[Federal Register Volume 82, Number 12 (Thursday, January 19, 2017)]
[Rules and Regulations]
[Pages 7094-7146]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01044]
[[Page 7093]]
Vol. 82
Thursday,
No. 12
January 19, 2017
Part VIII
Department of Housing and Urban Development
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24 CFR Parts 30 and 206
Federal Housing Administration: Strengthening the Home Equity
Conversion Mortgage Program; Final Rule
Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 /
Rules and Regulations
[[Page 7094]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 30 and 206
[Docket No. FR-5353-F-03]
RIN 2502-AI79
Federal Housing Administration: Strengthening the Home Equity
Conversion Mortgage Program
AGENCY: Office of the Assistant Secretary for Housing--Federal Housing
Commissioner, HUD.
ACTION: Final rule.
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SUMMARY: This final rule codifies several significant changes to FHA's
Home Equity Conversion Mortgage program that were previously issued
under the authority granted to HUD in the Housing and Economic Recovery
Act of 2008 and the Reverse Mortgage Stabilization Act of 2013, and
makes additional regulatory changes. The HECM program is FHA's reverse
mortgage program that enables seniors who have equity in their homes to
withdraw a portion of the accumulated equity. The intent of the Home
Equity Conversion Mortgage program is to ease the financial burden on
elderly homeowners facing increased health, housing, and subsistence
costs at a time of reduced income. FHA's mission is to serve
underserved markets, which must be balanced with HUD's inherent, as
well as, statutory obligation under the National Housing Act to protect
the FHA insurance funds. This rulemaking strengthens the FHA Home
Equity Conversion Mortgage program and codifies changes that reduce
risk to the Mutual Mortgage Insurance Fund and increase the
sustainability of this important program for seniors. This final rule
follows publication of a May 19, 2016, proposed rule and takes into
consideration the public comments received on the proposed rule.
DATES: Effective Date: September 19, 2017.
FOR FURTHER INFORMATION CONTACT: Karin Hill, Senior Policy Advisor,
Office of Single Family Housing, Department of Housing and Urban
Development, 451 7th Street SW., Room 9282, Washington, DC 20410-8000;
telephone number 202-402-3084 (this is not a toll-free number). Persons
with hearing or speech challenges may access this number through TTY by
calling the toll-free Federal Relay Service at 800-877-8339.
SUPPLEMENTARY INFORMATION
I. Executive Summary
A. Purpose of Regulatory Action
Since the 2008 housing and economic recession, the HECM portfolio
has experienced major borrower demographic and behavioral changes that
have caused additional risk to the Mutual Mortgage Insurance Fund
(MMIF). Some of the changes include shifting from a predominantly
adjustable interest rate mortgage with borrowers receiving payments
over time using the line of credit, modified term, or modified tenure
payment options to a fixed interest rate mortgage with borrowers
drawing large amounts of HECM proceeds at the time of closing; younger
borrowers with higher amounts of property indebtedness; and increasing
property charge defaults. While program changes made prior to and
during 2013, such as consolidating the HECM Standard and HECM Saver
products, did improve the stability of the HECM program, the HECM
portfolio has continued to experience volatility. The economic value of
the HECM portfolio has fluctuated from a negative $1.2 billion reported
in FHA's Fiscal Year (FY) 2014 submission to Congress, to a positive
$6.8 billion in FY 2015, to a negative $7.7 billion in FY 2016. Even
under an improved housing market, the positive impacts of program
changes on the HECM portfolio overall will be gradual and initially
difficult to model for purposes of the actuarial study, as they will be
evidenced only in future cohorts of activity. As a result, it is
critical to remain vigilant in monitoring program performance and
policy to ensure the soundness of the MMIF.
Recognizing the need to stabilize the HECM program and ensure it
remains a sustainable program, Congress passed and the President signed
into law, the Reverse Mortgage Stabilization Act of 2013 (RMSA) (Pub.
L. 113-29). The RMSA gave FHA the tools to make, through mortgagee
letter,\1\ changes to the HECM program that are necessary to improve
the fiscal safety and soundness of the program. Under this authority,
FHA implemented a number of changes to the HECM program, including the
Financial Assessment and Property Charge Funding Requirements;
deferring the due and payable status for Eligible Non-Borrowing
Spouses; limiting disbursements during the first 12 months of the HECM;
and eliminating future draws on fixed interest rate HECMs.
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\1\ Mortgagee letters issued under the authority granted to HUD
in RMSA will be identified throughout this rule as RMSA mortgagee
letters.
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On May 19, 2016 (81 FR 31770), HUD published a proposed rule to
codify these policies, with amendments as discussed in the preamble to
the proposed rule. In addition, FHA proposed to implement a number of
new policies. Also, so that all regulatory requirements are codified in
the HECM regulations, HUD also proposed to codify HECM program changes
made by mortgagee letter \2\ under the Housing and Economic Recovery
Act of 2008 (HERA) (Pub. L. 110-289), which implemented the HECM for
Purchase program and established new origination fee limits, and amends
the initial and monthly mortgage insurance premium (MIP) limits to
correspond with statutory changes. This final rule follows publication
of the May 19, 2016, proposed rule and takes into consideration the
public comments received on the proposed rule.
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\2\ Mortgagee letters issued under the authority granted to HUD
in HERA will be identified throughout this rule as HERA mortgagee
letters.
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B. Summary of Major Provisions of This Final Rule
In this rule, FHA codifies existing policy which has been
implemented by mortgagee letters under various statutory authorities;
implements statutory changes; issues new origination and servicing
policies; and clarifies existing regulatory language. The main policy
provisions are discussed below. All policies which have been
implemented by mortgagee letters will remain in effect until the
effective date of this final rule.
Implementing Statutory Changes and Codifying Existing Policies
Implemented Under Statutory Authority
Financial Assessment and Property Charge Funding Requirements. RMSA
Mortgagee Letter 2014-21 required mortgagees to perform a Financial
Assessment of the prospective borrower prior to loan approval, which
considers the prospective borrower's credit history, cash flow and
residual income, extenuating circumstances, and compensating factors.
