The Department of Housing and Urban Development (HUD) is clarifying recently-announced changes to the home equity conversion mortgage (HECM) program as the industry scrambles to prepare for the October 1 implementation.
“The changes are pretty clear and as expected, but it definitely is a rush for October 1,” says Joshua Shein, vice president of Maverick Funding subsidiary Reverse Mortgage Network. “Everyone will have to scramble, and it’s a lot to do, train, and prepare for in a few short weeks.”
Software updates and training staff on how the program is changing while pushing to get case numbers for borrowers before the end of September will make for a hectic time, Shein says.
In some cases, the industry is trying to make sure it fully understands what’s different about the federal reverse mortgage program going forward. Multiple industry participants who dialed into HUD’s industry conference call on changes to the HECM program on Friday asked for clarification as to whether repair set asides were included as a mandatory obligation.
Mortgagee Letter 2013-27 specifies that the maximum disbursement allowed at loan closing and during the first 12 months of the loan is the greater of 60% of the principal limit, or the sum of mandatory obligations plus 10% of the principal limit, with a mortgage insurance premium of 0.50%.
If the disbursement exceeds 60% of the principal limit due to mandatory obligations, HUD will implement a mortgage insurance premium of 2.5%.
Mandatory obligations are defined in the mortgagee letter as “fees and charges incurred in connection with the origination of the HECM that are paid at loan closing,” including the initial mortgage insurance premium, the loan origination fee, HECM counseling, survey, title insurance, or appraisal fees, the amount necessary to repay any outstanding liens on the property, and repair administration fees, along with funds to pay contractors who performed repairs as a condition of closing.
However, in the initial disbursement limit examples given in the mortgagee letter, repair set asides are listed in addition to mandatory obligations. Several lenders asked during the call whether the repair set aside was part of the 60% of the principal limit when calculating initial disbursements.
Repair set asides should be included when calculating the mandatory obligation plus 10% of the principal limit, said Karin Hill, director of Single Family Program Development at HUD, adding that the agency will probably clarify that.
“I wouldn’t call it a mandatory obligation, but it’s included the same way. For the purposes of calculating the maximum disbursement, you can treat repairs like a mandatory obligation,” said Hill. “It might push over to a higher mortgage insurance premium, but it could be included in that calculation as long as it doesn’t exceed the principal limit.”
Another caller asked whether there would be any disbursement exceptions for a borrower in a predicament, such as a medical emergency, who needs funds. While HUD isn’t “totally adverse” to considering exceptions, it will need to determine the process for doing so, Hill said, with consensus being key.
“We would consider supporting that option [for disbursement under certain emergency circumstances],” Hill said. “We’ve had some conversations with industry members and are looking for feedback on how that’s operationalized—how would you assess or determine what’s an emergency? You can’t just call up and say, ‘I need more money.'”
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