FHA Mortgagee Letters are issued from time to time from the FHA/HUD to clarify policies, set up new rules, or prepare borrowers and lenders for changes in the FHA program as dictated by law or other means.
Two new FHA Mortgagee Letters were issued recently that discuss changes to the rules and regulations covering the FHA’s Home Equity Conversion Mortgage loan program (HECM).
There are some important changes that affect the HECM program’s basic design and options for qualified borrowers, plus clarification on how the HECM program may be marketed and warnings against deceptive advertising or marketing practices.
One of the most important changes to the FHA HECM program announced by the recent Mortgagee Letters involves limitations to fixed interest rate HECM loans. According to FHA Mortgagee Letter 2014-11:
“FHA will only insure fixed interest rate reverse mortgages where the mortgage limits the mortgagor to:
–A single, full draw to be made at loan closing; and
–Does not provide for future draws by the mortgagor under any circumstances.
Borrower’s Advance means the funds advanced to Borrower at closing as set forth in the HECM Loan Agreement. As there will be no risk of the Secretary having to pay future advances to the mortgagor, the HECM Second Security Instrument and HECM Second Note are no longer required for fixed interest rate HECMs.”
Furthermore, the FHA Mortgagee Letter states:
“Mortgagees shall use the Single Disbursement Lump Sum payment option for all fixed interest rate HECMs.
Mortgagors will be responsible for the payment of all property charges and no longer have the option to elect to require the mortgagee to pay such property charges on their behalf as provided in §206.205(b).
If a mortgagor fails to pay property charges, mortgagees shall proceed with the loss mitigation requirements announced in Mortgagee Letter 2011-01, as if the mortgagor has no remaining funds available under the mortgage.”
These are critical changes to the FHA HECM loan program and we’ll cover them in greater detail in future blog posts.