November 14, 2014
The FHA has issue another set of revisions, clarifications, and consolidation to its Home Equity Conversion Mortgage Loan rules. An FHA mortgagee letter, 2014-21, adds a large number of changes and clarifications.
Many of the new changes have to do with key parts of the HECM loan process including limits on the amount of funds that can be “advanced at loan closing and during the First 12-Month Disbursement Period after loan closing” and also explaining which fees and charges are “Mandatory Obligations” under the FHA HECM program.
One change announced in the mortgagee letter affects those who are paying off a non-FHA HECM loan with funds from the HECM loan. According to the FHA, the new rules include the following instructions to the lender:
“Mortgagees may only permit the payoff of existing non-HECM liens using HECM proceeds if the liens have been in place longer for 12 months or resulted in less than $500 cash to the mortgagor, whether at closing or through cumulative draws (e.g., as with a Home Equity Line of Credit(HELOC)) prior to the date of the initial HECM loan application.”
Additionally, the mortgagee letter says, “Mortgagees must review the HUD-1 from the transaction that resulted in a lien that is to be paid off using HECM proceeds, the payoff statement and, if applicable, the most recent HELOC statement or its equivalent, to ensure that the lien had either been in place for more than 12 months or that it resulted in less than $500 to the mortgagor, whether at closing or through cumulative draws.”
These changes can have important consequences for some FHA HECM loan transactions depending on the date of those transactions. The various changes have a variety of “effective dates” and the dates are NOT all the same.
The changes mentioned above for the 12-month seasoning period for non-HECM loan payoffs take effect for all HECM loans with case numbers assigned on or after December 15, 2014.
We’ll cover the other changes announced in the FHA mortgagee letter in future blog posts.
Do you have questions about FHA 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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