Based on the results of the Financial Assessment, the mortgagee may
require a Life Expectancy Set Aside (LESA) for the payment of certain
property charges. For fixed interest rate HECMs, if a LESA is required,
it may only be a Fully-Funded LESA. For adjustable interest rate HECMs,
if a LESA is required, the mortgagee may require either a Partially- or
Fully-Funded LESA. Proceeds from a Partially-Funded LESA will be
disbursed to the borrower semi-annually to be used to assist in the
payment of
[[Page 7095]]
property charges; for Fully-Funded LESAs, mortgagees disburse funds
directly to the tax authority or insurance company for the payment of
certain property charges when they are due. If the mortgagee does not
require a Fully-Funded LESA, a borrower with an adjustable or fixed
interest rate HECM, may elect to have a Fully-Funded LESA.
Deferring the Due and Payable Status for Eligible Non-Borrowing
Spouses. RMSA Mortgagee Letter 2014-07, as amended by RMSA Mortgagee
Letter 2015-02, established a Deferral Period, during which the due and
payable status of a HECM is deferred after the death of the last
surviving borrower for an Eligible Non-Borrowing Spouse, provided
eligibility and all other FHA requirements are, and continue to be,
satisfied. In addition, the new policy required the principal limit to
be based on the age of the youngest borrower or Eligible Non-Borrowing
Spouse, instead of only the youngest borrower. The new policy also
provided for a 30-day period for the Eligible Non-Borrowing Spouse to
cure a default and to reinstate a Deferral Period.
Limiting Disbursements During the First 12 Months of the HECM.
Through RMSA Mortgagee Letter 2014-21, FHA limited initial
disbursements for HECMs. For fixed and adjustable interest rate HECMs,
the funds advanced to the borrower at closing and during the First 12-
Month Disbursement Period could not exceed the greater of 60 percent of
the principal limit; or Mandatory Obligations plus an additional 10
percent of the principal limit.
While FHA does not intend to change the current limits of 60
percent and 10 percent at this time, this rule provides flexibility for
this limit to be changed in the future to respond to market changes or
other factors. Specifically, this rule revises the regulations such
that the 60 percent cap will never be modified to be less than 50
percent, and the additional percentage will never be modified to be
less than 10 percent absent future rulemaking.
Eliminating Future Draws on Fixed Interest Rate HECMs. Ginnie Mae
issued an All Participants Memorandum, APM 14-04, announcing that fixed
interest rate HECM loans with future draws would be ineligible for
securitization on or after June 1, 2014. As a result of APM 14-04, in
RMSA Mortgagee Letter 2014-11, FHA limited the insurability of fixed
interest rate mortgages under the HECM program to mortgages with the
Single Lump Sum payment option, which does not allow for future draws
after closing.
HECM for Purchase Program. HECM for Purchase program requirements
were originally located in HERA Mortgagee Letter 2009-11. This rule
codifies the HECM for Purchase program requirements, with an important
change to the existing prohibition on interested party contributions.
The rule permits the seller to pay fees required to be paid by the
seller under state or local law and fees that are customarily paid by a
seller in the locality of the subject property and to purchase the Home
Warranty policy. The rule also allows the Commissioner to define the
types and parameters of other allowable interested party contributions
through Federal Register notice for comment.
Allowable Loan Origination Fees and Charges. FHA implemented the
loan origination fee limits imposed by HERA through HERA Mortgagee
Letter 2008-34. In this rule, FHA clarifies that such loan origination
fee limits include expenses incurred in originating, processing and
closing the HECM.
Amount of MIP. This rule amends the allowable initial and monthly
MIP charges to reflect that HECMs are now obligations of the MMIF
instead of the General Insurance Fund and to reflect statutory
amendments to the National Housing Act providing FHA with a wider range
of acceptable MIP charges. FHA is not changing actual MIP charges,
which may be set outside of the rulemaking process by mortgagee letter
or other similar administrative issuance.
Seasoning Requirements. HUD implemented seasoning requirements for
existing non-HECM liens through Mortgagee Letter 2014-21. Under the
mortgagee letter, borrowers could only pay off existing non-HECM liens
using HECM proceeds if the liens had been in place longer than 12
months or resulted in less than $500 cash to the borrower. This rule
adopts these seasoning requirements for existing non-HECM liens but
amends them to: (1) Impose the 12-month requirement beginning at the
date of the HECM closing rather than the HECM loan application; and (2)
allow the pay-off, at closing, of Home Equity Lines of Credit (HELOCs)
that do not meet seasoning requirements from borrower funds, the HECM
funds, or a combination of HECM funds and borrower funds, as long as
the draw from HECM funds does not exceed the draw limits during the
first 12 months of the HECM.
New Origination and Servicing Policies
Disclosure of Available HECM Program Options. This rule requires
that mortgagees inform potential HECM borrowers of all of the HECM
products, features, and options that FHA insures, in a manner
acceptable to the Commissioner, irrespective of the particular HECM
products offered by the mortgagee.
Interest Rate Lock-In. This rule amends the definition of
``expected average mortgage interest rate,'' to provide that the
mortgagee, with the agreement of the borrower, may lock in the expected
average mortgage interest rate prior to the date of loan closing or
establish the expected average mortgage interest rate on the date of
loan closing.
Appraisal Requirements. This rule requires the mortgagee to have
the property appraised no later than 30 days after receipt of the
request by an applicable party in connection with a pending property
sale; the property must be appraised within 30 days of a foreclosure
sale. The rule also allows the Commissioner to approve the use of other
appraisers when the mortgagee is required to appraise the property.
