HUD released two Mortgagee Letters this week that provided new guidance for the Home Equity Conversion Mortgages (HECMs or reverse mortgages). Mortgagee Letter 2014-11 deals directly with program changes. Mortgagee Letter 2014-10 reminds mortgagees about deceptive advertising practices.
In my field of FHA condo approvals, it is in my best interest, and the best interest of current and future clients, that I stay abreast with all FHA program changes. The HECM loan program is not a well-known program in the condominium community. FHA HECMs are not available to Seniors in condominiums that are not on the FHA Approved Condominiums List.
In ML14-11, HUD discusses the need for HECM program changes due to the risk that it presents to the Mutual Mortgage Insurance Fund (MMIF), the coffers that allows FHA to financially back its loan products. Following the Fiscal Year 2013 Annual Report to Congress, serious risks were identified in the HECM program as well as additional capital to fund future losses.
One of these risks include HECMs that allow for fixed rate options with multiple draws. The inherent problem with this is that if the interest rate is set at origination/closing and rates increase, future draws would be available to the mortgagor at below-market rates.
To address this, fixed rate HECMs will only allow a single draw at the time of closing. No future draws will be allowed for any reason with the fixed rate option. Mortgagors will also be required to pay all property charges and will not be able to elect to have the mortgagee pay these charges.
Adjustable interest rate HECMs will not have the Single Disbursement option and will only be available for payment plan options of either Tenure, Term, Line of Credit, Modified Tenure or Modified Term.
The Mortgagee Letter discusses many other changes to the HECM program, including determining the principal limit amount and the borrower’s advance. These topics are beyond the scope of this article. If you work with the HECM product, it is imperative that this Mortgagee Letter be read in its entirety.
Mortgagee Letter 2014-10 is a reminder regarding using misleading or deceptive program descriptions or advertising. While this Letter was released first chronologically, it comes on the heels of ML14-11 and makes direct reference to the changes to the HECM program made in that Letter.
HUD identified that with the recent changes made to HECMs, it opens the door to potential misleading program descriptions and advertising. HUD has also been made aware of marketing strategies used to encourage borrowers to obtain HECMs.
In ML14-11, HUD requires that marketing materials must include a disclaimer that clearly informs the public that said materials are not from HUD or FHA and the documents were not approved by HUD or a Government Agency.
Failure to comply with ML14-11 and all earlier guidance will result in sanctions including civil monetary penalties or administrative action to any entity or person including non-institutions or individuals.
Image credits: me. (I need to go back to DC to take a new picture of the HUD building when it isn't snowing.)
The Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their approvals with FHA and the VA or become recertified with FHA. We have assisted nearly 200 condominiums and we can help your association.
ReadySetLoan is an active member of the Connecticut and New England chapters of the Community Associations Institute (CAI) and is a frequent contributor to Common Interest Magazine as an expert in FHA/VA condominium project approvals.
Please contact us with any questions regarding FHA or VA condominium project approvals. You can email me at firstname.lastname@example.org or call me at 404-433-4565. I will be happy to answer any of your questions.
FHA/VA Condo Approval Specialist
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Check out our article in Common Interest magazine on page 19!