Implementing The New Reverse Mortgage Rules

As a member of NRMLA, I recieve timely alerts and news items about issues regarding Reverse mortgages. NRMLA is the trade group in Washington, D.C. representing lenders all over the United States.

Today, I thought I'd share with you a notice received from Peter Bell, the President of NRMLA regarding a discussion with government lawyers and NRMLA staff on what needs to be done and the approximate time.

The time lines shown below are "iffy", and some may take effect sooner (or later) than estimated. Therefore, it will be some time before you see companies advertising the new higher loan limits. However, it is likely that any Reverse Mortgage in process now, that has not closed prior to the implementation of the new rules, will have their loan subjected to the new rules. So, for some this will be a bonus; for others, it may be advisable to wait to apply until we know the actual dates of implementation of certain of the rules.

For instance, the use of the Reverse Mortgage to purchase a new principal residence may be put into effect rather quickly, however, their effectiveness could be affected by what the actual and final Reverse Mortgage loan amount till be.

Effective immediately will be the elimination of the FHA mortgage insurance fee, if the proceeds of the loan are to be used to purchase long-term-care insurance. as well as the cross-selling of financial or insurance products with the Reverse Mortgage.

So, if you are approached by your lender, or referred by your lender to an agent offering these services, you should refuse that service until the Reverse Mortgage is in place. And you should walk away from that lender if there is a requirement for you to use the lender or their referral source to purchase other financia products.

Probably the most important change to most borrowers is the new loan amount that will be allowed by the HUD/FHA government loan, and how soon that will be determined. However, remember that there are propriatary loans offered by specific banks or investors that are not affected by the new rules, and normally called "jumbo" loans. If you must have a Reverse Mortgage close as quickly as possible, this may be an alternate loan program you might want to select.

If I can be of further help, please don't hesitate to call me at 703/244-8151, or email me at gboone@beaconreverse.com

Have a great day!
Gloria



HUD Briefing on New Housing LawAugust 1, 2008

Earlier this afternoon, (8/1/2008) we (members of NRMLA Staff and lawyers) participated in a telephone briefing on the new FHA Modernization legislation conducted by FHA Commissioner Brian Montgomery and his staff.

Here is what we have learned:

Maximum HECM Loan Limit – HUD’s lawyers have still not resolved whether the bill creates a single national loan limit at $417,000 or $625,500, or area limits at 115% of area median home value, with a floor of of $417,000 and a cap of $625,500.

If, in the end, the lawyers conclude that there is a single national loan limit at either of the two option levels, HUD will be able to implement that fairly quickly, probably with a Mortgagee Letter issued by October 1 that would take effect on November 1.

If the lawyers conclude that the maximum loan limit will be based on the 115% of area median standard, it will take until January 1, 2009 to implement.
We hope to get the lawyers’ final decision within the next day or so.

HUD expressed serious concern about companies marketing with new loan limits before the Department actually figures out what those limits might be.
Companies that do so might find themselves subject to disciplinary action for false or misleading advertising...

...New Limitation on HECM Origination Fees – The new formula for maximum origination fees -- 2% of first $200,000 of maximum claim amount, plus 1% of the balance above $200,000, to a maximum origination fee of $6,000 – will become effective concurrently with the implementation of the new HECM loan limits.

The Mortgagee Letter that will be issued to implement this will raise the “floor” on HECM origination fees, probably to $2,500.

A Mortgagee Letter will implement the origination fee limitations and the new loan limits simultaneously.

HECM for Home Purchase can be implemented fairly quickly and should be operational by November 1.

HECM for Coops will be implemented by a Mortgagee Letter that covers coops under both FHA forward and reverse mortgage programs. That M.L. is probably a few months away.

Elimination of Waiver of Upfront MIP for LTC Insurance - The authority allowing HUD to waive the upfront mortgage insurance premium in cases where the proceeds from a HECM would be used to purchase long-term care insurance has been repealed. This provision had been on the books since the 2000 Housing Act, but was never implemented.

The McCaskill Amendments have resulted in a few new provisions being added to the law:

Elimination of HECM Advisor Programs - HUD will be issuing a Mortgagee Letter within the next 30 days eliminating any so-called “HECM Advisor” programs. Because the law requires that, “All parties that participate in the origination of a mortgage to be insured under this section shall be approved by the Secretary,” once the forthcoming M.L. is issued and takes effect, only employees of FHA-approved lenders and correspondents will be permitted to participate in the origination of HECMs.

Payments for Counseling - Effective upon issuance of a Mortgagee Letter within the next thirty days, lenders will no longer be permitted to pay for HECM counseling, either directly or indirectly, under any circumstances whatsoever.

Sometime this Fall, HUD will also begin requiring all individuals on the roster of approved HECM counselors to have passed the counseling exam. Individuals currently doing HECM counseling will have up to six months to pass the exam; new counselors will have to pass before beginning counseling.

New counseling protocols will also be implemented this Fall. The law calls for HUD to consider utilizing some of its FHA Mortgage Insurance Premium income to pay counseling costs, but HUD’s lawyers have determined that this provision is flawed and would violate federal credit reform requirements and is impossible to do.

Cross Sales of Financial and Insurance Products - As far as the new language requiring lenders to have “safeguards and firewalls” to make sure individuals do not have any incentives for cross-sales of other financial or insurance products with HECMs, HUD will be issuing a Federal Register notice soliciting industry input on how to implement this provision.

It will take a few months before they can do this.

However, in the meantime, NRMLA members should be forewarned that the new law is in effect -- even though no guidance will be issued for a while -- so you are advised to consult with your own counsel and take steps to assure you do not run afoul of this legislative language.

As soon as we learn more about the HECM loan limits and any other outstanding issues, we will report to you.

Peter Bell,
NRMLA President


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