As published in Scotsman Guide's Residential Edition, April 2009.
Brokers who work or plan to work with reverse mortgages should be aware of recent rule changes affecting how the federal government insures these loans.
This past September and October, the U.S. Department of Housing and Urban Development (HUD) released four mortgagee letters about Home Equity Conversion Mortgages (HECMs) -- reverse mortgages that the Federal Housing Administration (FHA) insures. These letters can be thought of as memos of instruction that communicate HUD policies.
On the Web ___________________________
For more information on this past September's and October's U.S. Department of Housing and Urban Development (HUD) reverse-mortgage letters, check out their full text:
Mortgagee Letter No. 2008-24: bit.ly/2008-24
Mortgagee Letter No. 2008-28: bit.ly/2008-28
Mortgagee Letter No. 2008-33: bit.ly/2008-33
Mortgagee Letter No. 2008-34: bit.ly/2008-34
According to various sources, HECMs comprise more than 90 percent of all reverse-mortgage loans written in the United States. The national loan limit for HECMs for the remainder of the year is $625,500 -- raised from $417,000 this past February. Private companies, on the other hand, can offer larger reverse mortgages.
More than 112,000 HECMs were originated in fiscal year 2008, and that number is expected to grow this year. In addition, more than 90 percent of HECM borrowers said that the loan has had a positive impact on their life, according to an AARP survey.
Although some private reverse-mortgage lenders offer products to borrowers ages 60 and older, federal law mandates that HECM borrowers be at least 62 years old. To gain a better understanding of HECMs, mortgage brokers should keep up with recent changes. Here's a look at four important mortgagee letters released in late '08.
Letter No. 2008-24
This letter, dated this past Sept. 16, prohibits HECM originators from selling or participating in the sale of other financial or insurance products. This provision is primarily aimed at the sale of annuities, along with the so-called cross-selling of other financial products. The letter also prohibits lenders from conditioning loan approval on the purchase of any other financial or insurance product.
The letter also disallows the payment of any origination funds to anyone other than an FHA-approved entity. This provision ended the informal FHA/HECM-adviser program, through which mortgage brokers and lenders who were not FHA-approved received about 25 percent of the origination fee for educating the borrower about the process and performing other duties.
In addition, this letter rescinded Mortgagee Letter No. 2008-14, released this past May 16, which detailed the process by which a non-FHA-approved entity could be compensated for rendering services related to the reverse-mortgage loan.
Letter No. 2008-28
Published this past Sept. 29, this letter prohibits lenders from paying for the borrower's HECM counseling. Mortgagee Letter No. 2008-12, released the previous May 6, allowed lenders to do so.
As such, lenders may no longer pay counselors directly or indirectly either through a lump-sum payment or on a case-by-case basis.
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