Limiting Reimbursement of Property Charge Advances. This rule
limits insurance claim reimbursement to a mortgagee to two-thirds of
the total payments for: (a) Taxes, ground rents, and water rates; (b)
special assessments, which are noted on the application for insurance
or which become liens after the insurance of the mortgage; and (c)
hazard insurance premiums on the mortgaged property not in excess of a
reasonable rate.
Acquisition and Sale of Property. This rule replaces the
requirement that the property be sold for at least 95 percent of the
appraised value with a more flexible provision which allows the
Commissioner to lower this amount as necessary to adapt to market
conditions and other factors. This rule also requires that the closing
costs from the sale be no more than the greater of 11 percent of the
sales price, or a fixed dollar amount as determined by the Commissioner
through Federal Register notice.
Cash for Keys. This rule provides an incentive for parties with
legal authority to dispose of a property that serves as the security
for a HECM to complete a deed in lieu of foreclosure more quickly. The
rule also applies the Cash for Keys incentive when a bona fide tenant
vacates the property prior to an eviction being initiated by the
mortgagee in the case of a foreclosure. This rule grants the
Commissioner the flexibility to increase the minimum amount of time a
mortgagee shall grant the borrower or bona fide tenant to vacate the
property and the authority to establish the amount of the financial
incentive.
Pay-Off of Debt Not Secured by the Property. This rule allows HECM
proceeds to be used to pay off debt that is not secured by the
property, as defined by the Commissioner through
[[Page 7096]]
Federal Register notice, as a mandatory obligation.
Property Charge Payments. This rule allows the Commissioner,
through Federal Register notice, to establish an incentive for the
borrower voluntarily electing a Life Expectancy Set Aside.
Additionally, the final rule authorizes the Commissioner, through
Federal Register notice, to expand the borrower's options for electing
to have the mortgagee make property charge payments.
C. Costs and Benefits of This Rule \3\
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\3\ Any changes made in this section from what was presented in
the proposed rule only indicate policy changes that were made based
on public comments or reconsideration of the issues.
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This rule codifies the following program changes that have reduced
risks to both FHA and to borrowers: Implementation of limits on fixed-
rate full draw loans (full draw loans expose FHA to high risk of
insurance loss, and such loans are often not sustainable solutions for
borrowers since they do not provide the borrower with future access to
HECM proceeds); a Financial Assessment to enable mortgagees to
determine if the HECM enables borrowers to comply with the mortgage
requirements and that the HECM is a sustainable solution for borrowers;
protection to Eligible Non-Borrowing Spouses from foreclosure after the
death of the last borrower; removal of incentives for borrowers to
obtain higher principal limits by using only the age of the older
spouse through quit-claiming the younger spouse from the title; and a
Life Expectancy Set Aside which will reduce the incidence of borrower
defaults due to non-compliance with the mortgage obligation for the
borrower to make timely payment of property taxes, and hazard and flood
insurance payments. The new changes to the HECM program are expected to
reduce foreclosures arising from these defaults, which will benefit
FHA, borrowers, and communities where properties are located; give FHA
more flexibility to accept short sales on properties where market
conditions warrant; and provide homeowners with the ability to purchase
a more suitable home without incurring the costs of two loan closings.
Together, these changes may initially reduce HECM origination volume,
although the potential demand for HECM is expected to remain high.
The social benefits that may be realized by this rule also include
reducing resolution costs and borrower distress in cases where loans
are no longer sustainable; improved sustainability of the MMIF, which
would enhance the choice and wellbeing of future borrowers; and
increased protections for borrowers, including those afforded non-
borrowing spouses and those from improving the ultimate sustainability
of HECM loans related to financial assessment changes.
The policies discussed in this rule may reduce FHA HECM insurance
endorsements by $1.9 billion per year, thereby reducing choices for
potential HECM borrowers to access home equity and imposing an
equivalent cost on them; reduce foreclosures due to tax and insurance
default by up to 6,000 cases (totaling about $1.5 billion in loan
amount) per year, along with reduction in ancillary costs of
foreclosures to neighborhoods and local governments; and reduce loan
origination costs for 2,000 ``HECM for Purchase'' borrowers, saving
them $12 million per year representing transfers from mortgagees to
borrowers.
Other costs from the rule would include reduced borrowers' choice
and the well-being of those borrowers who may not meet the eligibility
requirements, or who no longer have access to as much upfront cash. The
table below and the bullet points that follow display the benefits,
costs, and transfers of this rule.
Absent the changes in the HECM program made by mortgagee letters
issued by HUD under the authority of RMSA, the ongoing operation of the
HECM program would have required a credit subsidy appropriation under
the Federal Credit Reform Act of approximately $684 million. The fact
that this appropriation was not required represents a transfer from
potential HECM borrowers to taxpayers. This transfer was effected by
the regulatory mortgagee letters, and not this final rule which merely
codifies these existing policies in the Code of Federal Regulations.
This transfer amount is reported in this analysis to inform the public,
but had no bearing on whether these provisions would be included in the
final rule.
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Benefits Costs Transfers
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4,400 fewer foreclosures per Reduce FHA HECM Mortgagee letters
year from tax and insurance insurance issued under
default. endorsements by authority granted
$1.1 billion $1.9 billion per by the Reverse
aggregate unpaid principal year, thereby Mortgage
balance. reducing choices Stabilization Act
Reduction in for potential HECM and codified by
ancillary costs of borrowers to access this rule reduced
foreclosures to home equity. credit subsidy
neighborhoods, borrowers, appropriations
and local governments. required under the
Federal Credit
Reform Act for the
HECM program from
$684 million to $0.
This is a transfer
from potential HECM
borrowers to
taxpayers.
Reduced loan origination No additional costs. No additional
costs for 2,000 ``HECM for transfers.
Purchase'' borrowers per
year.
Total benefit of
$12 million per year..
Frees resources for
other purposes..
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Other benefits include the following:
Improving the financial condition of the FHA MMIF due to:
[cir] Fewer foreclosures and lower loss rates;
[cir] Financial incentives of a Cash for Keys program for short
sales and REO properties;
[cir] Persistently lower insured loan balances over time, due to
limits on initial disbursement; and
[cir] More flexibility for FHA to accept short sales on properties
where market conditions warrant.
