November 10, 2014 Mortgagee Letter 2014-21 To: All Approved Mortgagees

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, DC 20410-8000

ASSISTANT SECRETARY FOR HOUSINGFEDERAL HOUSING COMMISSIONER

November 10, 2014

Mortgagee Letter 2014-21

To:

All Approved Mortgagees

Subject

Revised Changes to the Home Equity Conversion Mortgage (HECM) Program Requirements

Purpose

This Mortgagee Letter consolidates and revises policy requirements issued under Mortgagee Letters 2013-27 and 2013-33, and therefore supersedes Mortgagee Letters 2013-27 and 2013-33, in their entirety.

This Mortgagee Letter also revises the requirements of Mortgagee Letter 2014-11 to clarify a mortgagor with a fixed interest rate HECM may be reimbursed for the costs of materials, under certain conditions, when repairs must be completed after loan closing.

Background

Since the 2009 housing and economic recession, the HECM portfolio has experienced major mortgagor demographic and behavioral changes that have contributed to additional risks to the Mutual Mortgage Insurance Fund (MMIF). Some of the changes include shifting from a predominately adjustable interest rate mortgage with mortgagors electing to receive payments over time using the line of credit or modified tenure/term payment options to a fixed interest rate mortgage where mortgagors draw down all funds at the time of loan closing; younger mortgagors with higher amounts of property indebtedness; and increasing property charge defaults. These and other factors have caused higher payouts of insurance claims.

Many of these changes are highlighted in the June 28, 2012, "Reverse Mortgages Report to Congress" that was published by the Consumer Financial Protection Bureau.

FHA's Fiscal Year 2013 report to Congress on the financial status of the MMIF, issued December 13, 2013, while noting improvements in the stability of the HECM portfolio due to an improved economic forecast and the effects of recent policy changes, reported continued stress in the HECM program. FHA was required to take a mandatory appropriation at the close of Fiscal



espanol.

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Mortgagee Letter 2014-21, Continued

Background (continued)

Year 2013 primarily due to projected losses on the HECM portfolio. Congress passed and the President signed the Reverse Mortgage Stabilization Act of 2013, which amends section 255(h) of the National Housing Act. This amendment authorizes the Secretary to "establish, by notice or mortgagee letter, any additional or alternative requirements that the Secretary, in the Secretary's discretion determines are necessary to improve the fiscal safety and soundness of the program." The Secretary has determined that the changes announced in this Mortgagee Letter are necessary to improve fiscal soundness and protect the viability of the HECM program. These critical program changes will realign the HECM program with its original intent, and thereby aid in the restoration of the MMIF and help ensure the continued availability of this important program.

Effective Date The policy requirements in this Mortgagee Letter are effective as follows:

Policy Description Adaptation of Model Loan Documents Seasoning Requirements for Existing Non-HECM Liens Reimbursement for Required Repairs Completed by Mortgagor Initial Disbursement Limits

Mandatory Obligations for Traditional and Refinance Transactions Mandatory Obligations for Purchase Transactions Initial and Annual MIP Structure

Effective Date All case numbers assigned on or after March 2, 2015 All case numbers assigned on or after December 15, 2014 All case numbers assigned on or after November 10, 2014 All case numbers assigned on or after November 10, 2014 All case numbers assigned on or after March 2, 2015

All case numbers assigned on or after March 2, 2015 All case numbers assigned on or after November 10, 2014

Initial Mortgage Insurance Premium Calculation for Refinance Transactions Credit Standing and Financial Assessment Requirements Financial Assessment and Property Charge Funding Requirements

All case numbers assigned on or after November 10, 2014

All case numbers assigned on or after March 2, 2015 All case numbers assigned on or after March 2, 2015

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Mortgagee Letter 2014-21, Continued

Effective Date (continued)

Policy Description - Continued Unused Life Expectancy Set-Aside Funds During a Deferral Period Unused Life Expectancy Set-Aside Funds upon Termination of the Loan Assignment of Mortgage to the Secretary

Effective Date - Continued All case numbers assigned on or after March 2, 2015 All case numbers assigned on or after March 2, 2015

All case numbers assigned on or after November 10, 2014

Affected Regulations, Mortgagee Letters, and Handbooks

Pursuant to the authority granted in the Reverse Mortgage Stabilization Act of 2013, the requirements in this Mortgagee Letter revise and, where they conflict, supersede the HUD regulations cited in the table below. Additionally, HUD is utilizing its general authority to impose administrative requirements to revise and supersede, where they conflict, with the Mortgagee Letters and HUD Handbooks in the table below.

