Home Equity Conversion Mortgage – FAQ
FAQ – Home Equity Conversion Mortgages (HECMs)
QUESTION: What is the Home Equity Conversion Mortgage Loan Limit?
ANSWER: The HECM loan limit is set at the GSE limit, currently $417,000. However, FHA is considering how the high cost limits apply and whether the home equity conversion mortgage loan limit will vary by area median housing price.
QUESTION: What are the limits on selling other financial products in conjunction with reverse mortgage loans?
ANSWER: The new law prohibits mortgagees or any other party from requiring mortgagors to purchase insurance, annuities or other additional products as a requirement for or a condition of eligibility for HECM insurance by the Secretary. This provision does not restrict title insurance, hazard, flood, or other peril insurance or other products that are customary or normal. HERA requires firewalls in companies that originate HECMS and sell annuities and insurance.
QUESTION: When do these “cross-selling” restrictions apply?
ANSWER: FHA says it will be proposing guidance on this.
QUESTION: Can HECMs be used for purchase transactions?
ANSWER: Yes, a borrower can purchase a home and convert the home equity loan to a HECM in the same transaction. FHA mortgage lenders must follow the guidelines issued by HUD. A Mortgagee Letter on this topic is expected within 30 days.
QUESTION: What is the maximum origination fee permissible on HECMs under HERA?
ANSWER: Today the maximum origination fee is 2% on the maximum claim amount. HERA applies a tiered approach: 2% of the maximum claim amount of the mortgage, up to a maximum claim amount of $200,000, plus 1% of any portion of the maximum claim amounts exceeding $200,000, not to exceed a total origination fee of $6,000
QUESTION: Is counseling required for borrowers who want reverse mortgage loans? Can the originator pay for HECM counseling?
ANSWER: Borrowers must receive sufficient counseling from an independent 3rd party. Reverse mortgage lenders involved in the transaction are prohibited from paying for counseling or providing a lump sum contribution to counseling agencies.
QUESTION: Who is permitted to receive compensation on originating a HECM?
ANSWER: Only approved mortgagees can receive compensation for a home equity conversion mortgage origination. Non-approved mortgagees cannot get paid a fee for a referral for this type of FHA loan. Data was provided by HUD and Mortgage Bankers Association.
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