Improving overall HECM program viability and in turn
improving suitability and attractiveness for potential borrowers
[cir] Reduces risks to both FHA and to borrowers associated with
fixed-rate full draw loans (full draw loans expose FHA to high risk of
insurance loss, and such loans are often not suitable for borrowers);
[cir] Helps borrowers and their housing counselors determine if a
HECM is a sustainable option for them through the use of a Financial
Assessment;
[[Page 7097]]
[cir] Provides protection to Eligible Non-Borrowing Spouses from
foreclosure, and removes incentives for borrowers to obtain higher
principal limits than they would otherwise be eligible for by using
only the age of the older spouse; and
[cir] Reduces the incidence of borrower defaults due to non-
compliance with the mortgage obligation.
II. Background
A. Program Description
The HECM program, authorized by section 255 of the National Housing
Act (NHA) (12 U.S.C. 1715z-20), is FHA's reverse mortgage insurance
program. The regulations for this program are codified in 24 CFR part
206. The HECM program enables FHA-approved mortgagees to extend insured
mortgage financing to eligible borrowers, 62 years of age or older, who
want to convert the equity in their homes into liquid assets. The
withdrawal of equity may take a variety of forms, as authorized by the
NHA and selected by the borrower. The home, which serves as security
for the mortgage, must be, and continue to be, the borrower's principal
residence during the life of the borrower. For adjustable interest rate
HECMs, equity payments to the borrower may be in the form of monthly
disbursements for life or a fixed term of years, disbursements from a
line of credit advance or a combination of monthly disbursements and a
line of credit. For fixed interest rate HECMs, equity payments to the
borrower must be in the form of a single lump sum disbursement at
closing.
The maximum amount of equity in the home that is available to a
borrower under a HECM loan is the ``principal limit'' that is
calculated for that loan. The borrower retains ownership of the
property and may sell the home at any time keeping any residual sale
proceeds in excess of the outstanding loan balance. Until the mortgage
is repaid, and regardless of whether or not additional disbursements
under the mortgage are permissible, interest on the mortgage, mortgage
insurance premiums, and servicing charges, where applicable, continue
to accrue.
B. HUD's May 19, 2016, Proposed Rule
On May 19, 2016, HUD published its proposed rule to implement the
HERA and RMSA mortgagee letters described above in addition to other
regulatory changes. HUD proposed to strengthen the HECM program by
consolidating the requirements of these HERA and RMSA mortgagee letters
into the regulations and introducing new requirements that would reduce
risk to the Mutual Mortgage Insurance Fund and increase the
sustainability of the HECM program for seniors. Interested readers
should refer to the preamble of the May 19, 2016, proposed rule for
details regarding the proposed regulatory changes to the HECM program.
C. Solicitation of Comment on Required Assignment
On August 11, 2016, at 81 FR 53095, HUD published in the Federal
Register a supplemental notice of proposed rulemaking to solicit
comment in response to a proposal raised by one of the public
commenters on the proposed rule. The document opened the public comment
period solely to address this proposal regarding the mortgagee's option
to file a claim when the loan balance reaches 98 percent of the maximum
claim amount.
The current regulations at Sec. 206.107(a) provide the mortgagee
an option, before the mortgage is submitted for insurance endorsement,
to select either: (1) The assignment option, which allows the mortgagee
to assign the HECM to the Secretary if the mortgage balance is equal to
or greater than 98 percent of the maximum claim amount; or (2) the
shared premium option, which allows the mortgagee to retain a portion
of the monthly MIP but does not allow the mortgagee to assign the
mortgage unless the mortgagee fails to make payments and the Secretary
demands assignment. Under the assignment option, the mortgagee may only
assign the mortgage to the Secretary if the following requirements are
satisfied: (1) The mortgagee is current in making the required payments
to the mortgagor; (2) the mortgagee is current in making the required
MIP payments to the Secretary; (3) the mortgage is not due and payable;
and (4) the mortgage is a first lien of record and title to the
property securing the mortgage is good and marketable.
The public commenter suggested that, under the assignment option,
HUD should instead require that the mortgagee assign the HECM loan to
FHA if the outstanding loan balance is equal to or greater than 98
percent of the maximum claim amount. The commenter stated that, in some
cases, a mortgagee may decline to file a claim in this scenario if the
property value has risen rapidly and the loan has an above-market rate.
The commenter concluded that lenders in this way have a ``put option''
and ``can choose to keep the best loans and make claims for the worst
ones''.
HUD is deferring its final determination as to whether to adopt the
commenter's proposal at this time, and after HUD fully reviews and
takes into consideration the comments received, HUD will issue, or
choose not to issue, its final determination of this proposal through a
subsequent final rule.
III. Overview of Final Rule--Key Changes Made at Final Rule Stage
In the May 19, 2016, proposed rule, HUD explicitly solicited public
comment on numerous proposed policy changes, including specific
questions on the maximum closing costs allowed on the sale of a
property, including utilities as property charges, property
inspections, non-borrowing spouse communication, and the benefits and
costs of the rule. HUD received 241 public comments, including 83
unique comments, on the proposed rule. HUD appreciates all the
questions raised, and suggestions and recommendations made by the
public commenters. After review and consideration of the public
comments and upon further consideration of issues by HUD, the following
highlights key clarifications and changes made by HUD at the final rule
stage.
The final rule:
Amends the provision limiting the number of mortgages by
allowing borrowers to provide legal documentation evidencing the
release of the borrower's financial obligation to satisfy the existing
HECM rather than requiring the borrower to demonstrate a final divorce
decree. (See Sec. 206.34.)
