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HUD/FHA announced several substantial proposed changes in its Home Equity Conversion Mortgage (HECM) policy & procedures on May 18th. These changes are primarily designed to assure the viability of the HECM program going forward which has become a popular way for seniors to tap the equity in their homes and remain in their property & neighborhood as they grow older.
Since these major changes must go through the rule-making process, HUD’s Proposed Rule changes were published in the May 19, 2016, Federal Register.
Outlined below are some of the major changes:
- On HECM for Purchase transactions, FHA is proposing to require prospective borrowers to complete the required HECM Counseling prior to signing the sales contract and/or making an Earnest Money Deposit – instead of allowing them to complete the counseling before or after the initial application is submitted to the mortgagee.
- Mortgagees will be required to inform potential HECM borrowers of all of the HECM products, features, and options that FHA insures – irrespective of the particular HECM products offered by the mortgagee.
- Lifetime interest rate increases on HECM Adjustable Rate Mortgages will be capped at 5%.
- The annual interest rate increases on HECM Adjustable Rate Mortgages will be capped and reduced from 2% to 1%.
- The proposed rule will require, as a condition for a HECM to be eligible for loan assignment, that the HECM mortgage be in a lien status prior to homeowners association and condo association liens.
- The mortgagee will be required to have the subject property appraised no later than 30 days after receipt of the request by an applicable party in connection with a pending property sale; the property must be appraised within 30 days of a foreclosure sale.
- It is being proposed to amend the current definition of “property charges” to include utilities as a borrower’s responsibility, when failure to pay such utilities would result in a lien and would potentially trigger a due and payable event.
- In order to “incentivize” parties with legal authority to dispose of a property that serves as the security for a HECM, a “Cash for Keys” or “deed in lieu” option will be offered.
These changes will augment the reforms already implemented by HUD in recent years in strengthening the HECM program. Most notable of these changes were the following: the limitation of initial withdrawals by HECM borrowers, implementing some stringent financial assessment criteria to make sure that HECM borrowers could pay their on-going taxes, insurance, maintenance, etc., allowing certain non-borrowing spouses to remain in the home after the death of the HECM borrower and increasing awareness and enforcement of misleading and/or deceptive HECM-related advertising.
It is essential that HUD continues to assess the impact of these changes on the overall financial health of the HECM program. It should be noted that one of the major factors that contributed to FHA’s increase in its Capital Reserve fund was due to actuarial changes/swings in the HECM program.
In this regard, we all recently discovered the large role the HECM program plays in FHA’s overall financial health when HUD revealed the results of its financial audit.
Loading ...On a personal note, I have to state that I am quite proud of the success that the HECM program has been thus far in both assisting FHA improve its financial situation but, more importantly, in helping seniors by enabling them to draw equity from their homes and age-in-place.
I worked for HUD during the time that the HECM program was created and had input into many of the proposed processing & underwriting criteria that were established for this program.
Also, as Director of the Processing & Underwriting Division in the Philadelphia HOC for an 11 year period (2000 to 2011), I conducted many HECM outreach & training sessions for mortgage lenders – including organizations such as the MBA and NRMLA.
Now that my long career in the mortgage lending business (a total of 42 years) is coming to an end – it is rather ironic that I plan on augmenting my Federal pension with the proceeds of a HECM loan in the near future. In case you are wondering – yes, even I will have to go through a HUD approved Counseling Agency course and obtain a certificate before obtaining such financing.
As stated above – this will be my last blog post for LoanLogics which has been a great firm to work for and has a bright future. I hope that you have found my blog posts and LendingLogics monthly Newsletters to be informative and you can expect more to come from my successor (when named). Glavey out!
Editor’s Note: Gerry is an amazing man who is always true to his word and an incredible wealth of information. He has tendered his resignation to spend time with his family and to pursue his many interests. He has decided he wants to learn more about the sand on the Delaware beaches and more about the fairways on the golf course. We, at LoanLogics, wish him only the best. (Yes, that is Gerry doing a mic drop!)
