Articles in Category: Reverse Mortgage or HECM

March 31, 2015

FHA Clarifies Rules For FHA HECM Loans

The FHA and HUD have clarified rules that govern how FHA Home Equity Conversion Mortgage Loans are handled with regard to “life expectancy set-asides” and calculation of property taxes as part of a borrower’s debt-to-income ratio. FHA Mortgagee Letter 2015-09, “establishes a monthly growth rate for Life Expectancy Set-Asides and clarifies a discrepancy between the HECM Financial Assessment and Property Charge Guide and the model HECM Financial Assessment Worksheet transmitted with Mortgagee Letter 2014-22.” What is a “life expectancy set-aside” and how does the new clarification affect it? According to the FHA, “The Life Expectancy Set-Aside (LESA) is used for the payment of property taxes, and hazard and flood insurance premiums, and will increase each month at a rate equal to one-twelfth of the sum of the mortgage interest rate | more...

February 9, 2015

FHA HECM Loans and Appraisals: A Reader Question

By Joe Wallace

A reader asks, “I am in the process of getting a reverse mortgage loan based on the approximate value of my home. If the Appraised value is considerably less than initially expected and/or extensive repairs are required to comply, do I have the option to back out of the loan process?” Without more information, this question is difficult to answer. How far along is the HECM loan process? Has the reader signed any legally binding paperwork that commits him or her to closing the deal? These are important questions to ask and borrowers in these cases should approach the lender directly for assistance. If the borrower feels that he or she has not signed a contract or other legally binding document that commits the HECM loan to close, yet feels | more...

April 28, 2014

FHA Updates HECM Loan Rules

By Joe Wallace

The FHA has issued a new Mortgagee Letter updating the rules of the FHA Home Equity Conversion Mortgage (HECM) loan program. Mortgagee Letter 2014-07 announces rule changes for HECM loans that feature a non-borrowing spouse. “This Mortgagee Letter uses the authority granted HUD in the Reverse Mortgage Stabilization Act of 2013 to amend the Federal Housing Administration’s (FHA) HECM program regulations and requirements concerning due and payable status where there is a Non-Borrowing Spouse at the time of loan closing.” What are the rule changes? We’ll cover them in depth in another blog post, but essentially the HECM loan program has been modified to further protect the interests of a non-borrowing spouse in cases where the HECM loan borrower dies. “For many years, Non- Borrowing Spouses were able to refinance | more...

November 8, 2013

FHA HECM Loans

By Joe Wallace

FHA Reverse Mortgages, also known as Home Equity Conversion Mortgages or HECM loans, are designed for qualified borrowers aged 62 or older who own their home or have very few payments left on the home. There are three basic types of FHA HECM loans: Traditional (Equity in current property used to obtain a new HECM loan) Purchase (HECM loan proceeds used to purchase a principal residence) Refinance (Refinance of an existing HECM loan with a new HECM loan) The FHA loan rulebook, HUD 4155.1, says of HECM loans that the following properties can be used to secure the reverse mortgage/HECM: 1 Unit (Single Family Residence) 2-4 Unit with one unit occupied by the borrower HUD-approved Condominium Project Manufactured home built after June 15, 1976 Borrowers who are age-eligible to | more...

September 17, 2013

FHA Reverse Mortgage (HECM) Guidelines: Credit Issues

By Joe Wallace

Recently the FHA issued new rules and instructions to the lender that affect how FHA Reverse Mortgages or Home Equity Conversion Mortgages are processed. According to FHA Mortgagee Letter 2013-28, effective for all HECM case numbers assigned on or after January 13, 2014, the lender, “must perform a financial assessment of all prospective mortgagors on all HECM transaction types, i.e., traditional, refinance, and purchase.” What does that mean for the HECM loan applicant? For starters, when you apply for an FHA reverse mortgage or HECM, the lender is charged with doing the following things with your application data according to Mortgagee Letter 2013-28: performing the credit history analysis. performing the cash flow/residual income analysis; documenting and verifying credit, income, assets and property charges evaluating extenuating circumstances | more...

