Two new ethics advisory opinions have been crafted and published in light of recent changes to the federally-insured home equity conversion mortgage (HECM) program.
The National Reverse Mortgage Lenders Association’s Ethics and Standards Committee has released two advisories which discuss anti-churning and the new single lump sum disbursement payment option, and the ethical considerations affecting HECM initial mortgage insurance premium (MIP) decisions.
NRMLA members are restricted from refinancing single disbursement lump sum loans within the first year of closing a HECM loan under the Ethical Refinancing of HECM Single Disbursement Lump Sum Payment Option Loans and Anti-Churning Practices advisory opinion due to the potential impact on the secondary market.
“It is the view of the Committee that planned repayments of HECM Single Disbursement Lump Sum Payment Option Loans into other HECM loans, within the twelve month period following the closing of such initial HECM loans, can seriously impede the development and vitality of the secondary market for HECM loans,” says the advisory.
The other advisory, Ethical Considerations Affecting HECM Loan MIP Premium Decisions, instructs NRMLA members to treat consumers fairly by describing to them in a “clear and timely manner” how the amount of the initial MIP can differ depending on the size of the loan disbursement as a percentage of the principal limit.
“A consumer with a $200,000 home and a $100,000 initial principal limit takes a loan disbursement of $61,000. Because the payout is over the 60 percent threshold, the consumer pays an upfront MIP of $5,000 (2.5 percent of $200,000), whereas if the same person had taken $1,000 less, he would have paid $1,000 in MIP (0.50% of the MCA),” says the advisory in an example.
Both advisory opinions provide examples of HECM loans under certain circumstances relating to the new rules and program changes.
Written by Alyssa Gerace