Key Components of the Housing Bill

1.)  Lending Limits*
 
Maximum HECM (Home Equity Conversion Mortgage) Loan Limits have not been resolved yet.  HUD lawyers are currently working with legislators to interpret the language in the new law.  

There are 3 possible scenarios that could be implemented:
   a.  National Loan Limit of $417,000
   b.  National Loan Limit of $625,500
   c.  Area limits at 115% of the area median home values, ranging from $417,00 - $625,500.
 
Impact on You:  Regardless of which option is implemented, these higher loan limits will provide a great refinance opportunity for seniors with higher value homes who have already done reverse mortgages, as well as many more seniors who may now do a reverse mortgage since they will have access to much more equity.
 
Implementation Date:  If Option A or B are implemented, either of these options could be implemented quickly and the goal would be October 1, 2008; the start of the federal fiscal year.  If Option C is implemented, it is assumed that the effective date would be postponed while HUD calculates these area limits, with an implementation date likely on January 1, 2009 when the forward limits would also change.  (If this option is taken, the current FHA limits would remain in effect through the end of the year.)
 
* Please note, this information is not an offer to lend on proposed lending limits. All Reverse Mortgage Company will not accept applications on new lending limits until the official mortgagee letters have been released by HUD. If you are waiting for the increase in limits please call or complete our online questionnaire.

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2.  Origination Fees
 
The new origination fee calculations would provide for an Origination Fee of 2% on the initial $200,000 of max. claim amount and 1% on the max. claim amount thereafter, with a cap at $6,000.  
 
This cap would be adjusted for inflation, but will only be adjusted when necessary in $500 increments.
 
There is also discussion at HUD that would simultaneously increase the origination fee floor from $2,000 to $2,500.
 
:This new origination fee calculation will be implemented concurrently with the new lending limits.

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3.  Eligible Originators
 
This piece of the legislation clearly outlines who can and cannot be involved in the origination of HECM reverse mortgages.  It states that all originators must be FHA approved lenders/correspondents.  The following is a direct quote from the Bill itself:
 
"All parties that participate in the origination of a mortgage to be insured under this section shall be approved by the Secretary."
 
Implementation Date:  This will be implemented via Mortgagee Letter within 30 days, with an effective date 30 days after that, no later than October 1, 2008.  The effective date will most likely impact loans with an application date from the effective date on, so any loans currently originated and in the pipeline would still be allowed to close.

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4.  New Products & Features!
 
There are several new products and features that will now be available to the reverse mortgage industry, including HECM for purchase, HECM for Co-Ops and manufactured homes.
 
   a.  HECM for Home Purchase
This would allow the HECM to be used for a purchase money mortgage.  The value would be based on the lesser of the sales price or appraised value.  Also, the home must be bought outright with a combination of the reverse mortgage and cash.  No subordinate liens can be created, and any unsecured debt, credit card, etc.. can be used.  This restriction is very similar to the current regulation in regards to bringing money to closing to pay of mortgages.
 
Implementation Date:  The Mortgagee Letter has already been drafted, and the proposed implementation date is within the next 60-90 days.
 
   b.  HECM for Co-Ops
This will allow the HECM loan to be used on Co-Ops throughout the country.
 
Implementation Date:  This Mortgagee Letter has already been drafted with a proposed implementation date in 60-90 days, effective 30 days after the Letter is released.
 
   c.  Manufactured Homes
First, this will allow HECM loans on manufactured homes that are in Condo developments.  Second, it will include a complete overhaul/streamlining of the entire condo development approval process.
 
Implementation Date:  The first piece, allowing manufactured homes in condo developments will have a Mortgagee Letter released in about 30 days, with an effective date 30 days after that.  The second piece, the entire overhaul of the condo approval process is a more long-term endeavor and will be done next year, most likely.

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5.  Counseling
 
Lenders will no longer be permitted to pay for counseling, either directly or indirectly, under any circumstances whatsoever.  The counseling will either have to be paid directly by the borrower or from HUD grant money.
 
Counselors must have a policy for hardship cases for borrowers that can't afford the counseling, and can not deny counseling to a potential borrower based on their inability to pay.
 
