Breaking News: HUD Reduces Principal Limit on Reverse Mortgages By 10%

hud_logo_smallHUD just announced today that effective October 1, 2009, the principal limit factor (PLF) on reverse mortgages will be reduced by 10%. The new PLF table can be found at:  http://www.hud.gov/offices/hsg/sfh/hecm/hecmhomelenders.cfm.  This PLF table will go into effect for all loans taken on or after October 1, 2009.

These changes to the principal limit are not a large surprise, given the appropriations bills now going through Congress.  The reverse mortgage program was not designed to be supported by a credit subsidy, and since the appropriations bill is also unlikely to grant a subsidy, program changes are the only way to keep the reverse mortgage program operating in the new fiscal year (which begins October 1, 2009).  Nonetheless, these changes are not likely to be embraced by the reverse mortgage community, as they will prevent some seniors from receiving the amount of money from their homes necessary to be eligible for the program.  A reverse mortgage was designed to help as many seniors as possible. This is likely to reduce their ability to do so.

The mortgagee letter can be found below:

Mortgagee Letter 09-34

 

Breaking News: FHA Releases Four New Mortgagee Letters

hud_logo_smallThe FHA released four new mortgagee letters late last week that will have a significant impact on the way appraisals will be conducted in the future.  Although the mortgagee letters will not go into effect until January 1, 2010, they will cause some of the following significant changes to occur:

- Reduce the amount of time an appraisal remains valid to four months from six months.

- Clarify rules regarding what happens to an appraisal when the borrower changes lenders.

- Reaffirm rules regarding appraiser independence, while adding some new requirements, including the lender’s responsibility for ensuring the correct appraiser is listed in FHA connection, and preventing the lender from using any appraiser who is selected, retained, or compenstated in any manner by the mortgage broker or any member of the lender’s staff who is tied to the loan on a commission basis.

The fourth mortgage letter, while not directly relating to reverse mortgages or appraisals, requires all FHA mortgagees to submit an annual audited financial statement.

Copies of all the letters can be found below. While reducing the amount of time an appraisal is valid to four months from six months could add an expense to borrowers when a loan gets held up in processing, hopefully the change will add some urgency to processing reverse mortgage loans in a timely fashion and will allow borrowers to get a more realistic appraisal in a rapidly changing housing market.

Mortgagee Letter 09-28

Mortgagee Letter 09-29

Mortgagee Letter 09-30

Mortgagee Letter 09-31

 

Breaking News: Bank of America Releases Fixed-Rate Product

On Wednesday night, Bank of America officially introduced its new fixed-rate HECM.  The reverse mortgage product, a Fixed HECM 5.56, will be added to Bank of America’s current product offering of the Monthly Libor 225, Monthly Libor 250, Monthly Libor 275, Monthly Libor 300, and the Annual CMT 600. Bank of America also added new disclosures to their application packages. From now on, all application packages for Bank of America loans will include:

- HECM Reverse Mortgage Product Disclosure

- Important Disclosure: Your Payment of Property Charges

- General Questions Regarding HECM Reverse Mortgage Loans

Included in Fixed-Rate Packages Only:

- Truth in Lending Disclosure

- Home Mortgage Disclosure Act (HMDA)

The Bank of America fixed rate product has been highly anticipated for some time, and will hopefully help lower the procesing times for fixed rate loans throughout the industry.

More information can be found in the official press release: 2009-8-18-fixed-rate-release

 

Breaking News: New HUD Mortgagee Letter Released on Refinancing Existing HECMs

Breaking News: A new HUD Mortgagee Letter was released on Tuesday, HUD Mortgagee Letter 2009-21.  The letter covers the HECM refinancing of existing loans.  Some important points:

- A technical correction to 73 FR 51596 and the 24 Code of Federal Regulations (CFR) Part 206 stating that the FHA will insure all loans that we originated for the purpose of reginancing an assigned loan that is not in a due and payable status for reasons that cannot be corrected, but closed on or after October 6, 1008.

- A mandatory “anti-churning disclosure” requirement as a consumer protection measure for all refinanced HECM.s. The Anti-Churning disclosure form must be signed by the mortgagor and be included in the FHA case binder.  The form, designed to ensure that the HECM refinance will benefit the mortgagor, requires that the mortgagee provide the mortgagor with its best estimate of the total cost of refinancing to the mortgagor and the increase in the mortgagor’s principal limit as measured by the estimated initial principal limit on the HECM refinance less the current principal limit on the existing HECM. The mortgagee must also provide the mortgagor with the best estimate of funds available to the mortgagor minus any closing costs/fees.

- For HECM loans that are closed-end lines of credit, the Anti-Churining Disclosure Form must be issued concurrently with the Good Faith Estimate.  For HECM loans that are open-end lines of credit, it must be issued with the other disclosure forms provided in lieu of a GFE.

- Mortgagors in a HECM refinance can waive/opt-out of counseling if they have received the HECM Anti-Churning Disclosure form, if the increase in the mortgagor’s principal limit exceeds the total cost of the HECM refinance by an amount equal to 5 times the cost of the transaction and if the time between the closing of the existing HECM and the application for refinancing is five years or less.

- The mortgagee letter also contains detailed instructions for servicers regarding how to treat the loan.

The complete HUD Mortgagee Letter 2009-21 can be found here.