Reverse Mortgage Final Rule (HECM Final Rule)
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.
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
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.
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
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.
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.).
For a redlined version of the HUD Final Rule click here.