The Department of Housing and Urban Development is making more proceeds available for some reverse mortgage borrowers, under new principal limit factors(PLFs) released Friday.
The new PLF tables now include figures for ages under 62 following a decision by HUD to allow for non-borrowing spouses of new reverse mortgage borrowers after August 3 to remain in their homes following the passing away of the borrower, under certain terms and conditions. The PLFs reflect loans for borrowers who are age 62 and older, but also loans for married couples where one borrower does not meet the traditional 62 year old age requirement.
A “special table” now includes PLFs for loans where one of the parties is age 18 to 61.
The new tables also make the Home Equity Conversion Mortgage program more sensitive to interest rates than previously.
“The biggest impact of these updated tables will be the reductions in PLF for higher interest rate scenarios, making the HECM market more sensitive to interest rates than it is currently,” says John Lunde, president and co-founder of Reverse Market Insight. “Right now home price appreciation is the biggest factor behind HECM to HECM refinance volume, and while that is likely still the case these new tables put more of a balance in place between home price appreciation and interest rates.”
HUD announced the new PLF tables via Mortgagee Letter 2014-12 on Friday, noting the change since last year’s PLF update. The new factors will go into effect as of August 4, 2014. However, the agency also specifies that lenders allow borrowers who have not yet closed on their mortgages but have FHA case numbers assigned prior to the effective date of Mortgagee Letter, to elect to use the PLFs announced Friday.
“The new Principal Limit Factor (PLF) tables have been wholly revised and now also include PLFs for use where the Borrower has a Non-Borrowing Spouse younger than 62,” HUD writes in its description.
More on this from the NRMLA newsletter
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, 2014, the Federal Housing Administration (FHA) released a Mortgagee Letter (ML 2014-11), under the authority granted to U.S. Department of Housing and Urban Development (HUD) in Sections 202(a) and 255(c) of the National Housing Act and in the Reverse Mortgage Stabilization Act of 2013 to amend the FHA Home Equity Conversion Mortgage (HECM) program, that makes several policy changes to the HECM program and limits the insurability of fixed interest rate mortgages under the HECM program 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 the previously announced Ginnie Mae (GNMA) policy that made fixed-rate HECMs with future draws ineligible for GNMA-guaranteed HMBS securities. See GNMA APM 2014-04 (April 1, 2014); see also GNMA APM 2014-08 (May 30, 2014).
The HECM policy changes made by ML 2014-11 include, but are not limited to:
· Limiting FHA insurance to fixed-rate HECMs that: 1) provide for a single, full draw to be made at loan closing; and 2) 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; and
· 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, 2014, 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 FHA Mortgagee Letter 2014-07 (ML 2014-07), which mortgagees must begin using on or after the effective date of ML 2014-07 (August 4, 2014).
The policy changes made by ML 2014-11 are effective as follows:
| Policy Description | Effective Date |
| Limitations on Fixed Interest Rate HECMs |
HECMs with FHA Case Numbers assigned on or after June 25, 2014 |
| Limitations on Adjustable Interest Rate HECMs |
HECMs with FHA Case Numbers assigned on or after June 25, 2014 |
| Unused Repair Set-Aside Funds | HECMs with FHA Case Numbers assigned on or after June 25, 2014 |
| FHA Connection Updates | HECMs with FHA Case Numbers assigned on or after June 25, 2014 |
| Loan Documents | |
| Mortgagees may use the “first set” of Model Fixed Interest Rate HECM Loan Documents for HECMS with FHA Case Numbers assigned on or before August 3, 2014, 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. | |
| Mortgagees must begin using the “second set” of Model Fixed Interest Rate HECM Loan Documents for HECMs with FHA Case Numbers assigned on or after the effective date of ML 2014-07 (August 4, 2014). | |
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 FHA Case Number is 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; and 4) loan closing is completed on or before September 30, 2014. We note, however, that the release of ML 2014-11 leaves some uncertainty regarding the effective date for certain fixed rate traditional and refinance HECM transactions that are in the “pipeline.” For example, although on the first page of ML 2014-11 it states that the effective date for the limitations on these pipeline fixed interest rate HECMs is June 25, 2014, on page 8 of ML 2014-11 it states that the FHA Case Number must be requested on or before July 2, 2014. With that said, until HUD provides further clarification on this issue, for HECM mortgagees that currently offer fixed rate HECM products with future draws, it appears that it would be prudent to cease offering such products prior to June 25, 2014.
In addition, as stated in ML 2014-11, “[c]urrently, 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 FHA Case Number on or before July 2, 2014; 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, 2014; 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; and 6) these mortgages comply with existing FHA Case Number expiration requirements.
The full text of ML 2014-11 can be found at: http://portal.hud.gov/hudportal/documents/huddoc?id=14-11ml.pdf
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