Posted by Bear900/CA on 9/7/13 11:55am
Msg #483604
The New Reverse Mortgage in plain language
These changes are detailed in mortgagee letters 2013-27 and 2013-28 posted by HUD last Tuesday and include the consolidation of the HECM Standard and HECM Saver programs into one loan that still has various yet similar features.
HUD 'guidelines' are ‘minimal requirements’ and banks may add ‘overlays’ of their own. As of today, no bank has issued any information for the new HECM product, so everything stated here and what you have heard or read accept for the basics is subject to change.
New changes will affect case numbers after 9/30. FHA case numbers are assigned only after counseling and after the application. That can take a few weeks so unless you’re in the process the likelihood of getting into the old loan program(s) is slim from this point of view. Case numbers before 9/28 must close by 12/31/13.
Important terminology: PLF, or the Principal Limit Factor (cash available & allowed) on the loan is adjusted primarily by age. The new PLF charts show a reduction of 8 – 15% cash available from the current PLF. With that in mind, think about today’s online HECM calculators based on the current PLF. Scrap them!
The minimum up-front MIP starts at .50 up from .01 on adjustable loans, and can graduate up to 2.5% on fixed loans depending on the percentage of draw taken at closing. This comes out of the initial principal limit allowable. If the customer can stay at .50 on a LOC they will get the maximum draw over time, having saved 2% additional UFMIP at closing.
Here are some take-aways from yesterday’s meeting with HUD.
1. Draws - Borrower can take a lump sum draw and still have potential future draws on an adjustable rate LOC, same as in the past. They may also take a monthly term or tenure payment based on the amount available at closing not exceeding 60% the first 12 months. These are adjustable rate mortgages (ARMs), and what the program has basically reverted back to.
2. Unused portions of the LOC can still grow (growth rate is the sum of the int. rate plus the MIP factor) but will not be accessible until after the first year. The obvious reason is to keep people from blowing their money all at once.
3. Draws on the LOC after the first year can go up to the full (100%) principal amount available at closing, plus any growth in the LOC.
4. A growing LOC is a unique factor in HECM loans and makes it attractive as it grows (not earns interest) instead of collecting interest charges. In can be a good investment program and those are the customers that will largely be targeted.
5. A partial fixed rate lump sum (up to 60%) will be leaving money on the table because it requires the maximum UFMIP (2.5%) subtracted from the 60%.
6. HECM for purchase remains. Congratulations to Texas who recently adopted this plan!
7. Important – it is up to the lender to decide which of these product aspects will be offered. Expect each lender’s guidelines to be different from HUD’s.
What has changed?
8. Max draw for the first 12 months is 60% of the Principal Limit. After the first year, the rest (if any) may be taken in various increments. It is up to the customer to request this after 12 months (standard).
9. The 60% maximum allowable at closing includes all payoffs and closing fees, including set-asides for taxes and insurance if required. Required repairs will need to fit into the 60% as well.
10. Credit checks are now required to show payment history but there may be some allowance for things such as medical collections. I suspect this will be a lender overlay.
11. Debt to income ratios will not be looked at.
12. A financial analysis will be required starting January 2014. This is not a formal income statement. In fact HUD has no preset forms for it. It is a basic analysis of home and living expenses compared to present and future income. Monthly income is considered along with convertible assets such as pensions and 401ks.
13. Yesterday, one major LO software company announced it is looking closely to upgrade their software as soon as they “get more clarification from HUD”. This is needed to make accurate presentations and calculations to customers.
14. Payment of taxes and insurance are as always a requirement but unless a customer can prove sufficient cash flow, ‘set-asides’ for them will be required. These set-asides need to come out of the 60% available at closing. Remaining funds from the total principal limit will be available after 12 months.
15. If there are mandatory pay-offs (prior loans), the maximum cash available at closing will be the mandatory pay-off plus 10% of the PLF up to 60% maximum. The HUD letters have numerous examples.
16. The 60% availability at closing, T&I set-asides, credit checks and budget analysis are the biggest changes. It should be noted that counselors already do a brief budget analysis. Counselors will be going through re-training the end of this month.
17. One estimate stated that only one out five current recipients of HECM loans would now qualify under the new guidelines. That is not substantiated. While there is some cutting off at the knees for ‘needs based’ customers, HECMs will still be a viable product for boomers coming of age and wishing to invest or rid themselves of a mortgage payment. Marketing strategies will to adjust to that.
18. Monthly servicing fees (typically $0 to $20 per month) if set aside will be included in the 60%.
19. Big question you may have: How many years of set-asides for taxes, insurance, and service fees are required to come out of the initial 60% available at closing? That is based upon life expectancy and a voodoo chart put together by HUD after shaking a chicken head. As mentioned earlier, the new chart has reduced the total PLF between 8 – 15% determined largely by age.
20. Maximum loan limits for future? Unknown at this time per HUD.
21. Automated approval systems will still not be used as manual underwriting is required to look at each customer scenario. There are compensating factors that may be included.
22. CAIVRS checks must still be run. That’s a dead-beat data-base for people who skipped on prior govie loans.
Hopefully, this was not too simple or too difficult an explanation of the new reverse mortgage. This information is taken from Q&A during a nearly two-hour HUD meeting yesterday.
Best!
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Reply by Shoshana/AZ on 9/7/13 2:18pm
Msg #483626
Re: Adding a non-borrowing spouse to a Reverse Mortgage
It's not just when a person dies, but when he leaves the home to live in a nursing home, assisted living, etc. When the husband leaves the home, the heirs can choose to sell it or pay off the mortgage and do what they want with it. I have never seen it where the wife is on title, but not on the note. With the counseling that they have to attend, I am sure the counselor probably went over it with them. We should never get involved with that.
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