FHA HECM Loan Changes: When and How
On January 30, FHA issued guidance about pending changes to the FHA Home Equity Conversion Mortgage or HECM loan program. The changes affect all FHA HECM loans for fixed rate mortgages with case numbers assigned on or April 1, 2013.
According to the FHA official site, “To help sustain the HECM program as a viable financial resource for aging homeowners and to strengthen the Mutual Mortgage Insurance Fund, the HECM Saver will be the only initial MIP option available to mortgagors who seek the predictability of a fixed interest rate mortgage and lower upfront closing costs.”
This, according to FHA Mortgagee Letter 2013-01, requires the lender to “designate HECM Saver as the initial MIP and use the HECM Saver principal limit factors to determine the amount of funds available to the mortgagor.” Previously there were two versions of the FHA HECM program, HECM Standard and HECM Saver.
The changes in the Home Equity Conversion Mortgage loan program required the FHA to clarify what type of mortgage insurance payment would be required–an important part of budgeting for loan expenses with any mortgage or refinance. According to the mortgagee letter, “For HECM Saver, the initial MIP, which is collected at the time of closing, will remain at 0.01 percent (0.01% or 0.0001) of the maximum claim amount. The annual MIP for HECM Saver will remain at an amount of 1.25 percent (1.25%) of the outstanding loan balance.”
One important thing to take note of–HECM Standard is still available, but only for adjustable rate mortgages.
HECM Saver mortgages under the new policy are available for:
- Fixed interest rate mortgages
- Adjustable interest rate mortgages (monthly and annual)
- All interest rate indices (Constant Maturity Rate and London Interbank Offered Rate)
- All HECM transaction types (traditional, purchase and refinance)
- All five payment plans (tenure, term, line of credit, modified tenure and term)
For more information on HECM program changes, contact the FHA directly at 1-800 CALL FHA.
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