HUD reminds lenders not to mess up HECM protocols
The Department of Housing and Urban Development Wednesday hosted a webinar to remind originators of the requirements involved with originating a loan through the agency's Home Equity Reverse Mortgage programs. The requirements emphasize consumer protection and protocols which, if not precisely followed, pose risks to lenders. One of the biggest stipulations regards Home Equity Conversion Mortgage, or HECM, counseling. HECM is a government-sponsored reverse mortgage program designed to provide liquidity to the elderly through the equity of their home. Each potential borrower for a HECM program, whether it be traditional, refinance, purchase, or saver, is required by HUD to attend a counseling session in person or over the telephone. A lender may not charge a borrower fees for services before this session takes place. This includes an application fee, appraisal fee, appraisal order and the counseling fee. If a lender charges a borrower for anything, the lender will be forced to cover the costs. The lender also may not order a HECM case number through the Federal Housing Administration prior to the counseling session or will have to bear the cost. Lenders are required to provide the certificate ID at the counseling session, and after the meeting, the borrower must initiate a HECM program within 180 days. If not, the certificate expires and another counseling session and certificate for the deal are required. Lenders have specific obligations with regard to repairing a HECM property. If repairs cost more than 15% of a borrowers maximum claim amount — either the appraised value of the property or mortgage limit (whichever is lower) times the expected interest rate — lenders are required to make those repairs before closing the HECM deal. If repairs exceed 30% of the maximum claim amount, a representative of the local homeownership center is required to inspect the property. If repairs are less than 15% of the maximum claim amount, lenders can fix the property after closing. Lenders are allowed to charge a repair fee to the borrower. Borrowers are responsible for any maintenance or repairs thereafter. Servicing offers one monetary benefit to lenders, as it is added monthly to the loan's outstanding balance and is applied through the life of the loan. The maximum monthly payment for a monthly-adjustable rate is $35, for an annually-adjusted rate is $30, and for a fixed-rate is $30. Lenders aren't the only party at risk in HECM deals. HUD may take a substantial blow if a borrower chooses to refinance their HECM program. To figure out the new payment for a refinance, calculate the new mortgage insurance premium and subtract the old MIP from it. HUD receives the difference between the two; however, if the difference is negative, HUD gets nothing. According to SeniorJournal.com, one out of every 10 elderly people lives in poverty, but 80% own their homes outright. Borrowers for the HECM programs must be at least 62 years in age, own their property and live in it as a primary residence. HUD's newest version of HECM is the saver, which offers a substantially reduced upfront cost, only 0.01% of the principal, and a lower loan limit. Write to Christine Ricciardi.