The table below highlights current policy and regulatory items that are affected in whole or in part by these changes.

Code of Federal Regulation (CFR) 24 CFR ?206.3 Definitions 24 CFR ?206.27 Mortgage Provisions 24 CFR ?206.29 Initial Disbursement of Mortgage Proceeds 24 CFR ?206.31 Allowable Charges and Fees 24 CFR ?206.32 No Outstanding Unpaid Obligations 24 CFR ?206.37 Credit Standing 24 CFR ?206.43 Information to Mortgagor 24 CFR ?206.53 Refinancings 24 CFR ?206.105(a) Amount of Mortgage Insurance Premium (MIP) 24 CFR ?206.205 Property Charges

Handbooks 4235.1 REV-1, Chapter 1-16 Basic Program Outline 4235.1 REV-1, Chapter 3-5 Requirements for Existing Housing 4235.1 REV-1, Chapter 4-3 Mortgage Credit Eligibility Requirements 4235.1 REV-1, Chapter 4-7 Required Mortgage Credit Documentation 4235.1 REV-1, Chapter 4-8 Mortgage Credit Analysis 4235.1 REV-1, Chapter 5

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Mortgagee Letter 2014-21, Continued

Affected Regulations, Mortgagee Letters, and Handbooks (continued)

Handbooks - Continued 4330.1 REV-5, Chapter 13

Mortgagee Letters and Housing Notices Mortgagee Letter 2014-11 Mortgagee Letter 2013-33 ? is superseded in its entirety Mortgagee Letter 2013-27 ? is superseded in its entirety Mortgagee Letter 2013-01 ? is superseded in its entirety Mortgagee Letter 2010-34 All references to HECM Saver and HECM Standard initial MIP options Initial MIP Calculation for Refinance Transaction Examples Principal Limit Factor Tables FHA Connection Case Number Assignment Screen Changes Mortgagee Letter 2009-34 Housing Notice 2013-01

Adaptation of Model Loan Documents

FHA is revising the model loan documents to include the requirements defined in this Mortgagee Letter. The revised model loan documents will be accessible from the following website prior to the effective date of the Financial Assessment: l_documents.

Mortgagees must revise the model documents to ensure compliance with other Federal, State and local laws, and may do so without HUD approval.

Seasoning Requirements for Existing Non-HECM Liens

Mortgagees may only permit the payoff of existing non-HECM liens using HECM proceeds if the liens have been in place longer for 12 months or resulted in less than $500 cash to the mortgagor, whether at closing or through cumulative draws (e.g., as with a Home Equity Line of Credit (HELOC)) prior to the date of the initial HECM loan application.

Mortgagees must review the HUD-1 from the transaction that resulted in a lien that is to be paid off using HECM proceeds, the payoff statement and, if applicable, the most recent HELOC statement or its equivalent, to ensure that the lien had either been in place for more than 12 months or that it resulted in less than $500 to the mortgagor, whether at closing or through cumulative draws. The HUD-1, payoff statement, and if applicable, most recent HELOC statement or its equivalent, must be included in the case binder.

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Mortgagee Letter 2014-21, Continued

Seasoning Requirements for Existing Non-HECM Liens (continued)

Guidance provided in Mortgagee Letters 2006-20 and 2009-49 regarding subordinate liens resulting from state and local court judgments, judgment liens, and Federal judgments and debts, remains in effect.

Reimbursement for Required Repairs Completed by Mortgagor

Required repairs that are estimated to cost less than 15% of the maximum claim amount can be completed after loan closing using a Repair Set-Aside. For fixed and adjustable interest rate HECMs, the mortgagee may reimburse the mortgagor for the actual cost of materials from the Repair Set-Aside, provided that the following requirements are met first:

Mortgagee receives invoices or sales receipts for materials ordered and paid for by mortgagor;

Mortgagee ensures that the property is inspected one or more times by a Inspector approved by the Secretary;

Form HUD 92051, Compliance Inspection Report, is completed and signed by the mortgagee; and

A copy of the completed and signed Form HUD 92051 and a copy of the invoices or sales receipts for materials ordered are uploaded to the Home Equity Reverse Mortgage Information Technology (HERMIT) System.

Mortgagees may not reimburse mortgagors for any labor the mortgagors performed.

All other existing requirements for the completion of repairs and the administration of the Repair Set-Aside remain in effect.

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Mortgagee Letter 2014-21, Disbursement Limits

Overview ? Disbursement Limits

This section of the Mortgagee Letter sets forth limitations on the amount of mortgage proceeds that can be advanced at loan closing and during the First 12-Month Disbursement Period after loan closing; defines what fees and charges are considered Mandatory Obligations; requires mortgagees to monitor and track disbursements to ensure the Initial Disbursement Limit is not exceeded; and specifies the items that must be included in the Initial Disbursement Limit and initial MIP calculation.

