HUD Updates Reverse Mortgage Servicing FAQ

image The Department of Housing and Urban Development updated its Frequently Asked Questions (FAQ) document for HECM servicers to include additional guidance on short sale closing costs.

The most recent question addressed in the new FAQ is below.

Q:  What closing costs will HUD allow to be deducted from HECM sales proceeds for either mortgagor or mortgagee sales?

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A:  HUD does not dictate what closing costs may be deducted from HECM sales proceeds, but rather controls only what the mortgagee may be reimbursed through the claim process.

There has been some confusion regarding how Mortgagee Letter 2006-04 applies to sale of properties with HECM loans. ML 2006-04 rescinded paragraph 5-2 of handbook HUD 4000.2, Rev-3, in which specific items were designated as allowable closing costs, and allowed mortgagees to “charge and collect from mortgagors those customary and reasonable costs necessary to close the mortgage.” Although there was mention of HECM in that ML, the guidance was strictly applicable to loan origination. It addressed closing costs that could be collected from the borrower in relation to obtaining an FHA loan to purchase a home and also what costs lenders could charge to HECM borrowers for origination. References to seller’s contributions applied only to forward mortgages for which FHA insured loans were being used to purchase a home.

That ML notwithstanding, HUD will reimburse mortgagees for reasonable and customary seller’s costs, per jurisdiction, that have been deducted from the sales proceeds at settlement for sales of properties with HECM loans. 

Allowable settlement costs include, but are not limited to:

  1. Sales commission consistent with the prevailing rate but, not to exceed 6%;
  2. Real estate taxes prorated to the date of closing;
  3. Local/state transfer tax stamps and other closing costs customarily paid by the seller including the seller’s costs for a title search and owner’s title insurance;
  4. Any charges required by state law or local ordinance to be paid by the seller, such as, but not limited to, attorney fees, probate fees, representative fees (i.e., personal representative for an estate).

Likewise, HUD will reimburse the mortgagee for costs that are customarily paid by the seller on the buyer’s behalf in that jurisdiction. Those costs must be itemized on the HUD-1 at closing and may not exceed actual costs. It is the mortgagee’s responsibility to obtain satisfactory documentation to that effect and submit it to HUD with the claim if they request reimbursement for these items. Lump sum contributions will not be considered.

Unacceptable closing costs, which will not be reimbursed by HUD regardless of local customary allowances, include, but are not limited to:

  1. Repair reimbursements or allowances;
  2. Home Warranty fees;
  3. Tax service fees;
  4. Discount points or loan fees for non FHA-financing;
  5. Wire transfer fees;
  6. Courier or messenger fees;
  7. Any items identified only by the term “miscellaneous” or “other”.

Claim Filing

All allowable settlement costs not claimed elsewhere in specified item numbers on the Form HUD-27011 are entered in Part D, item 408, with a clear explanation that the cost is customary for the jurisdiction. Documentation of customarily paid charges must be submitted to HUD with the claim package.

To read the rest of the FAQ click the link below.

HECM Servicing FAQs

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  • I am a Realtor and I am attempting to close a short sale on a HUD insured reverse mortgage. We have an otherwise qualified FHA buyer but Bank of America says their interpretation of HUD guidelines prevent them from paying typical, ordinary and customary seller and buyer loan costs. For instance, despite the fact that nearly all closing in Washington State are handled through an independent 3rd party, an escrow or an attorney, Bank of America says HUD guidelines forbid them from paying a closing settlement or escrow fee. They justify their decision by claiming that since Washington Law doesn’t specifically state dictate that closings have to occur through an escrow company or an attorney, they cannot be considered typical, ordinary or customary. Except for the closing of a FHA repo, in my own 38 years of experience in real estate, I have not had a circumstance where a closing or settlement fee was not paid in some fashion. In the case of the FHA repo, HUD has a specific closer located in Snohomish, Washington, who is under contract with FHA to handle those closings.

    The bottom line though, our FHA buyer will likely be unable to complete the purchase because, like a majority of FHA buyers in our jurisdiction, the buyer lacks the additional funds, beyond the down payment, to complete the FHA purchase. Bank of America’s contention is, the data we’ve provided concerning what is typical, ordinary and customary in our jurisdiction has been deemed unsatisfactory. Yet, Bank of America has been unable to identify for us what exactly would be deemed satisfactory.

    My questions are;

    1). Is there any recourse against Bank of America?
    2). Is it really the intent of HUD to essentially make it impossible for a FHA buyer to purchase a home where it involves the short sale of a HUD insured reverse mortgage?

    In the case mentioned above, due to Bank of America’s rigid unrealistic interpretation of the HUD guidelines, that is exactly what is happening. Is that really the intent?

    I would be extremely interesting in a response to our situation and my questions.

    Respectfully submitted.

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