2017 HECM Changes

In a move that shocked the entire reverse mortgage industry, HUD released Mortgagee Letter ML 2017-12, which will have a huge impact on the reverse mortgage program. The Mortgagee Letter indicates that in order for FHA to continue to endorse the HECM loan program, changes were needed which would increase the upfront Mortgage Insurance Premium (MIP) for many, lower the annual MIP for all as well as reduce the amount borrowers will be able to receive under the program for all new Case Numbers assigned on or after October 2, 2017.The first change noted is to the initial MIP and the Annual MIP. For some borrowers, this change will be a big savings while for others, it will increase upfront closing costs. Borrowers who utilized more than 60% of their initial proceeds due to paying off existing mortgages or using a reverse mortgage to purchase a home prior to the change had to pay an initial premium of 2.5% of the maximum claim amount, which is the lesser of the property value, HUD lending limit (currently at $636,150) or purchase price (if applicable). The new upfront premium of 2.0% will represent a 0.50% savings to those borrowers. However, borrowers who utilized less than 60% of their initial proceeds prior to the change will see their initial upfront MIP increase from 0.50% to 2.0%. Borrowers who planned on setting up a line of credit or monthly payment will now see a higher upfront cost. The annual MIP will drop to 0.50% of the outstanding balance compared to the current 1.25%.

The second change that will have the largest impact on the HECM reverse mortgage program is a reduction to the amount of cash that borrowers will have access to. This was done by way of two changes. The biggest change was that HUD lowered the 5.0% floor to 3.0%, so any loan above 3.0% will now see a reduction in the amount of proceeds available with each rate increase. Additionally, HUD lowered the Principal Limit Factors for most borrowers, even at the floor.

Bottom line is that borrowers who plan on taking more than 60% of available proceeds will see a reduction in closing costs, but they will also see a reduction in available proceeds. Those taking less than 60% will see their initial upfront costs increase. All borrowers will see their annual MIP drop by 0.75% of the outstanding balance per year.

For those borrowers who wish to achieve the maximum available to them should consider starting their reverse mortgage right way. We always see a rush of applications prior to a major change like this one. As such, counseling agencies may become inundated with calls, so plan ahead and call today. In California, we have a 7 day cooling off period in which the lender cannot order a case number for 7 days after counseling has been completed (the 7 day period doesn’t include the day of counseling, so it is technically 8 days).

Beat the HECM changes. You can protect your current limit by getting a case number assigned prior to October 2nd. In order to obtain a case assignment, we need a fully signed application and counseling certificate returned to our office no later that September 29th.

The chart below shows a comparison of the old Principal Limit Factors (PLFs), the new PLFs, the percentage change in the PLF from the old to the new as well as an example of Principal Limit (PL) assuming a home value of $300,000 and interest rate of 5%. If you wish to manually calculate the difference in your own scenario, find your age, then use the % change and multiply it by your home value. That will represent how much less is available to you under the new program.

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After much anticipation and speculation, the Department of Housing and Urban Development (HUD) has released a multitude of changes to the HECM program. “These changes to reverse mortgages will protect consumers,” according to Carol Galante, Federal Housing Administration (FHA) Commissioner and Assistant Secretary for Housing.

The following is a summary of the changes that were announced by Mortgagee Letters 2013-27 and 2013-28:

Initial Disbursement Limits (Effective September 30, 2013)

The new Mortgagee Letter sets limits on the amount of reverse mortgage proceeds that can be taken at closing or during the first 12-month disbursement period after the loan closes.

Single Disbursement Lump Sum Option (Effective September 30, 2013)

The intial disbursement at closing or 12 months following close is limited to 60% of the principal limit. If there are mandatory obligations, such as existing mortgages or tax liens, the initial disbursment is limited to 60% plus 10% of the principal limit.

If a borrower chooses a line of credit or monthly payment, it will be up to the servicer to make sure that they do not exceed the  of allowable limits in the 12 months.

This option is available for both fixed and adjustable rates.

Changes to Mortgage Insurance Premiums (MIP) and Principal Limit Factors (PLF) (Effective September 30, 2013)

The existing upfront MIP pricing options that were available under the Saver and Standard program have been replaced. HUD will now charge an initial MIP of 0.50 percent (0.50%), of the Maximum Claim Amount (MCA) when a borrower’s initial disbursement at closing or during the initial 12 month period after closing is 60% or less of the Principal Limit.

HUD will charge 2.50 percent (2.50%) of the MCA when a borrower’s intial draw is greater than 60% of the Principal Limit.

The new Principal Limit factors will result in roughly 15% less available proceeds than the current Standard product. To view the new PLFs click here.

Financial Assessment (Effective January 13, 2014)

The purpose of financial assessment is to evaluate the borrowers willingness and capacity to meet their financial obligations, and their ability to comply with the mortgage requirements. This came about because of an increasing number of tax and insurance defaults by HECM borrowers. It is the responsiblity of the borrower to maintain their property taxes and insurance.

Key components of underwriting a HECM includes a credit history analysis, a cash flow/ residual income analysis, analyzing compensating factors and extenuating circumstances. The good thing is that unlike many other companies that only offer reverse mortgages, MLS Reverse Mortgage has been offering both forward and reverse mortgages, which makes us extremely familiar with credit and income analysis, which will allow us to simplify the process for our borrowers.

Set-Asides (Effective January 13, 2014)

If a borrower is deemed to be a potential default risk based on the underwriting results of the financial assessment, the lender is authorized to create a Lifetime Expectancy Set-Aside (LE Set-Aside) to pay for future tax and insurance charges. The amount of the LE Set-Aside will be based on the life expectancy of the yourgest borrower. If the borrower outlives the amount set-aside, they will be required to continue making tax and insurance payments using their own means.

The full Mortgagee Letters are available by clicking here.

The post HUD Releases Changes to the HECM Reverse Mortgage Program appeared first on MLS Reverse Mortgage.

The Fixed Rate Saver Program does not offer the same dollar benefit as the Standard Program, however does have some features that will make it attractive to many borrowers. Due to the lower risk of the program to HUD, the Upfront Mortgage Insurance Premium (UFMIP) is just 0.01% of the lesser of the appraised value or lending limit (currently $625,500) as opposed to the Standards 2% UFMIP. For example, a property valued $200,000 will have an UFMIP with the Saver Program of $20, while the Standard would have $4,000.

Use our reverse mortgage calculator to see how much you qualify for under either program.

For borrowers looking to maximize the amount of money available to them after March 31st, the Adjustable Rate Standard program will still be available and will provide borrowers with a greater draw amount than the HECM Saver Fixed. Some borrowers may also choose to utilize the adjustable rate standard when looking to do a purchase reverse mortgage. There has been some discussion of limiting draw amounts under the Adjustable Rate, but this current news does not address that concern.

According to Mortgagee Letter 2013-01, HUD states that the elimination of the fixed rate standard product is “to help sustain the HECM program as a viable financial resource for aging homeowners and to strengthen the Mutual Insurance Fund.” Other steps, such as financial assessments or limited draws may be on the table in the near future. It’s anyone’s guess what they think HUD’s next move will be to help preserve the Mutual Mortgage Insurance Fund.

For any questions or to get started today please call us toll free at 1-888-888-4834 or apply online. If you need the full ability and security of the fixed rate standard, now is your time to make your move.

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