September 12, 2013

FHA HECM Program Changes: Mandatory Obligations

By Joe Wallace

Recently the FHA and HUD announced changes to the FHA Home Equity Conversion Mortgage, also known as HECM. Those changes include new guidelines for the maximum amount of HECM loan funds that can be transferred to the borrower at the time the HECM loan closes or within the first 12 months of the HECM loan, as well as “what fees and charges are considered Mandatory Obligations” according to the new rules. According to FHA mortgagee letter 2013-27, a new “Single Disbursement” lump sum payment may be possible for borrowers applying for both adjustable and fixed interest rate HECM loans applicable for all FHA HECM loan case numbers assigned on or after September 30, 2013. “This payment option will be limited to a single disbursement at loan closing which cannot exceed | more...

September 11, 2013

FHA Home Equity Conversion Mortgage Loan Program Changes

By Joe Wallace

Recently the FHA and HUD issued a press release announcing changes to the FHA Home Equity Conversion Mortgage (HECM) program. While the entire list of changes is far too extensive to cover in a single post, we want to list the most important ones over a series of posts. According to the FHA/HUD press release, the recent changes are, “part of the Department’s continuing effort to reform, strengthen and protect FHA’s Mutual Mortgage Insurance (MMI) Fund” that are intended to “realign the HECM program with its original intent which will aid in the restoration of the MMI fund and help ensure the continued availability of this important program,” according to Federal Housing Commissioner Carol Galante. “Our goal here is to make certain our reverse mortgage program is a financially sustainable | more...

September 10, 2013

HUD Announces Changes To FHA Home Equity Conversion Mortgage Program

By Joe Wallace

The FHA and HUD have announced changes to the FHA Home Equity Conversion Mortgage program designed to manage risks and make the program more secure. According to a press release issued recently, the new rules will, “manage risk associated with the Federal Housing Administration’s (FHA) reverse mortgage or Home Equity Conversion Mortgage (HECM) Program. This is part of the Department’s continuing effort to reform, strengthen and protect FHA’s Mutual Mortgage Insurance (MMI) Fund” “The changes being announced today will realign the HECM program with its original intent which will aid in the restoration of the MMI fund and help ensure the continued availability of this important program,” said Federal Housing Commissioner Carol Galante. “Our goal here is to make certain our reverse mortgage program is a financially sustainable option for | more...

August 2, 2013

FHA Reverse Mortgage Program To Get Changes

By Joe Wallace

A recent article published by American Banker observes that lawmakers in Washington D.C. have passed legislation authorizing the FHA and HUD to make changes to the FHA Home Equity Conversion Mortgage program, also known as FHA HECM. The changes have not yet been signed into law by President Obama. But according to the Reverse Mortgage Stabilization Act passed by the House in June 2013 and now by the Senate in July 2013, “the agency can make certain changes by mortgagee letter, such as requiring financial assessments of a borrower’s budget and limiting the amount borrowers can take out as a lump sum up front” according to the American Banker article, titled Congress Passes Narrow Bill to Fix Reverse Mortgages at FHA. “Carol Galante, the agency’s commissioner, implored lawmakers on | more...

April 3, 2013

New FHA Home Equity Conversion Mortgage Rules Take Effect

By Joe Wallace

In January of 2013, the FHA announced pending rule changes to its Home Equity Conversion Mortgage program (FHA HECM for short). Those changes were scheduled to take effect on 1 April 2013 and are now in full effect. In the FHA Mortgagee Letter HUDNo.13-010, the agency announced, “…the consolidation of the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) Standard and HECM Saver initial mortgage insurance premium (MIP) and maximum principal limit factors for fixed interest rate mortgages.” The announcement states that the HECM Saver program is, as of 1 April 2013, the “only initial MIP option available to mortgagors who seek the predictability of a fixed interest rate mortgage and lower upfront closing costs.” The announcement adds, “Mortgagees shall designate HECM Saver as the initial MIP and use | more...