February 5, 2013
The FHA has issued a press release and Mortgagee Letter describing changes to the FHA Home Equity Conversion Mortgage (HECM) program. According to the FHA official site, the FHA will merge certain options associated with the HECM program and the FHA HECM Saver program as described below:
“…FHA will consolidate its Standard Fixed-Rate Home Equity Conversion Mortgage (HECM) and Saver Fixed Rate HECM pricing options. This change will be effective for FHA case numbers assigned on or after April 1, 2013. The Fixed Rate Standard HECM pricing option currently represents a large majority of the loans insured through FHA’s HECM program and is responsible for placing significant stress on the MMI Fund.”
The FHA press release adds, “To help sustain the program as a viable financial resource for aging homeowners, the HECM Fixed Rate Saver will be the only pricing option available to borrowers who seek a fixed interest rate mortgage. Using the HECM Fixed Rate Saver for fixed rate mortgages will significantly lower the borrower’s upfront closing costs while permitting a smaller pay out than the HECM Fixed Rate Standard product, thereby reducing risks to the Mutual Mortgage Insurance Fund.”
What does this mean for those interested or currently applying for the FHA HECM program?
FHA Mortgagee Letter 2013-01 states, “All fixed interest rate mortgages that were assigned a FHA case number on or before March 31, 2013, may be processed as either a HECM Standard or HECM Saver as the initial MIP; but any fixed interest rate HECM Standard mortgage must close on or before July 1, 2013.”
On and after April 1, 2013, FHA loan rules now state, “Mortgagees shall designate HECM Saver as the initial MIP and use the HECM Saver principal limit factors to determine the amount of funds available to the mortgagor. For HECM Saver, the initial MIP, which is collected at the time of closing, will remain at 0.01 percent (0.01% or 0.0001) of the maximum claim amount. The annual MIP for HECM Saver will remain at an amount of 1.25 percent (1.25%) of the outstanding loan balance. Mortgagors may still use the HECM Standard initial MIP option, but only with adjustable interest rate mortgages.”
FHA loan rules as described in Mortgagee Letter 2013-1 state that HECM Saver is available for the following types of mortgages:
- Fixed interest rate mortgages;
- Adjustable interest rate mortgages (monthly and annual);
- All interest rate indices (Constant Maturity Rate and London Interbank Offered Rate);
- All HECM transaction types (traditional, purchase and refinance); and
- All five payment plans (tenure, term, line of credit, modified tenure and term).
For more information on these changes, contact the FHA directly at 1-800 CALL FHA
Do you have questions about FHA loans or FHA refinance loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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