Amends the seasoning requirements for existing non-HECM
liens to: (1) Impose the 12-month requirement beginning at the date of
the HECM closing rather than the HECM loan application; and (2) allow
the pay-off at closing of Home Equity Lines of Credit (HELOCs) that do
not meet the seasoning requirements from borrower funds, the HECM
funds, or a combination of HECM funds and borrower funds, as long as
the draw from HECM funds does not exceed the draw limits during the
first 12 months of the HECM. (See Sec. 206.36.)
Includes required pay-off of debt not secured by the
property, as defined by the Commissioner through Federal Register
notice, as a mandatory obligation. (See Sec. 206.25(b) and Sec.
206.25(c).)
Clarifies that the mortgagees are required to request
borrowers to designate, at the borrower's discretion, an alternative
individual for the purpose of communicating with the mortgagee if the
mortgagee has not been able to reach the borrower directly. (See Sec.
206.40(c).)
Retains the current policy requirement that the mortgagor
must provide the mortgagee with a physical copy of the housing
counseling
[[Page 7098]]
certificate, and removes the requirement that the HECM counselor upload
the certificate to an electronic database. (See Sec. 206.41(c).)
Clarifies that the mortgagee shall provide any disclosures
required by law when asking the borrower about any costs or other
obligations that the borrower has incurred to obtain the mortgage. (See
Sec. 206.43(a).)
Allows fees customarily paid by the seller in the subject
property locality to be included as an interested party contribution.
(See Sec. 206.44(c).)
Clarifies the requirement for maintaining flood insurance
coverage. (See Sec. 206.45(c).)
Grants the FHA Commissioner the authority, where a HECM is
due and payable, to increase the maximum closing costs allowable for
selling the property above 11% of the sales price by establishing a
fixed dollar amount as determined through Federal Register notice. (See
Sec. 206.125(a)(2)(ii).)
Allows the FHA Commissioner to approve the use of
qualified appraisers acceptable to and identified by the Commissioner
when the mortgagee is required to appraise the property. (See Sec.
206.125(b).)
Authorizes the FHA Commissioner to expand availability of
the Cash for Keys incentive, in an amount to be determined by the
Commissioner, on REO properties with bona fide tenants. (See Sec.
206.125(g)(4).)
For the Cash for Keys incentive, authorizes the
Commissioner to increase the minimum amount of time a mortgagee shall
grant the borrower or bona fide tenant to vacate the property. (See
Sec. 206.125(f)(1)(ii) and Sec. 206.125(g)(4).)
Amends the limitation on reimbursements for advances made
by the mortgagee for property charges to cover two-thirds of the
overall advances made by the mortgagee rather than the full value of
the first two years of such advances. (See Sec. 206.129(d)(3).)
Removes the ability for the borrower to elect that the
mortgagee pay ground rents through the borrower's voluntary election to
have the mortgagee pay property charges. (See Sec. 206.205(b)(2) &
Sec. 206.205(d).)
Authorizes the Commissioner to establish an incentive for
voluntarily electing a Life Expectancy Set Aside through Federal
Register notice. (See Sec. 206.205(b)(2)(ii).)
Authorizes the Commissioner to expand the borrower's
options for property charge payment by the mortgagee through Federal
Register notice. (See Sec. 206.205(d).)
Deferred Final Determination
Additionally, in order to fully consider the comments received on
these issues, HUD will defer making its final determination of the
policies listed below from the proposed rule and afterwards, HUD will
issue its final determination on these issues in a final rule.
The change to the cap on interest rate adjustments for
annually adjustable interest rate products and the imposition of a five
percent cap on interest rate adjustments for monthly adjustable
interest rate products;
The establishment of extenuating circumstances exceptions
for exceeding the Initial Disbursement Limit or Borrower's Advance
during the First 12-Month Disbursement Period;
Post-closing property inspections;
The requirement to undergo counseling before signing a
HECM for Purchase contract and/or making an earnest money deposit; and
The definition of property charges to include utilities.
IV. Public Comments and HUD's Response to Public Comments
A. The Public Comments Generally
HUD received 241 public comments, including duplicate mass
mailings, resulting in 83 unique public submissions covering a wide
range of issues. Comments came from a wide variety of entities,
including lenders, servicers, interest groups, real estate agents, and
academics. In general, the public commenters expressed support for
codifying policy implemented via Mortgage Letter under statutory
authority, updating CFR part 206 and a number of the proposed
regulatory changes. Many commenters also raised questions or offered
suggestion for changes at the final rule stage. This section of the
preamble discusses the significant issues raised by the commenters and
provides HUD's responses to the comments received. All public comments
can be viewed at https://www.regulations.gov/docket?D=HUD-2016-0052.
B. Specific Public Comments
1. Definitions
Comment: The definition of ``borrower'' should be consistent with
the definition used in the Mortgagee Optional Election Assignment
guidance (Mortgagee Letter 2015-15) to mean the ``original borrower
under a note and mortgage.'' The commenter encouraged the use of
consistent definitions throughout HECM program guidance.
HUD Response: With the recent changes to the HECM program,
particularly the protections and benefits for non-borrowing spouses, it
was necessary for HUD to revise the definitions of ``borrower'' and
``mortgagor'' in order to resolve title issues involving quit claiming
practices of non-borrowing spouses or other non-borrowing owners. The
definition of ``borrower,'' as provided in 206.3, ``means a mortgagor
who is an original borrower under the HECM Loan Agreement and Note. The
term does not include successors or assigns of a borrower.''
Comment: HUD should clarify that the new proposed definition of
``mortgagee'' does not conflict with the rule change regarding sales to
other FHA-approved entities, as proposed in Sec. 206.101(d)(2). The
commenter stated that ``mortgagee'' is defined as the original lender
under a mortgage and its successors and assigns, as approved by the
Commissioner, but that HUD also proposed to include a non-FHA-approved
entity as a possible successor or assign, in some limited cases.
HUD Response: These requirements are not new additions to the HECM
program. They were previously listed in the regulations at 24 CFR part
203 and incorporated into the HECM program by reference. This rule
simply moves the regulations into part 206 in order to reduce the
number of cross-references. HUD intends to retain these regulatory
requirements.
