7 minute readOn the Docket: NRMLA Counsel Summarizes Recent HUD Changes In June, FHA released two new mortgagee letters—one addressing advertising outside the bounds of the program and the other addressing products not in keeping with the program’s mission of prolonging availability of a senior’s assets.
We asked our attorneys, Jim Brodsky and Jim Milano of Weiner Brodsky Kider, to summarize the most essential points. Once you’ve read this summary, we highly recommend your read the mortgagee letters in their entirety.
FHA Releases a Mortgagee Letter Reminding HECM Mortgagees of FHA’s Prohibition on Misleading or Deceptive Advertisements and Restricting a Mortgagor’s Freedom to Choose a HECM On June 18, FHA released ML 2014-10 reminding HECM mortgagees of requirements prohibiting misleading or deceptive advertising and clarifying that the prohibition extends to descriptions of FHA HECM programs. ML 2014-10 also reminds HECM mortgagees of the full extent of a mortgagor’s choice in selecting a HECM program and FHA’s prohibition on restricting such choice.
In addition, pursuant to ML 2014-10, all advertisements or marketing materials used in connection with the HECM program for the purpose of describing and illustrating to the public the types of loan products offered by the mortgagee must include a disclaimer that clearly informs the public that such materials are not from HUD or FHA and the document was not approved by a government agency. This disclaimer must be displayed in a conspicuous location. As provided in ML 2014-10, failure to follow these requirements may result in sanctions, including civil money penalties or administrative action against any person, party, company, firm, partnership or business, including non-FHA-approved institutions and individuals.
FHA Releases a Mortgagee Letter that Makes Several HECM Policy Changes and Limits the Insurability of Fixed Interest Rate Products Under the HECM Program On June 18, FHA released ML 2014-11 under the authority granted to HUD in the Reverse Mortgage Stabilization Act of 2013 to amend the FHA HECM program. The letter announces several policy changes to the program and limits the insurability of fixed interest rate loans to mortgages with the single disbursement lump sum payment option. As stated in ML 2014-11, the HECM fixed-rate product changes eliminate potential hedging and interest-rate risk associated with post-closing future draw features on fixed-rate HECMs. These changes also align FHA’s policy with Ginnie Mae’s recent announcement that fixed-rate HECMs with future draws are ineligible for GNMA-guaranteed HMBS securities.
The HECM policy changes made by ML 2014-11 include, but are not limited to:
-Limiting FHA insurance to fixed-rate HECMs that provide for a single, full draw to be made at loan closing and do not provide for future advances to the mortgagor under any circumstances
-Eliminating the availability of the single-disbursement lump sum payment option for adjustable interest-rate HECMs
-Changes to unused repair set-aside funds for fixed-rate HECMs
-FHA Connection updates
-Removing the requirement to use a HECM Second Security Instrument and HECM Second Note for fixed interest rate HECMs
In addition, ML 2014-11 provides two sets of revised model fixed interest rate HECM loan documents. The first set of documents is for HECMs with FHA case numbers assigned on or before August 3, which mortgagees may use to update fixed interest rate loan documents for new mortgages and pending mortgages that did not close prior to the effective date of ML 2014-11. The second set of documents is for HECMs with FHA case numbers assigned on or after the effective date of ML 2014-07, which mortgagees must begin using on or after that letter’s effective date of August 4.
FHA will allow “pipeline” fixed-rate, future-draw HECMs to close if certain requirements are met. When a mortgagee has initiated the origination of a fixed interest rate traditional or refinance HECM transaction that allows the mortgagor to access the loan proceeds after loan closing, but did not close on or before the effective date of ML 2014-11, the mortgagee must ensure the following requirements are met for the mortgage to be eligible for FHA insurance:
1) The case number was requested on or before July 2, 2014.
2) HUD systems will reflect the mortgagor’s payment option of either term, tenure, line of credit, modified term or modified tenure.
3) All other HECM program and property eligibility requirements are met.
4) The loan closing is completed on or before September 30.
In addition, as stated in ML 2014-11, “FHA only permits a mortgagee to order a purchase transaction FHA case number in FHA Connection for a mortgage on a property that has been issued a Certificate of Occupancy and the required HECM counseling has been completed.” To avoid any negative impact on a HECM mortgagor who had previously entered into a bona fide sales contract and made an earnest money deposit on a property before the effective date of ML 2014-11, FHA will allow HECM mortgagees to request a purchase transaction FHA case number with a fixed interest rate where:
1) The mortgagee requests the case number on or before July 2.
2) The mortgagee obtains a copy of the mortgagor’s bona fide sales contract and evidence of the earnest money deposit that were executed and paid by the mortgagor before June 18.
3) HUD’s systems will reflect the mortgagor’s payment options of either term, tenure, line of credit, modified term or modified tenure.
4) The required HECM counseling will be completed prior to the date of loan closing.
5) The Certificate of Occupancy will be issued prior to the date of loan closing
6) These mortgages comply with existing FHA case number expiration requirements.
FHA Issues Indefinite Timeframe Extensions on Certain Foreclosures The following information has also been provided by Jim Brodsky.
As a response to an order from the judge in two current lawsuits filed on behalf of non-borrowing spouses who faced foreclosure, FHA is currently providing HECM mortgagees in certain situations an indefinite extension of time in which to begin legal action to commence foreclosure.
As per a Notice of Information issued on June 25, the mortgagee may elect to take such an extension in any circumstances in which the mortgagee believes the following criteria are or reasonably can be met:
- The non-borrowing spouse would have had a PLF greater than or equal to the PLF of the HECM borrower spouse, or the non-borrowing spouse’s PLF would have resulted in a current principal limit that is greater than the current unpaid principal balance, provided that the maximum claim amount is not exceeded.
- The non-borrowing spouse was legally married to the HECM mortgagor at the time of origination and remained married throughout the HECM mortgagor’s life.
- The non-borrowing spouse has title to the property or a legal right to remain in the property.
- The HECM is not in default for any other reason.
- There are no allegations or claims that would invalidate the HECM or any such allegations or claims have been judicially resolved in favor of the mortgagee.
- The property securing the HECM has not been sold to a third party.
The request for extension is currently at the mortgagee’s discretion and FHA will not deny any request if the mortgagee believes the criteria have been met.
This action, a response to the Plunkett et al v. Donovan and Bennett et al v. Donovan cases now before the District Court in the District of Columbia, provides FHA with time to reconsider its current policies with regard to non-borrowing spouses.
The Extreme Summit: New Reverse Mortgage Pilot Launches in Three Cities The New Reverse Mortgage Educational Campaign (formerly known as the Extreme Summit) launched July 7 in Denver, Seattle and Philadelphia with the “Smart Choice” television commercial running within a 50-mile radius of each city.
In the weeks before the launch, more than 200 NRMLA members participated in preparatory sessions in each test market and on a national webinar to which all members were invited.
The intent of the campaign is to broaden the understanding of reverse mortgages among aging Americans and their families, explain how recent changes to the HECM program make the reverse mortgage a “new” product, and demonstrate the large variety of ways people utilize reverse mortgages to supplement retirement.
You can learn a lot more about the campaign and its message at newreversemortgage.org.
