NEW FHA REVERSE MORTGAGE GUIDELINES
Sources: NRMLA (www.reversemortgage.org)
All Reverse Mortgage Company (Elimination of HECM Advisor Programs -
HUD will be issuing a Mortgagee Letter by the middle of September, 2008 eliminating any so-called “HECM Advisor” programs. Because the law requires that, “All parties that participate in the origination of a mortgage to be insured under this section shall be approved by the Secretary,” once the forthcoming HUD Mortgagee Letter is issued and takes effect, only employees of FHA-approved lenders and correspondents will be permitted to participate in the origination of HECMs.
Maximum HECM Loan Limit –
HUD’s lawyers have still not resolved whether the bill creates a single national loan limit at $417,000 or $625,500, or area limits at 115% of area median home value, with a floor of of $417,000 and a cap of $625,500. If, in the end, the lawyers conclude that there is a single national loan limit at either of the two option levels, HUD will be able to implement that fairly quickly, probably with a Mortgagee Letter issued by October 1 that would take effect on November 1. If the lawyers conclude that the maximum loan limit will be based on the 115% of area median standard, it will take until January 1, 2009 to implement. We hope to get the lawyers’ final decision within the next day or so. HUD expressed serious concern about companies marketing with new loan limits before the Department actually figures out what those limits might be. Companies that do so might find themselves subject to disciplinary action for false or misleading advertising, so we advise you to wait until the issue is resolved before sending out any marketing information based on new loan limits. Also, such advertising would be a violation of NRMLA Code of Ethics & Professional Responsibility, leading to sanctions by the Association.
New Limitation on HECM Origination Fees –
The new formula for maximum origination fees -- 2% of first $200,000 of maximum claim amount, plus 1% of the balance above $200,000, to a maximum origination fee of $6,000 – will become effective concurrently with the implementation of the new HECM loan limits. The Mortgagee Letter that will be issued to implement this will raise the “floor” on HECM origination fees, probably to $2,500. A Mortgagee Letter will implement the origination fee limitations and the new loan limits simultaneously.
HECM for Home Purchase can be implemented fairly quickly and should be operational by November 1.
HECM for Coops will be implemented by a Mortgagee Letter that covers coops under both FHA forward and reverse mortgage programs. That HUD Mortgagee Letter is probably a few months away.
Elimination of Waiver of Upfront MIP for LTC Insurance -
The authority allowing HUD to waive the upfront mortgage insurance premium in cases where the proceeds from a HECM would be used to purchase long-term care insurance has been repealed. This provision had been on the books since the 2000 Housing Act, but was never implemented. The McCaskill Amendments have resulted in a few new provisions being added to the law:
Payments for Counseling -
Effective upon issuance of a Mortgagee Letter within the next thirty days, lenders will no longer be permitted to pay for HECM counseling, either directly or indirectly, under any circumstances whatsoever. Sometime this Fall, HUD will also begin requiring all individuals on the roster of approved HECM counselors to have passed the counseling exam. Individuals currently doing HECM counseling will have up to six months to pass the exam; new counselors will have to pass before beginning counseling. New counseling protocols will also be implemented this Fall.
The law calls for HUD to consider utilizing some of its FHA Mortgage Insurance Premium income to pay counseling costs, but HUD’s lawyers have determined that this provision is flawed and would violate federal credit reform requirements and is impossible to do.
Cross Sales of Financial and Insurance Products -
As far as the new language requiring lenders to have “safeguards and firewalls” to make sure individuals do not have any incentives for cross-sales of other financial or insurance products with HECMs, HUD will be issuing a Federal Register notice soliciting industry input on how to implement this provision. It will take a few months before they can do this. However, in the meantime, NRMLA members should be forewarned that the new law is in effect -- even though no guidance will be issued for a while -- so you are advised to consult with your own counsel and take steps to assure you do not run afoul of this legislative language.
BILL LADEWIG
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