On May 16, 2008, the U.S. Department of Housing and Urban Development published Mortgagee Letter 2008-14, which provides guidance on the role of “advisors” in the HECM program. The only lender I’ve seen make any drastic changes to their advisor programs after ML-14 was released is Countrywide. As of May 16th, Countrywide Reverse Mortgage Advisor Direct program will no longer be available to FHA-approved entities. They have also decided to discontinue their Advisor Program with respect to its proprietary reverse mortgage products (ie. Simple Equity) involving any entity acting as an advisor.
NRMLA recently issued a clarification to help give the industry additional insights and reminders around the Mortgagee letter. Below is an overview of the letter from NRMLA:
First, the Mortgagee Letter states that only “non-FHA approved” brokers may serve as advisors. This letter states formally that FHA policy permits a non-approved entity or third party to assist in the origination of insured loans in certain limited ways, and to receive compensation for such services actually provided under certain limited circumstances.
Second, the Mortgagee Letter outlines those activities that can only be preformed by an FHA- approved entity (i.e., not an “Advisor”):
- Taking information from the borrower and filling out the loan application
- Analyzing the perspective borrower’s eligibility for a reverse mortgage
- Collecting financial information, if applicable, and other related documents that are part of the application process
- Initiating/ordering verification of deposits or assets if applicable
- Initiating/ordering requests for mortgage and other loan verifications
- Initiating/ordering appraisals
- Initiating/ordering inspections or engineering reports
- Providing disclosures (truth in lending, good faith estimate, others) to the borrower
- Assisting the borrower in understanding and resolving adverse property conditions
- Ordering legal documents
- Determining whether the property is located in a flood zone or ordering such service and
- Participating in the loan closing
Third, the Mortgagee Letter outlines those activities that “Advisors” may undertake, and the conditions and compensation guidelines:
- Educational – type originator services
- The advisor or independent third party (non FHA approved) must be engaged independently by the homeowner
- There must be no financial interest between the mortgage broker and the mortgagee
- The fee paid to the Advisor must be included as part of (and subtracted from) the origination fee
- The Advisor may not be compensated for simply referring the loan application to FHA approved entities
- The Advisor may not perform the origination activities that must be performed by the FHA approved originator (as outlined above)
- Advisor services may include compensation for advising on different loan products, demonstrating various closing cost options and payment options, maintaining contact with the lender to keep the borrower apprised of the status of the application.
Fourth, the Mortgagee Letter reminds the industry of RESPA Statement of Policy 1999-1 which addresses the amount of compensation a mortgage broker may receive for such services:
- The Advisor provides actual services and not just a referral
- The services are meaningful and do not constitute steering or merely delivering a loan with a higher rate (per RESPA definitions)
- The compensation is paid from the borrower directly from the borrower’s own available assets or from HECM proceeds
- The amount paid is no more than the reasonable value for such services
- The final HUD-1 settlement Statement contains the amount paid and the name of the mortgage broker
- The signed written agreement between the borrower and the Advisor, describing the advisory and educational services to be performed and the amount of compensation for each service, is included in the FHA case binder.
Fifth, other regulators, also charged with reviewing RESPA compliance, including for example the FDIC and NCUA and state regulators, may have expressed views about the HECM Advisor program, and their views also need to be considered by NRMLA Members regulated by them.