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FHA Commissioner says the agency is fully committed to the HECM program

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EPISODE #798

FHA Commissioner says the agency is fully committed to the HECM program

[Reverse Mortgage Daily]

FHA Commissioner Julia Gordon reaffirmed the agency’s commitment to the HECM program in her keynote address to the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville, Tennessee last week.

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3 Comments

  1. Perhaps this HUD supported new proposal will help increase H4P endorsement volume but if it does, it is my belief that it will be marginal at best. If the purchase price as currently determined exceeds the uppermost limit of the MCA, this proposal will not help. If the appraisal estimate is lower than the purchase price as currently determined, then again this proposal will not help.

    This proposal will only help when 1) there are credits and 2) both a) the appraisal estimate and b) the uppermost MCA limit are higher than the purchase price as currently determined. Do any other readers have any differing opinions as to the impact that this proposal would have on H4Ps?

  2. I hope FHA will also allow Lender Credits for the borrower. Combined closing costs often takes a big bite out of funds Sr. citizens are needing. Closing with a higher rate – producing more $’s to the lender – allows the lender to absorb buyer cost – sometimes most or all of it. Yes the borrower is icurring higher interest rate but the LOC is also earning higher rate of interest. My veiw give the borrower as much as possible. it’s THEIR money and usually thier need! Until the recent change in lender credits, I always gave the borrower all their options … and they most often chose that higher rate, which gave them more funds at closing.

    • You seem to believe that the proceeds when taken out of a HECM LOC by the borrower are somehow uniquely protected by law. They are not. In one case I met a gentleman who originated his HECM and did as you suggest. The expected rate he had been offered was 4.5%. He was originating HECMs at the time and he knew that his HECM LOC would not be decreased if he went to 5.06% (at that time the expected rate floor was 5%). So he agreed to increase the margin on his loan by 0.56%. Over time his HECM LOC grew faster than it would have otherwise have grown. BUT before he could draw any of his LOC, he had incurred a large IRS liability in an audit of a prior flow through business he had been a part of. Between the tax incurred and penalties and interest, he was unable to pay the tax bill. His income tax attorney warned him that if he requested any proceeds from his HECM LOC, the IRS could take them. Now he was in a real dilemma. If he refinanced to a lower rate, the lender would be forced to pay out all available funds to the IRS after the existing HECM was paid off and his upfront costs had been paid. He was stuck and there was nothing that could be done about it. He died and his UPB at death was about $50,000 greater than if he had taken the lower margin. There are certain civil suits that could result in liens on the principal residence resulting in the same situation.

      You are right about lenders ONCE reducing upfront costs when borrowers took higher interest rates. I am not aware of any doing that now. Of course the originator can generally do that but I know of few who do other than perhaps not charging a portion of the origination fee or they are in some kind of bidding war to get the business.

      What really surprised me is that in a 3% expected rate floor environment, you suggest that taking a higher interest rate will create a larger LOC over time. When will that happen? In all the cases I am aware a margin will result in a lower principal limit, reducing the LOC at closing. When I have tested to see when the LOC with the higher interest will grow to exceed the LOC with the lower interest rate, the result is well over a decade after closing. Since the average HECM terminates within 11 years after closing, the risk of a higher UPB to the borrower seems inappropriate.

      Try running the numbers.


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