HUD Unveils Details for Reverse Mortgage HECM Saver

HUD has made it official.  With Mortgagee Letter 2010-34, HUD announces the Reverse Mortgage HECM Saver program. HUD has changed the reverse mortgage known for so many years simply as a HECM ("Heck-um" or Home Equity Conversion Mortgage) to the HECM Standard and introduced the new product as the HECM Saver.  So just what is a HECM Saver?

The HECM Saver is a reverse mortgage just like the HECM Standard and offers the same five payment options that the tradition HECM Standard has offered (that is a tenure or payment for life; term or payment for a set number of years; line of credit; modified tenure which is a combination of a line of credit and payment for life; and modified term which is a combination of a line of credit and a payment for a set term). In a addition, borrowers can always opt for a lump-sum distribution of all proceeds.  So far it sounds like the same program so you may be asking yourself, "What's the difference?"

The HECM Saver has lower Principal Limit Factors than the HECM Standard program.  In other words, the borrower will not receive as much money under this program as he or she would under the traditional HECM Standard loan.  So far it may sound like a terrible thing but since the loan amounts are lower in comparison to the property value, HUD recognizes the lower risk and the Up-Front Mortgage Insurance Premium (UFMIP) has been greatly reduced as a result.

For a standard loan, the UFMIP  is 2% of the property value or the HUD lending limit, whichever is less. The new HECM Saver carries with it an UFMIP of just .01% which is a tremendous difference.  For example, on a $500,000 property, the UFMIP is $10,000 for a HECM Standard and is typically the highest single cost in any reverse mortgage transaction.  That same cost for the HECM Saver will now be reduced to $50.  That's a savings of $9,950.  Both programs will require the same renewal premium that HUD will put in place as of October 4, 2010, and that is 1.25% of the outstanding principal balance.

For a borrower looking to get the absolute most amount of money possible to pay off existing mortgages and other liens, this may not be the best option.  But for borrowers who were not necessarily looking to get all the cash available or who intended to only use a portion of the funds and keep the rest in a line of credit for a "rainy day" anyway, this represents an excellent opportunity to save.

Furthermore, some borrowers are lucky enough in today's market to have some if not all of their fees paid for on the fixed-rate product, but that may not always be possible and is certainly not as prevalent on the adjustable rate programs. The HECM Saver gives future borrowers an opportunity to save money on both fixed rates and adjustable rate programs, even if lenders are unwilling or unable to pay borrower costs on the programs at that time. 

HUD has also allowed the HECM Saver product to utilize the same rules relative to refinances that they currently use with the HECM Standard, but they will allow borrowers to refinance from one HECM product to another.  In other words, borrowers who choose to use the HECM Saver product can refinance later into the HECM Standard loan, if they see that they absolutely need the additional funds. 

While any redundancy in refinancing does duplicate some of the closing fees and should be avoided if you know you are just going to have to refinance in a year or two anyway, it's nice to know the option is there and that you are not precluded from taking advantage of the full program later if you find you must. 

It's not yet certain by all how these loans must be sold in the secondary market so pricing has not been announced yet.  However, if they can be bundled with the HECM Standard product then borrowers should be very pleased with the new HECM Saver.

If you would like a personal analysis of the HECM Saver program please complete our online questionnaire or call us Toll free at (888) 801-2762

Additional resources:

• HUD First Talks of the HECM Saver Program
• Reverse Mortgage Daily: FHA Announces HECM Saver