Policy and Definitions

Below are policy requirements and definitions applicable to adjustable and fixed interest rate HECMs:

Mandatory Obligations: Fees and charges incurred in connection with the origination of the HECM that are permitted, under this Mortgagee Letter, to be: o paid at loan closing or during the First-12 Month Disbursement Period that are a condition or a requirement for loan approval; or o any disbursements for a Repair Set-Aside, including the cost of repairs and the repair administration fee.

Eligibility for an additional 10% of the Principal Limit: When the mortgagor's Mandatory Obligations exceed 50% of the Principal Limit, the mortgagor is eligible to take an additional 10% of the Principal Limit amount. Mortgagors may, but are not required, to take all or part of the additional 10% (up to the full Principal Limit) at loan closing or during the First 12-Month Disbursement Period or after the First 12-Month Disbursement Period. At loan closing, mortgagors must notify the mortgagee of the amount of the additional 10% of the Principal Limit that they intend to draw at the time of loan closing or during the First 12Month Disbursement Period so that the correct amount of initial MIP is collected.

First 12-Month Disbursement Period: Begins on the day of loan closing and ends on the day before the anniversary date of loan closing. When the day before the anniversary date of loan closing falls on a Federallyobserved holiday, Saturday or Sunday, the end period will be on the next business day.

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Mortgagee Letter 2014-21, Disbursement Limits, Continued

Policy and Definitions Policy and Definitions (continued)

Definitions only for Adjustable Interest Rate HECMs

Initial Disbursement Limit: The maximum disbursement to the mortgagor allowed at loan closing and during the First 12-Month Disbursement Period is the greater of 60% of the Principal Limit; or the sum of Mandatory Obligations, plus an additional 10% percent of the Principal Limit. The Initial Disbursement Limit shall not exceed the Principal Limit amount established at loan closing.

Definitions only for Fixed Interest Rate HECMs

Borrower's Advance: Borrower's Advance means the funds advanced to Mortgagor at closing which may not exceed the greater of 60% of the Principal Limit; or Mandatory Obligations, plus an additional 10% of the Principal Limit. The sum of all advances permitted under the mortgage cannot exceed the Principal Limit. The mortgagor may bring other available funds to closing to bring the sum of all anticipated advances within the Principal Limit.

Determining and Tracking the Initial Disbursement Limit

The mortgagee is responsible for determining the maximum Initial Disbursement Limit for Adjustable Interest Rate HECMs.

Mortgagees must monitor and track all disbursements that occur at loan closing and during the First 12-Month Disbursement Period to ensure the total amount of the disbursements does not exceed the maximum Initial Disbursement Limit or Principal Limit. Where a mortgagor has a Servicing Fee Set-Aside, the disbursement of the fixed monthly servicing fee charges may exceed the Initial Disbursement Limit or First 12-Month Disbursement Period restrictions.

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Mortgagee Letter 2014-21, Disbursement Limits, Continued

Tracking Disbursements Made During the First 12Month Disbursement Period for Adjustable Interest Rate HECMs

The Initial Disbursement Limit and First 12-Month Disbursement Period are applicable to payment plan changes that occur during the First 12-Month Disbursement Period.

Line of Credit: During the First 12-Month Disbursement Period, if a requested disbursement would exceed the Initial Disbursement Limit, the mortgagee may make a partial disbursement to the mortgagor for the amount that will not exceed the limit. Once the First 12-Month Disbursement Period ends, the mortgagor may request subsequent disbursements up to the available Principal Limit.

Tenure and Term Payments: Mortgagees must ensure Tenure and Term monthly payments made to the mortgagor during the First 12-Month Disbursement Period do not exceed the Initial Disbursement Limit.

Upon the expiration of the First 12-Month Disbursement Period, adjustments to Term and Tenure payments may be recalculated using the available Principal Limit by having the mortgagor sign the appropriate paperwork to change the payment amount and/or payment option.

If the mortgagor makes a partial repayment of the principal balance (outstanding loan balance) during the First 12-Month Disbursement Period, the mortgagee must increase the amount of principal available to the mortgagor by the amount applied toward the outstanding loan balance, up to an amount not to exceed the Initial Disbursement Limit, as applicable, and the Principal Limit.

If the mortgagee receives repayment from insurance or condemnation proceeds after restoration or repair of the damaged property, then the available Principal Limit and mortgage balance shall be reduced by the amount of such proceeds.

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