New FHA Home Equity Conversion Mortgage Rules Take Effect
In January of 2013, the FHA announced pending rule changes to its Home Equity Conversion Mortgage program (FHA HECM for short). Those changes were scheduled to take effect on 1 April 2013 and are now in full effect.
In the FHA Mortgagee Letter HUDNo.13-010, the agency announced, “…the consolidation of the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM) Standard and HECM Saver initial mortgage insurance premium (MIP) and maximum principal limit factors for fixed interest rate mortgages.”
The announcement states that the HECM Saver program is, as of 1 April 2013, the “only initial MIP option available to mortgagors who seek the predictability of a fixed interest rate mortgage and lower upfront closing costs.”
The announcement adds, “Mortgagees shall 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.”The new changes did not, according to the announcement, include a corresponding change for mortgage insurance premiums.
“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.”
Borrowers interested in HECM loans should know that the HECM Standard option is still available in a limited fashion.
“Mortgagors may still use the HECM Standard initial MIP option, but only with adjustable interest rate mortgages.”FHA guidance in this area also includes instructions to the lender for all HECM loans with an FHA case number assigned on or before March 31, 2013. These loans “may be processed as either a HECM Standard or HECM Saver as the initial MIP; but any fixed interest rate HECM Standard mortgage must close on or before July 1, 2013.”
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