May 27, 2015
There have been many changes to the FHA HECM (Home Equity Conversion Mortgage) program in recent months. If you are a qualified HECM loan applicant exploring your options now after having researched them a year or two ago, it’s likely you will need to re-familiarize yourself with the FHA HECM rules and regulations as many have had important changes made.
HECM loans still feature the usual conditions–failing to use the home as the primary residence, for example, can still result in the HECM loan being declared due in full. That hasn’t changed, but some other conditions that trigger a due-in-full demand have.
One such change involves when a HECM loan can be declared due in full because of failure to meet HECM loan “property charge” requirements. Did you know that a failure to pay property taxes can and sometimes does cause a HECM loan to be declared due in full?
FHA mortgagee letter 2015-11 has details on this, especially where certain arrangements are made between borrower and lender on how those property charges are to be paid. “Mortgagees are permitted to make property charge payments on behalf of mortgagors, who are borrowers on the HECM note, from the mortgagors funds, available under the HECM. If the mortgagor has insufficient funds available under the HECM to satisfy these unpaid property charges, the mortgagor is in default, the mortgage is eligible to be called due and payable, and the mortgagee must submit a due and payable request.”
HECM borrowers have 30 days to respond to such notifications and “Due and Payable” notices as mentioned above must include loss mitigation options as instructed by FHA guidelines.
Additionally, “During a Deferral Period, a mortgagee may not make property charge payments using HECM proceeds as no further disbursements are available under the HECM. If a property charge payment is missed during a Deferral Period, the mortgagee must notify any Eligible Non-Borrowing Spouse that an obligation of the mortgage was not satisfied and that the Deferral Period is ending unless the default is cured within 30 days.”
These are important changes to the program borrowers should know. FHA loan rules also state that if the above condition (curing the default within 30 days) is not met, foreclosure actions may be taken.
There are also rules for HECM borrowers who have set-aside accounts for paying property taxes. We’ll cover that in a future blog post.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for review.
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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