FHA Announces New HECM Policies
The Department of Housing and Urban Development and the Federal Housing Administration have announced revised FHA HECM rules that allow faster payment of HECM loan funds.
According to a press release on HUD.gov, the new rule changes “permit people with FHA mortgages to submit a request for Preliminary Title Approval earlier in the process and with fewer documents.”
HUD says the FHA HECM program allows a lender to submit a Home Equity Conversion Mortgage to HUD to get HECM loan funds earlier. That is designed to lower the amount of time between the loan being approved for the HECM and the money paid to the borrower as the result of that loan.
How does it work? To calculate an FHA HECM loan, the lender (also known as a mortgagee) must calculate a reverse mortgage Maximum Claim Amount (MCA) which is then used to calculate the HECM loan proceeds.
The MCA is typically equal to the appraised value of the home or the FHA loan limit. Borrowers may qualify for a certain percentage of the MCA based on age and interest rate.
Under the FHA’s new HECM rules, the lender submits documentation to HUD “when the HECM reaches 97% of the MCA, based on the value of the property at the time the HECM loan is originated,” according to one mortgage industry report. Once the documentation is sent to HUD, it is only a matter of time before the loan funds are paid out.
“The Home Equity Conversion Mortgage program is an important resource for the nation’s senior homeowners who wish to age in place,” according to Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon, who is quoted in a HUD press release.
Gordon adds, “Today’s changes simplify processes and pay mortgagee claims more quickly, providing meaningful relief to program participants as they navigate the unique challenges of today’s economic environment.”
FHA HECM loans are for borrowers aged 62 or older who either own their homes outright or are very close to paying off the mortgage.
An FHA HECM loan has no monthly payments, cash is paid to the borrower for any purpose acceptable to the lender, and the loan is declared due in full when the borrower dies, sells the home, or no longer uses it as their primary residence.
What are the expected results of this program? HUD says making the submission process more flexible could shorten the waiting time between the application and payment, but there is no specific goal mentioned beyond reducing the overall waiting time.
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