Change is in the air. Mortgagee Letter ML 2014-21 spelled out a few new changes to the HECM reverse mortgage program. The one change garnering all of the attention has been financial assessment, which starts 3/2/15, however the change to the reverse mortgage seasoning requirement deserves some attention as well and it begins much sooner; 12/15/14.
Effective for case numbers assigned on or after December 15, 2014, the payoff of existing non-HECM mortgage liens using HECM proceeds is only permitted if the liens have been in place for more than 12 months or resulted in less than $500 cash to the borrower, whether at closing or through cumulative draws (e.g.., as with a Home Equity Line of Credit (HELOC)) prior to the date of the initial HECM loan application.
Those considering a reverse mortgage who have taken out a home mortgage or HELOC in the past 12 months should pay close attention to this rule.
If you have done a refinance within the past 12 months and took more than $500 out at closing, then you will need to wait the full 12 month period in order to be able to be eligible for a reverse mortgage, if you need the proceeds of the reverse mortgage to pay off that loan. If you did a refinance and didn’t take any money out, then you will not have any seasoning requirements.
We see several homeowners who have been living off their HELOC and as such have taken much more than $500 cumulative over 12 months. The draws of greater that $500 only apply to HELOCs that are less than 1 year old. If the HELOC was taken out more than 12 months prior to application, then the cumulative draw doesn’t apply.
Those with no draws on their line of credit will not have the 12 month seasoning requirement.
We are nearing the December 15, 2014 deadline very quickly. If you have been considering a reverse mortgage and are in the category of having a HELOC that is less than 12 months old that you’ve taken more than $500 cumilative cash out or have a refinance in the past 12 months in which you took out more than $500, then you should give serious consideration about starting the process now or be prepared to wait the 12 month seasoning period.
You can avoid the seasoning period if the lien is paid off using funds that are not from the reverse mortgage.
Read our Lien Seasoning FAQ for more info.
For any questions or concerns, please don’t hesitate to call us toll free at 1-888-888-4834 or request information online and note in the comment box that “reverse mortgage seasoning pertains to you.”
Below is the clip from ML 2014-21: