HUD Clarifies Originator Requirements, HECM Advisor Program Officially Dead

image The U.S. Department of Housing and Urban Development recently published Mortgagee Letter 2008-24 which clarifies who is eligible to originate HECMs and discusses the cross selling provisions contained in the Housing and Economic Recovery Act of 2008 (HERA).

Effective October 1, 2008, ML 2008-24 restricts the origination of HECMs to

  1. FHA-approved loan correspondents/sponsors
  2. FHA-approved mortgagees through their retail channels
  3. FHA approved lender working with another FHA approved lender

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Consequently, Mortgagee Letter 2008-14, which provided guidance regarding the ways in which a non-approved entity or third party (ie. Advisor program) may participate and be compensated, is rescinded.

The mortgagee letter also addresses the cross selling provisions under HERA, which states that loan originators cannot participate in, or be associated with, any other financial or insurance activity, or they must demonstrate to the HUD Secretary that they maintain, or will maintain, firewalls and other safeguards designed to ensure that (i) individuals participating in the origination of a HECM have no involvement with, or incentive to provide the borrower with, any other financial or insurance product; and (ii) the borrower shall not be required, directly or indirectly, as a condition of obtaining a HECM, to purchase any other financial or insurance product.

HUD will issue definitive guidance on this “cross selling” provision in collaboration with the industry through an administrative process.  During this process, FHA will seek comments from the public, including consumer groups, industry participants and other interested parties through appropriate administrative means.

However, HUD clearly states that until definitive guidance is issued, lenders must not condition a HECM mortgage on the purchase of any other financial or insurance product and that lenders should strive to establish firewalls and safeguards to ensure there is no undue pressure or appearance of undue pressure to purchase another product.

Mortgagee Letter 2008-24

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  • ood day,

    I do not agree with HUD, especially on the HECM Advisory program. I feel they are penalizing good providers of the program that are doing it the way it should have been done. HUD does not understand the interpretation of the word “Origination” and our legislators do not even understand what a Reverse Mortgage is.

    I feel the industry will suffer based on the position HUD is taking on many issues, it is sad. As far as fire walls being created for insurance agents and financial advisors, other measures could be implemented. In the past and the present many insurance agents and financial planers are employed part time with Reverse Mortgage lenders, am I to understand they must resign their positions? I would like specific clarification of this issue and I am sure all of you reading my comment would like an answer to that as well. That is my position on the ruling for what it is worth. Have a great day.

    Best regards,

    The Great American Philosopher

    http://www.thegreatamericanphilospher.com

    SPONSORED BY: John A. Smaldone

  • In eliminating the Advisor program HUD has only made it more difficult for a Senior to find a lender doing HECM’s. How does that help a senior?

    If HUD and Capital Hill want to address senior’s needs they should eliminate all of the deceptive advertising by companies trying to trick seniors. Seniors tend to be suspicious of a world that no longer honors a “handshake.” agreement. I get a call almost daily from one of my current clients and I have to ask them to get a magnifying glass to read the small print at the bottom of the page!

    If someone @ HUD in monitoring this blog they need to pay attention!

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