HUD Announced New Finalized HECM Rules for 2017
HUD announced their finalized rules enacting several policy changes to the Home Equity Conversion Mortgage (HECM) program which will go into effect later this year. What do these changes hold in store for interest rate caps, disclosure requirements, and new loan assignment guidelines and how will the final rules change the face of reverse mortgage originations? Welcome. This, is the Industry Leader Update. I’m Shannon Hicks.. This episode is brought to you by ePath Digital, providing real-time leads for today’s reverse mortgage professional.
After much anticipation and speculation, HUD announced their finalized rule changes for the Home Equity Conversion Mortgage. The rule changes were first proposed and opened to public comment last May. The rules could be seen as a continuation of the agency’s mission to solidify the reverse mortgage program under the Reverse Mortgage Stabilization Act of 2013 which gave HUD expanded authority to quickly enact additional rule changes as they saw fit. The new rules will go into effect September 19, 2017.
When it comes to reverse mortgage originations, loan officers and lenders will be required to…
3 Comments
Shannon,
Great summary.
There is one difference I noticed however. You correctly stated that all features and options must be disclosed but HUD states: “This rule requires that mortgagees inform potential HECM borrowers of all of the HECM products,
features, and options that FHA insures, in a manner acceptable to the Commissioner, irrespective of the particular HECM products offered by the mortgagee.”
So along with all HECM features and options HECM borrowers must be told of all HECM products as well.
Have a great New Year
Thank you Cynic and the clarification is well noted. Have a great week!
During the peak of the zany fixed rate Standard era, several originators not only refused to disclose all HECMs available to borrowers, but they also called providing information about adjustable rate HECMs and its incomparable line of credit, “steering.” Not only was this practice disgraceful but displayed their greed.
The bogus reasoning was that no senior wanted an adjustable rate HECM when fixed rate was available even when net proceeds available to the senior were all but the same. Yet even at the peak of the fixed rate Standard craze, we saw 27% (and more) of all borrowers selecting adjustable rate over fixed rate. Today the fixed rate origination percentage is about half of 27%. HUD is pleased by the latter results.
What the craze resulted in has been unacceptable losses in the MMI Fund and seniors being plagued by negative arbitrage on much of the proceeds received at closing. HUD’s reaction was to lower PLFs and place restrictions on first year disbursements.
Not providing reasonable complete and full disclosure should be unacceptable to the industry and those who promote it should be reprimanded by their employers. Unfortunately the person promoting the view of limiting disclosure claimed he was recognized by his employer (an approved mortgagee and one of the Big Five HECM lenders) as the most productive originator at that firm. While some claimed this attitude was found at the TPO level, it was far more pervasive than that and is still found in what its promoters call the business model for HECMs for Purchase.