2. State Statutes of Limitations
Comment: HUD should state that when a HECM loan is assigned to HUD,
any state statute of limitations on collecting or foreclosing upon the
loan does not apply to HUD. The commenter also suggested that HUD state
that any such state law is preempted by HUD HECM regulations and
program guidelines.
HUD Response: HUD appreciates the recommendation and will take it
under consideration for future rulemaking and policy guidance. However,
FHA reminds mortgagees that the model loan document provided must be
adapted by the lenders to local and state requirements that preserve
first lien status.
3. Program Complex/Disclosures
Comment: The HECM program is incredibly complex and could be
improved by the use of plain language educational materials and
software.
HUD Response: HUD agrees that the program is complex. The HECM
program is unique and was designed to reduce the effects of economic
hardships that senior homeowners may experience. Over the years,
changing
[[Page 7099]]
borrower and industry practices have required HUD to respond with
appropriate policymaking to manage risk to the MMIF and support
sustainability of the program. HUD supports consumer education and
awareness through its HECM counseling requirement. HUD understands the
need to provide plain language educational materials and appreciates
suggested content. However, prospective borrowers must understand the
terms and conditions of the mortgage as defined in the legal documents.
Comment: The program changes are overly restrictive and protective
of senior borrowers. The commenter stated that seniors are not
necessarily uneducated and have had many years of experience. The
commenter also stated that the current disclosure and guideline
requirements are sufficient.
HUD Response: HUD's mission is to serve underserved markets, which
must be balanced with HUD's inherent, as well as, statutory obligation
under the NHA to protect the MMIF. Knowing that many seniors are
educated and resourceful, HUD must take every precaution to ensure
seniors who need a reverse mortgage are equipped with the information
necessary to make an informed decision of whether the HECM is a
sustainable solution that enhances their financial position.
Comment: The changes in this rule are less about protecting seniors
and more about controlling the marketplace, lenders, and seniors, and
that the same policies do not apply to forward mortgages.
HUD Response: Despite the varying opinions concerning the recent
changes to the HECM program, HUD's mission is to serve underserved
markets, which must be balanced with HUD's inherent, as well as
statutory, obligation under the NHA to protect the MMIF. Governance of
the marketplace is beyond HUD's purview and the reverse mortgage
industry must examine its practices to determine what is acceptable and
beneficial for the survival of this program. The requirements of the
HECM program are unique and it is important to note that the program
has a very different risk profile than Forward Mortgages. Where
feasible, HUD strives to adopt forward mortgage requirements that can
be applied to the HECM Program.
Comment: HUD should expand the disclosure requirement to allow for
new and improved methods with which to inform potential HECM borrowers.
One commenter proposed that HUD host a technology roundtable to discuss
and evaluate a new consumer-friendly marketing campaign. Another
commenter stated that HUD should elaborate on the disclosure
requirement and further define the extent to which lenders must
disclose all products, features, and options that HUD will insure.
Commenters stated that the description of these products should include
overall access to equity, costs, and the amount of funds available
during the first 12 months.
HUD Response: Mortgagees are required to explain in clear,
consistent language all requirements and features of the HECM program.
Mortgagees have the flexibility to identify and use methods that will
ensure borrowers are properly informed of all features and products
that are available.
Comment: HUD should discourage product-steering by lenders.
HUD Response: HUD believes its requirement that mortgagees must
disclose all products, whether they are offered by the mortgagee or
not, will discourage product-steering.
Comment: HUD should promulgate suitability rules to ensure that
lenders only recommend reverse mortgage loans that are suitable for
borrowers' needs.
HUD Response: Housing counseling and the Financial Assessment are
prudent practices for evaluating whether the HECM is a sustainable
solution. Both practices promote the participation of homeowners who
are well-informed and financially well-positioned for a HECM loan.
Comment: Disclosing too many options may be confusing to borrowers.
HUD Response: HUD disagrees and believes that the full disclosure
of all products is necessary to insure borrowers are aware of all
options and to avoid potential steering.
4. Interest Rate Lock-In
Comment: HUD should eliminate the credit line growth feature of
adjustable-rate HECM loans. The commenter stated that the growth is
determined by interest rate, lender margin, and mortgage insurance
premiums, and borrowers have access to increasing amounts of funds even
if home prices fall, which leads to greater risk for the MMIF.
HUD Response: The HECM program was designed to allow the line
growth feature to insure borrowers had access to equity. Other program
features balance risk such as principal limit factors, MIP, controls
over large cash draws upfront, and no future draws on fixed rate
product.
Comment: HUD should clarify that rate locks are optional.
HUD Response: The rate lock is optional. HUD notes that the
proposed rule, in its definition ``expected average mortgage interest
rate,'' indicates that mortgagees, with the agreement of the borrower,
may lock in the expected average mortgage interest rate and the
mortgagee's margin prior to the date of loan closing or on the date of
loan closing. HUD retains this option in this final rule.
Comment: HUD should maintain the current policy regarding the
timing of when the mortgagee may lock in the rate that determines the
principal limit, which is the application date.
HUD Response: HUD appreciates the feedback but believes the
borrower should have the flexibility of setting the expected average
mortgage interest rate and mortgagee's margin, if applicable, any time
prior to closing or at closing.
Comment: HUD should continue to permit the ``float down'' option
whereby the principal limit may be recalculated at closing if the
expected interest rate has declined and is lower than at application
date.
HUD Response: HUD will continue to permit the ``float down''
option, per ML 2006-22.
Comment: HUD should allow the borrower to keep the rate lock they
have chosen or the expected rate based on the index in effect at
closing, whichever is most beneficial to the borrower.
HUD Response: HUD will continue to permit the ``float down''
option, per ML 2006-22.
Comment: HUD should elaborate on the interest rate lock-in
timeframes and further clarify the terms used.
