HECM Changes Demystified

Shannon Hicks September 9, 2013 10

Product Changes to HECM Program Clarified.

Download PDF Reference of changes here.

Changes To Reverse Mortgage HECM

With any watershed event like HUD’s complete revamping of the reverse mortgage product, confusion can abound. This week I am going to attempt to demystify the latest changes to the program noting 10 take aways. In essence HUD has taken the program back to it’s original intent and early product design. Here we go. #1Borrower will be limited to using only 60% of the Gross Principal limit in the first year. The only exception is when mandatory payoffs exceed 50% of the Gross Principal limit. The clarify the gross principal limit is the Maximum Claim Amount (Homes Appraised Value or Lending Limit…whichever is less) times the new Principal limit factor. We are not looking at the Net Principal limit after closing costs, fees and payoffs are subtracted. #2.HUD has cut borrowers with high mortgage balances or mandatory payoff obligations some slack. When their mandatory payoff balances exceed 50% of the Gross Principal Limit the borrower can take an additional

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  1. Steve Sayeeta September 9, 2013 at 5:12 am - Reply

    Great job of breaking down the changes. Need some clarity on change # 8. Will send you an email. Thanks again.

  2. Raymond J. Hill September 9, 2013 at 5:17 am - Reply

    Today’s video mentioned the Principal Limit “Growth” based on Expected Rate & AMIP. However, Page 10 of Mortgagee Letter 2013-17 under Determining the Principal Limit states: “Important: The Principal Limit will continue to ‘increase’ by the Mortgage Note Interest Rate on a monthly basis….”

    This is not the same as Expected Rate plus annual MIP.

    • Shannon Hicks September 9, 2013 at 7:50 am - Reply


      Good point. To clarify the PLF factor growth (Line of Credit growth) will continue to be calculated based on that month’s interest rate + MIP…or adding 1.25% for MIP. Karen Hill stated on the conference call that the exclusion of the MIP in that calculation was an oversight to be corrected.

    • James E. Veale, CPA, MBT September 9, 2013 at 10:37 am - Reply

      Mr. Hill,

      A point of clarification:

      For those HECMs executed prior to May 1, 1997, the monthly principal limit growth rate is one-twelfth of the sum of the expected average interest rate plus the ongoing MIP, 0.5%. This rule is found in HUD (HECM) Handbook 4235.1 Section 5-9 C.

      For those HECMs executed after April 30, 1997, the monthly principal limit growth rate is one-twelfth of the sum of 1) the note interest rate in effect for that month plus 2) the ongoing MIP, either A) 0.5% on those HECMs with case numbers assigned after April 30, 1997 but before October 4, 2010, or B) 1.25% for all HECMs with case numbers assigned after October 3, 2010. The Mortgagee Letters (“MLs”) which created these changes are ML 97-15 and ML 2010-34.

  3. Joe Schlageter September 9, 2013 at 5:34 am - Reply

    Well done Shannon!

  4. Beth Paterson, NMLS #342859 September 9, 2013 at 6:56 am - Reply

    Good job summarizing the changes, Shannon! And I appreciate the positive outlook as well. Thank you!

    • James E. Veale, CPA, MBT September 9, 2013 at 10:40 am - Reply

      Ms. Paterson,

      You are so right. It is good to hear a positive approach to the changes at hand.

      (The opinions expressed are not necessarily those of RMS or its affiliates.)

  5. CLIFF RIDDLE September 9, 2013 at 7:57 am - Reply

    I think you could do a good job explaining Obama care,,,,,,,well done thanks

  6. James E. Veale, CPA, MBT September 9, 2013 at 10:49 am - Reply

    According to the presentation by FHA last week, we can expect a few corrections to Mortgagee Letter 2013-27 such as including repair set asides in mandatory obligations so that neither the repair set aside has an additional possible limitation (due to its inclusion in the additional 10% of the principal limit at funding as it is in the example provided by Shannon) nor the additional 10% principal limit draw when mandatory obligations exceed 50% (other than the basic rule that the total of the balance due at funding plus all set aside amounts at funding cannot exceed the principal limit at funding).

    Other tweaks and typos may be corrected later as well.

    (The opinions expressed by me in this thread are not necessarily those of RMS or its affiliates.)

  7. Larry Benton September 11, 2013 at 6:23 am - Reply

    Thanks Shannon. What about H4P? If they fall under the 60% exclusion you can effectively close the program.

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