Late last week the U.S. Department of Housing and Urban Development published Mortgagee Letter 2009-21 to clarify guidelines for borrowers who decide to refinancing existing HECM mortgages.

The ML officially implements a rule which was published last year that allows borrowers whose loans were assigned to HUD to refinance and qualify for a reduced mortgage insurance premium.  The policy applies to all loans that were assigned on or after October 6, 2008.

Additional clarifications from the ML include:

The reduced initial MIP only applies when the property that serves as collateral for FHA insurance remains the same. Therefore, HECM mortgagors who terminate their HECM and purchase a new property using a HECM for Purchase transaction are not eligible for a reduction in the initial MIP on the new property.

HUD’s HUD-92901 “Home Equity Conversion Mortgage (HECM) Anti-Churning Disclosure” must be signed by the mortgagor and be included in the FHA case binder. This form ensures that the mortgagor is not being induced to refinance his/her existing HECM without benefit to the mortgagor and/or solely for the benefit of the mortgagee.  Read the ML for more information regarding the “Anti-Churning Disclosure”.  

The ML also clarifies that HECM refinance borrowers can waive and opt out of the HECM counseling requirement only if all three of the following conditions are met:

1. The mortgagor has received the required HECM Anti-Churning Disclosure form;
2. The increase in the mortgagor’s principal limit exceeds the total cost of the HECM refinance by an amount equal to five (5) times the cost of the transaction (Block #1 on Anti-Churning Disclosure Form); and
3. The time between the closing on the existing HECM and the application for refinancing does not exceed five years.

To learn more about the the changes from ML 09-21 see the link below.

Mortgagee Letter 2009-21