Reverse Mortgage Refinance Guidelines
According to the new mandates the Federal Housing Administration (FHA) will insure all loans that were originated for the purpose of refinancing an assigned loan that is not in a due and payable status for reasons that cannot be corrected, such as death of the last mortgagor or conveyance of title by all mortgagors, but closed on or after October 6, 2008, the date of the Final Rule.
On March 25, 2004, HUD published an interim rule in the Federal Register at 69 FR 15586 amending Title 24 CFR Part 206 to implement its refinance insurance authority and mandate an “anti-churning disclosure” requirement as a consumer protection measure. The anti-churning disclosure is a mandated consumer protection measurement. Issues with several less than reputable mortgage lenders who preyed on mature Americans seeking to use the HECM program prompted the anti-churning disclosures.
In order to continually safeguard mature Americans, the Anti-Churning Disclosure form must be signed by the mortgagor and be included in the FHA case binder. This form ensures that the mortgagor is not being induced to refinance his/her existing HECM without benefit to the mortgagor and/or solely for the benefit of the mortgagee.
As with all FHA backed loans there is an insurance premium required. Now with the new refinancing guidelines the FHA will collect a reduced initial MIP in the amount of 2 percent of the increase in the maximum claim amount. The reduced initial MIP only applies when the property that serves as collateral for FHA insurance remains the same. Therefore, HECM mortgagors who terminate their reverse mortgage and purchase a new property using a HECM for Purchase transaction are not eligible for a reduction in the initial MIP on the new property.
The mortgagee or lender is responsible for determining whether a particular HECM loan is an open-end or closed-end line of credit, and whether the RESPA or TILA and Regulation Z disclosure requirements are applicable to the transaction.
The program requires all HECM mortgagors to receive counseling from an independent third party entity.
For HECM refinance transactions, mortgagors can waive and opt out of the HECM counseling requirement only if all three of the following conditions are met:
1) The mortgagor has received the required HECM Anti-Churning Disclosure form;
2) The increase in the mortgagor’s principal limit exceeds the total cost of the HECM refinance by an amount equal to five (5) times the cost of the transaction (Block #1 on Anti-Churning Disclosure Form); and
3) The time between the closing on the existing HECM and the application for refinancing does not exceed five years.
The originating mortgagee of a HECM refinance must contact the current HECM Servicer and obtain the following information:
Maximum claim amount for the existing HECM.
The current principal limit of the existing HECM.
The payoff amount for the existing HECM.
Servicing mortgagees are required to reconcile and terminate the existing HECM by ensuring all outstanding advances are properly recorded prior to its payoff. The borrower should not have any outstanding debts when applying to refinance their current HECM. This measure ensures the borrower is not allocating additional debt.