President Bush recently signed into law the FHA Modernization Bill which will bring much needed change and improvement to the reverse mortgage industry. That's the good news, the bad news is we are still waiting for HUD to issue a mortgagee letter to clarify the application of the legislation.
This is an overview of the new law.
Maximum HECM Loan Limit – HUD’s lawyers have still not resolved whether the bill creates a single national loan limit at $417,000 or $625,500, or area limits at 115% of area median home value, with a floor of of $417,000 and a cap of $625,500. If, in the end, the lawyers conclude that there is a single national loan limit at either of the two option levels, HUD will be able to implement that fairly quickly, probably with a Mortgagee Letter issued by October 1 that would take effect on November 1. If the lawyers conclude that the maximum loan limit will be based on the 115% of area median standard, it will take until January 1, 2009 to implement.
New Limitation on HECM Origination Fees – The new formula for maximum origination fees -- 2% of first $200,000 of maximum claim amount, plus 1% of the balance above $200,000, to a maximum origination fee of $6,000 – will become effective concurrently with the implementation of the new HECM loan limits. The Mortgagee Letter that will be issued to implement this will raise the “floor” on HECM origination fees, probably to $2,500. A Mortgagee Letter will implement the origination fee limitations and the new loan limits simultaneously.
HECM for purchase and Coops
HECM's are now available for use to purchase homes for seniors age 62 or older.HECM for Home Purchase can be implemented fairly quickly and should be operational by November 1. HECM for Coops will be implemented by a Mortgagee Letter that covers coops under both FHA forward and reverse mortgage programs.
Elimination of Waiver of Upfront MIP for LTC Insurance - The authority allowing HUD to waive the upfront mortgage insurance premium in cases where the proceeds from a HECM would be used to purchase long-term care insurance has been repealed. This provision had been on the books since the 2000 Housing Act, but was never implemented.
Elimination of HECM Advisor Programs - HUD will be issuing a Mortgagee Letter within the next 30 days eliminating any so-called “HECM Advisor” programs. Because the law requires that, “All parties that participate in the origination of a mortgage to be insured under this section shall be approved by the Secretary,” once the forthcoming M.L. is issued and takes effect, only employees of FHA-approved lenders and correspondents will be permitted to participate in the origination of HECMs.
Payments for Counseling - Effective upon issuance of a Mortgagee Letter within the next thirty days, lenders will no longer be permitted to pay for HECM counseling, either directly or indirectly, under any circumstances whatsoever. Sometime this Fall, HUD will also begin requiring all individuals on the roster of approved HECM counselors to have passed the counseling exam. Individuals currently doing HECM counseling will have up to six months to pass the exam; new counselors will have to pass before beginning counseling. New counseling protocols will also be implemented this Fall.
Cross Sales of Financial and Insurance Products - As far as the new language requiring lenders to have “safeguards and firewalls” to make sure individuals do not have any incentives for cross-sales of other financial or insurance products with HECMs, HUD will be issuing a Federal Register notice soliciting industry input on how to implement this provision.
Once we receive some clarity from HUD, I will issue an update on my blog. If you have questions in the meantime, please contact me by email.