HUD Response: The guidance found in ML 2006-22 provides useful
background for interest rate lock-in timeframes.
5. Shared Premium/Shared Appreciation
Comment: Shared appreciation should not be utilized in the HECM
market. One commenter stated that the terms of a shared appreciation
reverse mortgage are heavily weighted towards benefiting the mortgagee
and not the borrower. Another commenter stated that there should be a
prohibition against shared appreciation schemes, due to the harm done
to the borrower.
HUD Response: The National Housing Act provides for a shared
appreciation option, and HUD will retain the shared appreciation option
in the regulations to allow for future potential product design.
Comment: The shared appreciation option has not been utilized, but
may be useful in the future. One commenter stated that shared
appreciation could be an example of a product that seems unnecessary
but eventually becomes popular due to changing market
[[Page 7100]]
conditions. The commenter stated that ``low balance'' HECM options or
the HECM Saver product could be other examples of such products.
Commenters stated that these items could allow for important product
design and innovation in the future. Some commenters suggested that
this could give an opportunity for further review and study on how such
features may be used to design new products and features. Some
commenters also stated that the product could be used in the future to
reduce risk to the MMIF. One commenter stated that these options have
the potential for creating competitive loan products in the
marketplace.
HUD Response: HUD will retain the shared appreciation option in the
regulations for future potential product design.
Comment: More information is needed on the shared premium and
shared appreciation options. The commenter also stated that the 2009
PLF tables do not include the shared premium basis points as in
previous versions, and that there is little explanation of how the
shared premium and shared appreciation options are administered or
audited by HUD, or whether these loans are eligible for securitization.
HUD Response: We do not currently administer these options.
6. Deferral of Due & Payable Status
Comment: Eligible Non-Borrowing Spouses should continue to enjoy
the benefits of any monthly distributions or the availability of any
line of credit funds once the last borrower dies. The commenter stated
that the eligible NBS should still have access to these benefits since
the amount available to the borrower is determined by the age of the
NBS.
HUD Response: The NBS is not a borrower and as such is not a party
to the Loan Agreement. The Loan Agreement is a contract solely between
the borrower and the mortgagee, not the NBS. Upon the last surviving
borrower's death, the terms of the Loan Agreement provide that no
further funds can be made available to a person who is not a party to
the Agreement.
Comment: Ninety days is insufficient for a grieving spouse to take
practical measures to secure her or his right to the property. One
commenter stated that the probate process alone can take longer than
ninety days for reasons outside of the surviving spouse's control.
Commenters suggested that the time frame should be extended to 180
days. Another commenter suggested 120 days would be sufficient. One
commenter also suggested that HUD may require that a probate action be
opened within a reasonable time after the borrower's death.
HUD Response: HUD appreciates the recommendation. HUD would like to
remind the public that a NBS does not have to obtain legal title in
order to be eligible for a deferral period. A NBS must establish a
legal right to remain in the property, which may be accomplished
through means other than obtaining legal title to the property. While
HUD understands and appreciates that concerns raised about the time
required to obtain legal title, as it is not the requirement and the
NBS has other means in which to establish a legal right to remain, HUD
will not adopt this recommendation at this time.
Comment: Thirty days after a deferral period ceases is not a
sufficient time frame to cure a default. The commenter stated that most
spouses will need more time to obtain documentation or evidence from a
taxing authority to provide timely payment and to successfully navigate
the servicer's protocols.
HUD Response: Non-borrowing spouses are provided the same
timeframes and opportunity during a deferral period to cure a default
as a borrower is provided during his or her lifetime and HUD believes
this timeframe to be sufficient. Additionally, borrowers and non-
borrowing spouses can cure a default up until the foreclosure sale
occurs.
Comment: HUD should expand the definition of events that are able
to trigger the deferral period under Sec. 206.55. The commenter
recommended that the definition should be expanded to cover all events
that are outside the control of the borrower, such as significant
health or life events. Another commenter stated that due and payable
status should also be deferred when a borrower is no longer residing in
the home serving as collateral property but there is an Eligible NBS
present and occupying the home.
HUD Response: HUD understands the issue raised by the commenter but
is unable to adopt this suggestion to expand events that would be
eligible for a deferral period. The other events that would give rise
to a due and payable status result from a borrower failing to comply
with his or her obligations of the mortgage. As such, HUD cannot
provide for a deferral where there is a breach of a contractual duty.
Additionally, by providing a deferral period for a NBS where the
borrowing spouse has died, the requirements of this provision in the
NHA are satisfied.
7. Initial Disbursement Limit/Borrower's Advance
Comment: HUD should allow any funds disbursed as a monthly tenure
payment to the borrower to exceed the Initial Disbursement Limit (IDL)
during the first 12 months. One commenter stated that applying the
Initial Disbursement Limit to monthly tenure payments causes confusion
by requiring the payments to be reduced so that they remain less than
the IDL during the first 12 months, and then recast at the end of the
first year to recapture the amount reduced during that time period.
HUD Response: HUD appreciates the recommendation and will take it
under consideration for future rulemaking or policy guidance.
Comment: HUD should clarify what constitutes fees and charges for
real estate purchase contracts, warranties, inspections, surveys, and
engineer certifications.
HUD Response: HUD appreciates the recommendation and will take it
under consideration for future policy guidance.
Comment: HUD should only require the borrower to report whether the
amount drawn during the First 12-Month Disbursement Period will exceed
the 60 percent limit. Commenters stated that reporting the exact
percentage would be confusing and unnecessary.
HUD Response: HUD has amended the language in this final rule to
remove the word ``exact'' from Sec. 206.25(a) to avoid any confusion.
HUD will continue to require the borrower to indicate what percentage,
up to 10% of the principal limit, she or he chooses to receive during
the first year. The additional amount that the borrower plans to use
during the First 12-Month Disbursement Period is needed for the initial
MIP calculations.
Comment: HUD should not further amend the limits on the initial
disbursements during the first 12 months.
