Hecm Loans

7/28/2019 Hecm Loans

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Home Equity ConversionMortgages (HECM)

Section 255 of theNational Housing Act


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HECM

Purpose

Definition A loan against home equity providing cash advances to the

borrower No repayment until a future time

Closing costs financed


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HECM

Borrower retains home

Cash advances

Some loan fees can be financed

Loan balance rises

No repayment is required

Non-recourse limit


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ELIGIBLE HOMEOWNERS

Age 62 and over (all owners)

Occupy home as principal residence

Own home


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ELIGIBLE PROPERTIES

Home must be a single-family, 1 to 4 unit, owner-occupied dwelling

Condominium eligibility

Manufactured home eligibility

Planned unit developments may be eligible

Home must meet FHA minimum property standards


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ELIGIBLE ACTIVITIES

First time program participant

Refinance existing HECM


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REFINANCE EXISTING HECM

Mortgagee Letter 2004-18

Refinancing for existing HECMs

Lower UFMIP for refinances (2%) Anti-Churning Disclosure

Opt out of Housing Counseling

Revised HECM Calculation Software

Anti-churning disclosure

Data entry requirements

Counseling requirements


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PRINCIPAL LIMIT

Loan amount advance(s) depend on factors Age of youngest borrower Value of home or FHA mortgage limits

Cost of the loan

Payment plan selected by the borrower

Interest rate


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Forward vs Reverse

Purpose: To purchase a home

Beginning borrower

has:

No equity

During loan, borrower:

Monthly payments Loan balance goes down

Equity grows

Purpose: To generate income

End borrower has:

Substantial equity

During loan, borrower:

Monthly payments Loan balance goes down

Equity declines


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Forward vs Reverse

At end of loan borrower:

Owes nothing

Has substantial equity

FALLING DEBT

RISING EQUITY

At end of loan borrower:

Borrower owes

substantial amount

Has much less, little, or

no equity

RISING DEBT

FALLING EQUITY


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PAYMENT PLANS

TENURE

MODIFIEDTENURE OR

TERM

LINE OF CREDIT

TERM


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PAYMENT OPTIONS

Tenure Borrower receives monthly payments from lender as long ashome is occupied as principal residence

Modified Tenure Combination of a line of credit with monthly payments as long as

one borrower remains in the home

Term Borrower receives monthly payments from lender for fixed period

selected by the borrower

Modified Term Combination of line of credit and monthly payments for fixed

number of months


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PAYMENT OPTIONS(Contd)

Line of Credit

Borrower draws up to a maximum amount at times and in theamounts desired until credit line is exhausted

Amount of cash available grows larger each month until thecredit line is exhausted.


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PAYMENT OPTIONS(Contd)

Borrowers may change payment options during the loanterm

Maximum charge for each change is $20


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HECM PAYMENT CALCULATIONS

Download from: www.hud.gov/offices/hsg/sfh/hecm/hecminst.cfm

www.reverse.org

Handbook 4235.1, Chapter 5, Appendix 22 (HECM Handbook)
http://www.hud.gov/offices/hsg/sfh/hecm/hecminst.cfmhttp://www.reverse.org/http://www.reverse.org/http://www.hud.gov/offices/hsg/sfh/hecm/hecminst.cfm


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LENDER PARTICIPATION

Any FHA-approved lender may originate HECM loans

Lenders earn an origination fee and either Earn servicing fees or

Sell servicing rights to other companies

Lenders are protected against loan losses


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HECM

Financial Requirement

No income or credit qualifications

No repayment

Closing costs may be financed


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COUNSELING REQUIRMENT

Homeowner must receive counseling from a HUD-approved housing counseling agency

Certificate issued to the homeowner

Homeowner submits certificate to lender for processing of loanapplication


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TYPES OF HECM COUNSELING

Face-to-face FHA requires face-to-face interview with either the mortgagee or

the HUD-approved housing counseling agency

Telephone counseling Seniors may prefer telephone counseling for a variety of

reasons, including limited mobility and health conditions


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TELEPHONE COUNSELING

AARP Foundation network Counselors (MMI and NFCC) No conditions or requirements

HUD-Approved Housing Counseling Agencies Under a limited set of circumstances

Fannie Mae Telephone HECM Counseling Under a limited set of circumstances


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TOPICS COVERED DURING

COUNSELING

Options, other than a HECM (i.e., social service health,and financial aid)

Other home equity options (i.e., other reverse mortgageproducts, deferred payment loans, etc.)

Financial implications of obtaining a HECM

Disclosure information (i.e., estate planning, taxconsequences, and impact on heirs of homeowner)


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PERMISSIBLE LENDER ACTIVITIES

PRIOR TO COUNSELING

Take application

Explain HECM program

Provide information on fees and charges

Explain financial implications

Provide copies of mortgage, note and loan agreement


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FEES AND CHARGES

Lenders may not charge the borrower for feesand services rendered prior to completion ofcounseling

Prohibited activities Charging application fee Charging appraisal fee

Ordering FHA case number

Performing title search


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HECM


Refinancing for existing HECMs

Lower UFMIP for refinances (2%)

Anti-Churning Disclosure

Opt out of Housing Counseling

Revised HECM Calculation Software


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HECM


Signature reduction

Submission of case binder documents

Revised instructions to Residential Loan Application for

Reverse Mortgages


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HECM


Face to face interview requirements

When telephone counseling is permissible and who may

provide it

Simplifies identification of eligible HECM counselingagencies

HUDs creation/support for AARP counselors


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HECM PAYMENT CALCULATIONS

Download from: www.hud.gov/offices/hsg/sfh/hecm/hecminst.cfm

www.reverse.org

Handbook 4235.1, Chapter 5, Appendix 22 (HECM Handbook)
http://www.hud.gov/offices/hsg/sfh/hecm/hecminst.cfmhttp://www.reverse.org/http://www.reverse.org/http://www.hud.gov/offices/hsg/sfh/hecm/hecminst.cfm


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LINE OF CREDIT IN TEXAS


Home Equity Conversion Mortgage program Line of Credit

Payment Option for Texas Single Family

Effective March 1, 2006

Permits borrowers in Texas to choose line of credit paymentoption

HECM borrowers must refinance their existing FHA-insured

loan to take advantage of the new Line of Credit option


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QUESTIONS??

Documents

Hecm Loans