,000 from an allowable FHA funding source.

Enhanced Counseling

HUD-approved housing counseling agencies that have been approved to provide reverse mortgage counseling, must counsel those who anticipate using the HECM for Purchase option on all topics covered in this Mortgagee Letter and other HUD requirements and issuances.

Right of Rescission

The three-day right of rescission period is not applicable to HECM for Purchase transactions. Therefore, all initial advances may be disbursed on the day of closing by the settlement agent. However, FHA encourages lenders to seek their counsel’s opinion to assure compliance with Federal or State laws.

Closing Guidance

Lenders are required to ensure the property, when used as collateral for the HECM, meets the following property requirements:

· Will serve as the principal residence of the HECM mortgagor. · Construction is complete and a certificate of occupancy or its equivalent has been issued. · Any construction loan financing for the property, which will serve as the collateral for the HECM loan, is satisfied and the HECM liens will be in a first and second lien position and, at the time of closing, no other liens against the property exist.

Consistent with existing lending practices, lenders are responsible for determining whether a particular HECM loan is open or closed-end credit. In accordance with 24 CFR 206.43, lenders must comply with the regulatory disclosure requirements.

Sincerely,

Brian D. Montgomery
Assistant Secretary for Housing-
Federal Housing Commissioner

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The language in the bill is as follows:

SEC. 12004. FHA REVERSE MORTGAGE LOAN LIMITS FOR2009.

For mortgages for which the mortgagee issues credit approval for the borrower during calendar year 2009, the second sentence of section 255(g) of the National Housing Act (12 U.S.C. 171520(g)) shall be considered to require that in no case may the benefits of insurance under such section 255 exceed 150 percent of the maximum dollar amount in effect under the sixth sentence of section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)).

This would bring our loan limit to 150% of the Freddie Mac limit, or $625,500. If the Freddie Mac limit changes, the HECM limit would change commensurately.

This change is being offered as a temporary measure, thru 2009 only, because it is part of an emergency economic stimulus package. A permanent change would have to be enacted through a more appropriate housing bill.

This bill must still be marked-up in Committee, then brought to the House floor for debate and a vote. After that, it must go through the Senate, so it still has a way to go.

In the Senate, we have previously faced some opposition to higher HECM loan limits. We are working to try to overcome this reluctance, so we can keep our provision intact as deliberation on this bill continues.

In any case, this is an important first step in the process. We thank House Financial Services Committee Chairman Barney Frank and his staff for their assistance in seeing this HECM provision included in the stimulus bill.

Source: Peter H. Bell (President, NRMLA)

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