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
- FHA-approved loan correspondents/sponsors
- FHA-approved mortgagees through their retail channels
- FHA approved lender working with another FHA approved lender
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 Advisor program) may participate and be compensated, is rescinded.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.