November 19, 2014
Recently we wrote about FHA Home Equity Conversion Mortgage (HECM) loan rule changes that were announced in FHA Mortgagee Letter 2014-21. Those rule changes include alterations and clarification of policy related to a variety of HECM loan policies. One very important affected area of HECM loan regulation the borrower should know about is related to disbursement of HECM loan funds.
Mortgagee Letter 2014-21 announces separate policy for fixed-rate HECM loans and for Adjustable Rate HECM loans. Here is the FHA policy for disbursement limits according to ML 2014-21:
“Definitions only for Adjustable Interest Rate HECMs
Initial Disbursement Limit: The maximum disbursement to the mortgagor allowed at loan closing and during the First 12-Month Disbursement Period is the greater of 60% of the Principal Limit; or the sum of Mandatory Obligations, plus an additional 10% percent of the Principal Limit. The Initial Disbursement Limit shall not exceed the Principal Limit amount established at loan closing.”
What is the policy for fixed rate HECM Loans? Here is what’s found in ML 2014-21:
“Definitions only for Fixed Interest Rate HECMs
Borrower’s Advance: Borrower’s Advance means the funds advanced to Mortgagor at closing which may not exceed the greater of 60% of the Principal Limit; or Mandatory Obligations, plus an additional 10% of the Principal Limit. The sum of all advances permitted under the mortgage cannot exceed the Principal Limit. The mortgagor may bring other available funds to closing to bring the sum of all anticipated advances within the Principal Limit.”
The new rules also add a requirement for the lender to insure the HECM loan fund rules are being followed properly. “The mortgagee is responsible for determining the maximum Initial Disbursement Limit for Adjustable Interest Rate HECMs. Mortgagees must monitor and track all disbursements that occur at loan closing and during the First 12-Month Disbursement Period to ensure the total
amount of the disbursements does not exceed the maximum Initial Disbursement Limit or Principal Limit.”
These changes could, for borrowers who have explored HECM loan options in the past but are now revisiting the option, change the way the borrower decides to approach the loan. It’s not safe to assume that the same terms and conditions you may have been given prior to the FHA rule changes would apply now under the new FHA requirements.
If you need an FHA HECM loan, it’s best to discuss the situation with a loan officer to determine which FHA HECM option might be best for you under the new requirements and rules for how funds are to be paid to the borrower.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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