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FHA Home Equity Conversion Mortgage Loan Program Changes

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Recently the FHA and HUD issued a press release announcing changes to the FHA Home Equity Conversion Mortgage (HECM) program. While the entire list of changes is far too extensive to cover in a single post, we want to list the most important ones over a series of posts.

According to the FHA/HUD press release, the recent changes are, “part of the Department’s continuing effort to reform, strengthen and protect FHA’s Mutual Mortgage Insurance (MMI) Fund” that are intended to “realign the HECM program with its original intent which will aid in the restoration of the MMI fund and help ensure the continued availability of this important program,” according to Federal Housing Commissioner Carol Galante.  “Our goal here is to make certain our reverse mortgage program is a financially sustainable option for seniors that will allow them to age in place in their own homes.”

One of the first changes made to the FHA HECM loan program according to FHA Mortgagee Letter 13-27 is “new limitations on the amount of mortgage proceeds that can be advanced at loan closing or during the First 12-Month Disbursement Period after loan closing; the new Single Disbursement Lump Sum payment option; and defines what fees and charges are considered Mandatory Obligations.”

FHA loan rules add, “The ending period for the First 12-Month Disbursement Period is the day before the anniversary date of loan closing. When the day before the anniversary date of loan closing falls on a Federally-observed holiday, Saturday or Sunday, the end period will be the next business day.”

According to the mortgagee letter, a new “Single Disbursement Lump Sum payment option” is available 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 (see page 17 and 18 of this Mortgagee Letter) plus 10% of the Principal Limit.

    Set Asides requiring disbursements after close may be offered under this option.”

The new FHA HECM loan rules also state that, “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 are considered Mandatory Obligations? They include, but are NOT limited to the following according to FHA rules:

  •  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”

We’ll have more information on these and other changes in future blog posts.

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

Joe Wallace - Staff Writer

By Joe Wallace

September 11, 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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