Sometime this Fall, HUD will also begin requiring all individuals on the roster of approved HECM counselors to have passed the counseling exam. Individuals currently doing HECM counseling will have up to six months to pass the exam; new counselors will have to pass before beginning counseling. New counseling protocols will also be implemented this Fall.
 
The law calls for HUD to consider utilizing some of its FHA Mortgage Insurance Premium income to pay counseling costs, but HUD's lawyers have determined that this provision is flawed and would violate federal credit reform requirements and is impossible to do.
 
Implementation Date:  Mortgagee Letter should be issued on this within the next 30 days.

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6.  Other Items

The Bill also addresses, or fails to address, several other important issues.
 
   a.  Eliminates the Waiver of Upfront MIP when the proceeds are used to fund a Long-Term Care insurance policy.  
 
This waiver was put into law as part of the 2000 Housing Bill, but was never implemented within the industry.
 
   b.  HECM Cap will need another suspension.  The current cap is 275,000 loans, but we have crossed well above this figure at this point.  
 
We expect that the HECM Cap suspension will be continued until next year through a Continuing Resolution by Congress later this year.
 
   c.  The Bill also requires several studies to be completed.  FHA will be conducting a study on the consumer impacts of changes in the legislation, while the General Accounting Office (GAO) will be conducting studies on the financial soundness of the program and ways to reallocate or adjust the upfront MIP fees.

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7.  Cross-Selling Other Financial Products
 
As far as the new language requiring lenders to have "safeguards and firewalls" to make sure individuals do not have any incentives for cross-sales of other financial or insurance products with HECMs, HUD will be issuing a Federal Register notice soliciting industry input on how to implement this provision. It will take a few months before they can do this. However, in the meantime, NRMLA members should be forewarned that the new law is in effect -- even though no guidance will be issued for a while -- so you are advised to consult with your own counsel and take steps to assure you do not run afoul of this legislative language.
 

Implementation Date:  This will take HUD several months to issue any guidance on.

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UPDATE: 10/02/2008

"This morning, FHA Commissioner Brian Montgomery announced that the new HECM nationwide loan limit (maximum claim amount) will be $417,000. The target effective date is November 1"

This is a target date right now, not a set deadline. We still expect FHA to increase the “floor” on the origination fee from $2,000 to $2,500. A mortgagee letter will be published shortly that provides additional details.

There was some debate within HUD to consider area limits at 115% of area median home value, with a floor of $417,000 and a cap of $625,500. Ultimately, the interpretation was determined that the new legislation will be a $417,000 loan limit. As many of you recall, this was the original limit embraced by the industry.

As NRMLA requested a more liberal interpretation to $625,500 in high cost areas, the complexity of the bill’s language created much debate and ultimately this final decision. Nonetheless, we are pleased with this major milestone for the industry.

A majority of U.S. counties have lending limits at the existing floor (currently $200,162), which has drastically reduced the amount of equity that seniors living in higher-valued homes could access. We believe these new limits will have a significant impact on the quality of life and provide more relief to those seniors who need the help especially in today’s turbulent economic environment.

These are all positive developments for the reverse mortgage industry and the clients we serve. And as HUD moves toward the implementation of many other important aspects of the housing bill including the new purchase product and co-op lending, we look forward to continuing to report on additional developments in these areas in the near future."

Announcement comes from NRMLA (National reverse Mortgage Lenders Association) 10/02/2008

So, How much difference will the $417,000 limit bring to senior homeowners in high-cost areas? We're the first to show you. The table below illustrates the net principle lending limits based on a national $417,000 lending limit.

New Reverse Mortgage Calculations

- shown for illustration purposes only -

If you, family, or client are following this bill because you have previously been short to close on a reverse mortgage with today's lending limits, have waited for improved loan terms, or would like to purchase a home utilizing the HECM (Home Equity Conversion Mortgage) call today and we will provide you a formal proposal package.

COMPLETE OUR QUESTIONIARRE FOR A FREE PROPOSAL!

All Reverse Mortgage Company - Toll Free (888) 801-2762 ext 1