March 6, 2013
Earlier this year, the FHA and HUD issued new guidelines regarding the FHA Home Equity Conversion Mortgage Loan program also known as HECM. Important changes are coming to this home loan program which is designed for those age 62 or older.
According to FHA Mortgagee Letter 2013-01, the changes are effective for all HECM fixed-rate case numbers assigned on or after April 1, 2013.
What are these changes and why are they occurring? According to the mortgagee letter, “To help sustain the HECM program as a viable financial resource for aging homeowners and to strengthen the Mutual Mortgage Insurance Fund, the HECM Saver will be the only initial MIP option available to mortgagors who seek the predictability of a fixed interest rate mortgage and lower upfront closing costs”.
This means lenders “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…”
Pay careful attention to that last line, it’s a very important distinction to make when choosing a HECM loan option.
Under these new guidelines, HECM Saver loans are available for the following:
–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);
–All five payment plans (tenure, term, line of credit, modified tenure and term
The FHA points out something important relating to the HECM deadline. According to the mortgagee letter,”All fixed interest rate mortgages that were assigned an 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.”
Do you have questions about FHA loans or FHA refinancing 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.
Browse by Date: