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FHA HECM Program Changes: Mandatory Obligations

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Recently the FHA and HUD announced changes to the FHA Home Equity Conversion Mortgage, also known as HECM. Those changes include new guidelines for the maximum amount of HECM loan funds that can be transferred to the borrower at the time the HECM loan closes or within the first 12 months of the HECM loan, as well as “what fees and charges are considered Mandatory Obligations” according to the new rules.

According to FHA mortgagee letter 2013-27, a new “Single Disbursement” lump sum payment may be possible for borrowers applying for both adjustable and fixed interest rate HECM loans applicable for all FHA HECM loan case numbers assigned on or after September 30, 2013.

“This payment option will be limited to a single disbursement at loan closing which cannot exceed the greater of:

  •   60% of the Principal Limit; or
  •   Mandatory obligations…plus 10% of the Principal Limit. Set Asides requiring disbursements after close may be offered under this option.”

As we discussed in our previous post about these changes, the mortgagee letter instructs the lender,“The combination of Mandatory Obligations, Set Asides and other charges will reduce the amount of funds available to the mortgagor. The Initial Disbursement Limit can only be taken at the time of loan closing.”

What “Mandatory Obligations” could reduce the amount of available HECM funds? According to the mortgagee letter, there are two types of mandatory obligations. One type applies to “traditional and refinance transactions”, the other applies to “purchase transactions”.

According to the section titled, Mandatory Obligations for Traditional and Refinance Transactions, the Mandatory Obligations include:

  • initial MIP;
  • loan origination fee;
  • HECM counseling;
  • reasonable and customary amounts, but not more than the amount actually paid by the mortgagee for any of the following items:

–recording fees and recording taxes, or other charges incident to the recordation of the insured mortgage;
–credit report;
–survey, if required by the mortgagee or the mortgagor;
–title examination;
–mortgagee’s title insurance;
–fees paid to an appraiser for the initial appraisal of the property

  • repair administration fee;
  • delinquent Federal debt;
  • amounts required to discharge any existing liens on the property;
  • customary fees and charges for warranties, inspections, surveys, engineer certifications;
  • funds to pay contractors who performed repairs as a condition of closing,
  • in accordance with standard FHA requirements for repairs required by appraiser; and
  • other charges as authorized by the Secretary.

For purchase transactions, the FHA mortgagee letter defines Mandatory Obligations as follows:

  • initial MIP;
  • loan origination fee;
  • HECM counseling;
  • reasonable and customary amounts, but not more than the amount actually paid by the mortgagee for any of the following items:

–recording fees and recording taxes, or other charges incident to the recordation of the insured mortgage;
–credit report;
–survey, if required by the mortgagee or the mortgagor;
–title examination;
–mortgagee’s title insurance;
–fees paid to an appraiser for the initial appraisal of the property

  • delinquent Federal debt;
  • fees and charges for real estate purchase contracts, warranties, inspections, surveys, engineer certifications; and
  • other charges as authorized by the Secretary”

“Mortgagees have the added responsibility for ensuring the indebtedness of purchasing a new principal residence can be satisfied at closing and existing purchase program requirements, such as funding sources, monetary investment, gap financing, etc., as defined in Mortgagee Letter 2009-11 are met.”

For more information on these new rules, contact the FHA directly or speak to a loan officer.

Do you have questions about FHA HECM loans? Ask us in the comments section.

Joe Wallace - Staff Writer

By Joe Wallace

September 12, 2013

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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