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The Department of Housing and Urban Development has issued Mortgagee Letter 2008-28, entitled Prohibition on Mortgagee Funded Home Equity Conversion Mortgage (HECM) Counseling.

The Housing and Economic Recovery Act of 2008 requires that the HECM mortgage must be executed by a borrower who received adequate counseling from an independent third party that is not directly or indirectly associated or compensated by a party involved in (i) originating or servicing the mortgage, (ii) funding the loan, or (iii) the sale of annuities, investments, long-term care insurance or any other type of financial or insurance product.

The Mortgagee Letter states:

Lenders can no longer pay HUD-approved counseling agencies, directly or indirectly, for counseling services through either a lump-sum payment or on a case-by-case basis.  An example of prohibited indirect funding is Lenders funneling payment for HECM counseling through a nonprofit, foundation, association or any other entity or organization that is a branch of,  affiliated with or associated with a lending institution.

Lenders may continue to pay for other types of housing counseling not associated with the HECM program, including pre-purchase and foreclosure prevention counseling, under certain conditions, as addressed in 24 CFR Part 214, regulations for HUD’s Housing Counseling Program. 

This Mortgagee Letter rescinds paragraph 2 of the section entitled Payment of Counseling Fee in Mortgagee Letter 08-12.

For a full copy of the Mortgagee Letter, please click here.

Tags: Consumer Protection, Downpayment Assistance, HECM, HUD & FHA, Legislation, Mortgage Banking - General, Regulations by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 08-14 (Home Equity Conversion Mortgage Program - Non-FHA Approved Mortgage Brokers)

ML 08-14 purports to be a reminder to FHA-approved lenders of:

FHA’s policy regarding the use of non FHA-approved mortgage brokers, subsequently referred to as a non-approved entity or third party (i.e., advisor, consultant, mortgage broker) to support the origination of FHA-insured Home Equity Conversion Mortgages (HECM).  Loan origination must be performed by FHA approved entities which include: (1) an FHA-approved loan correspondent and sponsor; (2) an FHA-approved mortgagee through its retail channel; or (3) an FHA-approved mortgagee working with another FHA-approved mortgagee.  However, FHA policy permits a non-approved entity or third party to assist in the origination of insured loans in certain limited ways, and to receive compensation for such services actually provided under certain limited circumstances.

This Mortgagee Letter describes the ways in which a non-approved entity or third party may support the origination of HECMs and the limited circumstances under which they may be compensated, consistent with both applicable FHA policy and applicable requirements of the federal Real Estate Settlement Procedures Act (RESPA) and its implementing regulations found at 24 CFR Part 3500.

FHA-approved entities are required to complete the full origination process, as described below, in order to be compensated for their services.  A non-approved entity or third party may provide more limited services only and be compensated for those limited services under the circumstances described in this Mortgagee Letter and applicable FHA and RESPA regulations.  FHA will not permit an FHA-approved entity to serve in the limited capacity of a non-approved entity or third party.

ML 08-14 then goes on to discuss required activities for the FHA-approved entities, certain activities in which non-approved entities can engage and compensation to such non-approved entities.

For a full copy of ML 08-14, please click here.

Tags: Consumer Protection, HECM, HUD & FHA, RESPA, Regulations, Reverse Mortgages by the Editor
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The Department of Housing and Urban Development has issued Mortgagee Letter 2008-12 regarding counseling fees under the Federal Housing Administration’s reverse mortgage program - Home Equity Conversion Mortgages.

ML 2008-12 states in part:

In accordance with the regulations at 24 CFR 214.313, the Federal Housing Administration (FHA) has determined that agencies participating in HUD’s Housing Counseling Program may charge a fee for HECM counseling services as long as the cost is reasonable and customary, does not create a financial hardship for the client, and meets the other requirements of the regulation.  The housing counseling agency must make a determination about a client’s ability to pay, which should include factors, including, but not limited to, income and debt obligations.  HUD recommends that the housing counseling agency have written procedures in place for determining ability to pay. Such procedures should support that a determination is based on objective criteria, and not a subjective determination.  The counseling file of each client charged fees should include documentation demonstrating that the cost does not create a financial hardship

Agencies must inform clients of the fee structure in advance of providing services. A client must not be turned away because of an inability to pay.  Moreover, the housing counseling agency may not withhold counseling or the Certificate of HECM Counseling based on failure to pay.

HUD also addresses the amount of appropriate charges for the counseling fee, charges for counseling of related parties, and manner of payment.

For a full copy of the ML 2008-12, please click here.

Tags: Consumer Protection, HECM, HUD & FHA, Mortgage Banking - General, Regulations, Reverse Mortgages by the Editor
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