FHA Condo Approval Specialist: New Guidelines for FHA Reverse Mortgages (HECMs)

New Guidelines for FHA Reverse Mortgages (HECMs)

New Guidelines for FHA Reverse Mortgages (HECMs)

HECM program changesHUD 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.

fha condo approvalThe 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 askeric@readysetloan.com or call me at 404-433-4565. I will be happy to answer any of your questions.

 


FHA/VA Condo Approval Specialist

404-433-4565 Cell Phone

860-644-3772 Fax Phone

eric.boucher@readysetloan.com
ready set loan condo team

 

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Comment balloon 6 commentsReadySetLoan Condo Approval Team • June 20 2014 04:32AM

Comments

Eric, I agree that you need to keep abreast of all changes to FHA programs, but I do not agree that HECM products are good for older Americans. And the marketers of reverse mortgages do advertise deceptively and they charge the maximum fees allowed by law, not a market driven fee structure. Seniors are "programmed"  to look at how much they can get, not how much it will cost them.

Bill Roberts

Posted by Bill Roberts, "Baby Boomer" Retirement Planner (Brooks and Dunphy Real Estate) over 4 years ago

The only time I want to go to DC is when it is not snowing. Getting a mortgage these days is getting oh so complicated with all the rules and this reverse mortgage stuff is no exception. I've heard too many stories of seniors getting them and not being fully informed. They need a trustworthy adviser like you, Eric.

Posted by Teral McDowell (Referral Patners LLC) over 4 years ago

Reverse mortgage is very tempting, but I have very little understanding of it. Mortgage part has always been not easy for me :)

Excellent post, Eric.

Posted by Jon Zolsky, Daytona Beach, FL, Buy Daytona condos for heavenly good prices (Daytona Condo Realty, 386-405-4408) over 4 years ago

Good morning Eric. Thank you for sharing the highlights to the new guidelines. This loan product is not for everyone, but can be a lifesaver for some.

Make it a great weekend!

Posted by Joe Petrowsky, Your Mortgage Consultant for Life (Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709) over 4 years ago

Hi Eric.  So what was essentially a line of credit is no more?

Posted by Conrad Allen, Webster, Ma, Realtor (Re/Max Professional Associates) over 4 years ago

Hi Bill - I agree that many seniors are duped by less ethical loan officers.  Reverse mortgages can be every expensive but they can be very useful to the right borrower.

That is definitely one of the challenges that face seniors, Teral, but I think that is true of any sales industry.

Thank you, Jon.  You have clearly spent your time becoming an expert in the Daytona condo market so you don't "lose points" for not knowing everything about mortgages.

I know that you will allow your clients to only use a reverse mortgage when it benefits them, Joe

Hi Conrad - from what I read, the "line of credit" option is not available for the fixed rate program, only the adjustables.

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) over 4 years ago

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