FHA Updates Rules for HECM Loan Counseling
September 30, 2011
FHA Home Equity Conversion Mortgages, also known as Reverse Mortgages or HECM loans, are available to qualified borrowers 62 or older. Through the FHA HECM loan program, these borrowers may apply for a loan on their home using the equity in the home to secure the mortgage.
This type of loan features cash out to the borrower in the form of a line of credit, monthly payments as well as other options, and is not paid back until the borrower dies or sells the property.
Because of the uniqueness of FHA Reverse Mortgages, The FHA requires applicants to get HECM loan counseling before they can commit to the mortgage.
This counseling requirement insures the borrower fully understands the terms and conditions of the mortgage loan--which includes requiring the borrower to meet all loan obligations such as remaining paid up on property taxes and using the home as the primary residence. Violation of these conditions means the loan can be declared due, payable in full.
No HECM loan may be approved without the borrower receiving HECM loan counseling by an FHA-approved agency, and recent FHA regulation changes have clarified HECM counseling rules.
Now there is a requirement for all property owners listed on the deed of the home to be included in the counseling, not just the borrower. FHA mortgagee letter 2011-31 informed lenders and borrowers of the new rules.
"All owners shown on the property deed (or legal representative, in cases involving documented lack of competency) and a non-borrowing spouse must personally receive counseling. The Certificate must be signed and dated by both the counselor, all owners shown on the property deed (or legal representative for cases involving documented lack of competency), and non-borrowing spouse."
Such FHA requirements insures transparency in the lending process in accordance with the Fair Housing Act and RESPA laws. All borrowers and those affected by the loan should know exactly what the requirements of a HECM loan are, and under what circumstances a HECM loan may be declared payable in full.
But these are not the only areas of concern--FHA mortgagee letter 2011-31 also provides information for those involved a HECM loan process using a power-of-attorney, (as mentioned in the FHA Mortgage letter quote).
Anyone acting in such capacity must also sign the HECM counseling certificate in order to insure all parties understand HECM loan ground rules. More information is available in this PDF file.
This type of loan features cash out to the borrower in the form of a line of credit, monthly payments as well as other options, and is not paid back until the borrower dies or sells the property.
Because of the uniqueness of FHA Reverse Mortgages, The FHA requires applicants to get HECM loan counseling before they can commit to the mortgage.
This counseling requirement insures the borrower fully understands the terms and conditions of the mortgage loan--which includes requiring the borrower to meet all loan obligations such as remaining paid up on property taxes and using the home as the primary residence. Violation of these conditions means the loan can be declared due, payable in full.
No HECM loan may be approved without the borrower receiving HECM loan counseling by an FHA-approved agency, and recent FHA regulation changes have clarified HECM counseling rules.
Now there is a requirement for all property owners listed on the deed of the home to be included in the counseling, not just the borrower. FHA mortgagee letter 2011-31 informed lenders and borrowers of the new rules.
"All owners shown on the property deed (or legal representative, in cases involving documented lack of competency) and a non-borrowing spouse must personally receive counseling. The Certificate must be signed and dated by both the counselor, all owners shown on the property deed (or legal representative for cases involving documented lack of competency), and non-borrowing spouse."
Such FHA requirements insures transparency in the lending process in accordance with the Fair Housing Act and RESPA laws. All borrowers and those affected by the loan should know exactly what the requirements of a HECM loan are, and under what circumstances a HECM loan may be declared payable in full.
But these are not the only areas of concern--FHA mortgagee letter 2011-31 also provides information for those involved a HECM loan process using a power-of-attorney, (as mentioned in the FHA Mortgage letter quote).
Anyone acting in such capacity must also sign the HECM counseling certificate in order to insure all parties understand HECM loan ground rules. More information is available in this PDF file.
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