Bank of America Brings Fixed Rate Reverse Mortgage Back to Illinois, Will Others Follow?

image A few weeks ago Bank of America said that after reviewing policies and procedures as they relate to the Illinois High Risk Home Loan Act (HRHLA), it was suspending the fixed rate HECM in the state.

For the purposes of the HRHLA, the bank said closing costs which exceed 5% of the principal limit are considered high-cost.  However, this was an interesting number that they pulled from somewhere since no where in the HRHLA does it state 5%.  The number actually comes from the IL High Cost Lending Act of 2003 which states:

A "high risk home loan" is defined as the total points and fees payable by the consumer at or before closing will exceed the greater of 5% of the total loan amount or $800.

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Earlier this week, Bank of America sent a notice to correspondents which stated it’s resuming the fixed rate product in the Land of Lincoln.  All loans which were previously declined due to the suspension can be resubmitted for approval as long as they meet the following requirements:

  • Closing costs, defined as all costs paid by the borrower directly or indirectly, do not exceed 5% of the total loan amount.
  • Bank of America’s  high cost worksheet must be completed.
  • Bank of America’s high cost worksheet must be submitted to fulfillment and indicate that the loan has “passed” the high cost test.

I spoke with a handful of other lenders who are looking at Bank of America’s new approach to offering fixed rate products in Illinois and are considering following their lead to start offering it in the state.

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  • It would be interesting to know how the denominator is being defined. Is it before or after reduction for the servicing fee set aside? Of course such a concept is not contemplated in the Illinois law.

    For a 62 year old with an expected interest rate of 5.56%, MIP alone will be over 3.5%. Is MIP being excluded? If it is, it seems most “younger” seniors will still not qualify, unless all other costs are sufficiently less than 1.5%.

  • The actual loan amount is recorded as 150% of the appraised value or lending limit. So it sounds like they interpreted the law differently to use that instead.

    • So, Josh, is it your interpretation that the test is based on the lien amount? Although you may be right on point, that seems very odd since that amount is based on 150% of the MCA, no matter what the size of the principal limit actually is.

      For a home with a MCA of $600,000, the denominator would be $900,000. That would mean there would have to be $45,000 in closing costs. All HECMs would qualify. Even with a MCA of $100,000, closing costs of $7,500 or less, all but a few HEMs would again qualify.

      If the lien amount (150% of the MCA) is the criteria, what HECM fixed rate would not qualify? I hope you are right!!!

      • I think is possible that this is what caused the about face. If you read the quote from above it says 5% of the total loan amount. I dont think it would be out of line to call the total loan amount, the amount that is recorded on the mortgage/deed of trust.

      • I am waiting for a call back from the Illinois banking department attorney to clarify. One of the states I am getting licensed in is Illinois so I thought it would be good to know what he says the answer is. I will let you know what he says after I speak with him.

  • I'm sorry, I'm confused: Would someone with knowledge make this simple for me. Under Illnois law what would be the maximum fees allowed on an FHA HECM with a $200,000, $300,000, $400,000, $500,000, and $625,000 appraised home value with no mortgage debt (If that makes any difference?)?
    Is it a flat 5% of each amount or what? Sorry I'm so dense.

  • Admin, I think you mean there is not a “consistent” answer. Rest assured that some regulator or judge will one day define the right and wrong answer, even if it isn't known today. That's the essence of the risk.

  • So, Josh, is it your interpretation that the test is based on the lien amount? Although you may be right on point, that seems very odd since that amount is based on 150% of the MCA, no matter what the size of the principal limit actually is.rnrnFor a home with a MCA of $600,000, the denominator would be $900,000. That would mean there would have to be $45,000 in closing costs. All HECMs would qualify. Even with a MCA of $100,000, closing costs of $7,500 or less, all but a few HEMs would again qualify.rnrnIf the lien amount (150% of the MCA) is the criteria, what HECM fixed rate would not qualify? I hope you are right!!! rnrn

  • I think is possible that this is what caused the about face. If you read the quote from above it says 5% of the total loan amount. I dont think it would be out of line to call the total loan amount, the amount that is recorded on the mortgage/deed of trust.

  • I am waiting for a call back from the Illinois banking department attorney to clarify. One of the states I am getting licensed in is Illinois so I thought it would be good to know what he says the answer is. I will let you know what he says after I speak with him.

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