December 4, 2014
We have covered a great deal of information regarding the recent changes to the FHA’s Home Equity Conversion Mortgage (HECM) program. One crucial area borrowers should be aware of included in these changes? HECM MIP rules. The mortgage insurance premium rules for FHA HECM loans now reflects an MIP percentage that varies depending on how much the borrower’s initial disbursement amount is.
FHA Mortgagee Letter 2014-21 states:
“HUD charges an initial MIP of 0.50 percent (0.50%) of the Maximum Claim Amount (MCA) when the mortgagor’s Initial Disbursement Limit or the Borrower’s Advance is 60% or less of the Principal Limit. HUD charges an initial MIP of 2.50 percent (2.50%) of the MCA when a mortgagor’s Initial Disbursement Limit or the Borrower’s Advance is greater than 60% of the available Principal Limit.”
Further more, FHA ML 2014-21 says in cases when the borrower wants, “to take an Initial Disbursement Limit or Borrower’s Advance of 60% or less and HUD charges an initial MIP of 0.50%, the sum of disbursements made during the First 12-Month Disbursement Period must not exceed 60% of the Principal Limit.
The mortgagee must calculate the initial MIP, which is to be remitted to HUD, based on the amount of funds the mortgagor has elected to be made available during the First 12-Month Disbursement Period. The existing annual MIP rate for all HECMs is 1.25%.”
There is also a heading in this mortgagee letter for the intial MIP calculation for refinance loans. “For all refinance transactions, mortgagees and counselors must determine the amount of initial MIP due to HUD by calculating the initial MIP due on the new HECM and subtracting the initial MIP paid in connection with the existing HECM. If the result is positive, the amount must be remitted to HUD as the initial MIP on the refinance. No refunds will be given if the amount is negative.”
Here is the FHA’s formula for calculating the MIP on refinance loans:
(1) New MCA multiplied by new initial MIP (%) = New MIP
(2) Old MCA multiplied by old initial MIP (%) = Old MIP
(3) Subtracting the result of (2) from the result of (1) yields the MIP amount
owed to HUD
Potential HECM loan borrowers are required to get HECM counseling and be provided with clear explanations of required fees and charges. Borrowers who need additional clarification should discuss their concerns with the lender or contact the FHA for guidance by calling 1-800 CALL FHA.
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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