HUD Response: HUD appreciates the concern raised. However, the
flexibility in the regulation will enable HUD to react to market
conditions, for the viability of the HECM program, and to protect the
fiscal soundness of the MMIF. The flexibility in place at Sec.
206.25(a) allows the Commissioner to raise or lower the maximum initial
draw but cannot go lower than 50% and the additional percentage cannot
be less than 10%.
Comment: HUD should be careful not to set limits at a point in
which it eliminates access to the program for many potential borrowers.
The commenter referenced examples of
[[Page 7101]]
seniors who were convinced to withdraw the maximum amount at closing
and immediately invest in financial products.
HUD Response: The flexibility in place at Sec. 206.25(a) only
allows the Commissioner to raise or lower the maximum initial draw but
cannot go lower than 50% and the additional percentage cannot be less
than 10%. This limitation was specifically designed to reduce initial
draws and is presently set at the amount of Mandatory Obligations or
60% plus an additional 10% of the Principal Limit. In addition, the MIP
Structure also provides a lower upfront rate of 0.50% for draws of 60%
or less and 2.50% for draws in excess of 60%. Mortgagee Letter 2014-10
provides specific guidance regarding the borrower's right to determine
the amount of the initial disbursement and requires mortgagees to
inform them of these rights.
8. Allowable Charges and Fees
Comment: HUD should clarify in the preamble to the final rule that
the origination fee limit does not include and does not apply to third
party closing costs or fees. Another commenter stated that including
more fees without increasing the allowable origination fee is reducing
funds for a company to operate even though the costs of operating a
business and the cost of living is increasing.
HUD Response: HUD is not seeking to include additional borrower
charges in the loan origination fee. The amendments to Sec. 206.31 in
this final rule clarify the loan origination fee includes expenses
incurred in originating, processing, and closing the HECM. Third party
closing costs or fees such as an appraisal fee, MIP, transfer fees,
etc., are the responsibility of the borrower. The practice of the
lender using the loan origination fee to cover the full amount or a
portion of those fees and charges to reduce the borrower's out-of-
pocket expenses may continue.
Comment: HUD should clarify the ability of mortgagees to charge
other fees, which should also be included as allowable Mandatory
Obligations. Commenters stated the following should fall under this
category: Tax history verifications, credit report fees, 4506T tax
verifications, and other verifications such as verification of
employment, income, bank statements, and assets. Another commenter
requested that HUD allow mortgagees to incur and pass along to HECM
borrowers a document delivery or technology fee that allows for the
delivery of loan documents and disclosures as well as any required
document review fee such as those mandated by state law. Another
commenter requested additional clarification on the allowance of
closing charges and fees.
HUD Response: Section 206.25 was amended by the proposed rule to
include credit report fees as mandatory obligations. The final rule
retains this language. HUD issued ML 2016-10 to permit a Third Party
Property Tax Verification Fee to verify the borrower's property tax
payment history and the annual amount of property taxes due for a
specific property. HUD will use its administrative authority to clarify
its policy concerning the handling of reasonable and customary fees and
charges that are required to do business as an FHA-approved lender.
Comment: HUD should consider adding regulations to limit broker
compensation, particularly as to adjustable rate line of credit reverse
mortgages where the Truth in Lending Act regulations do not apply. The
commenter provided an example of a mortgage broker receiving a yield
spread premium of 15 percent of the loan amount in exchange for
acceptance of a higher-than-market interest rate, without the
borrower's understanding of the situation.
HUD Response: HUD does not have regulatory authority to issue these
requirements. Loan originator compensation is regulated by the CFPB
under the Truth in Lending Act and its implementing Regulation Z (12
CFR part 1026). The provisions apply to closed-end consumer credit
transactions secured by a dwelling, including reverse mortgages that
are not home equity lines of credit under 12 CFR 1026.40. See 12 CFR
1026.36.
Comment: HUD should consider addressing the allowance of Appraisal
Management Company fees and document preparation fees as part of the
allowable loan origination fees and charges.
HUD Response: HUD appreciates the recommendation and will take it
under consideration for future policy guidance.
Comment: A second HECM should be allowed in the case of a divorce.
Commenters stated that the divorced co-borrower must show a divorce
decree and/or a copy of the deed indicating the former spouse is
responsible for the prior marital home.
HUD Response: HUD is adopting in this final rule the proposed rule
change that allows for a new HECM when the existing HECM is satisfied
prior to or at the closing of the new HECM, or the borrower provides
legal documentation, acceptable to the Commissioner, evidencing release
of financial obligation to satisfy the existing HECM, which may include
a divorce.
Comment: A second HECM should be allowed when the individual is no
longer on title to the property with the existing HECM and a new
primary residence has been established. The commenter stated that the
proposed rule solved for married individuals only and not other
situations such as domestic partners or relatives.
HUD Response: HUD is adopting in this final rule the proposed rule
change that allows for a new HECM when the existing HECM is satisfied
prior to or at the closing of the new HECM, or the borrower provides
legal documentation, acceptable to the Commissioner, evidencing release
of financial obligation to satisfy the existing HECM. This requirement
is applicable to all borrowers and not just married individuals.
10. Title of Property Which Is Security for the HECM
Comment: HUD should allow the NBS to go on title without having to
refinance or qualify for another loan. The commenter stated that there
are many examples of spouses not qualifying under the new regulations
and as a result, they have to stay off title, which causes other legal
issues not pertaining to the mortgage on the property.
HUD Response: The new definitions for ``mortgagor'' and
``borrower'' in Sec. 206.3 of this final rule address the commenter's
concern.
Comment: Allowing non-borrowing spouses to remain on the title
could open the door to claims by other non-borrowing owners. Commenters
expressed concerns over whether other co-owners could demand the sale
of the property or demand to receive their share of the home title. One
commenter asked if HUD could limit the ability to remain on title to
eligible NBSs only or perhaps only to owners who also reside in the
home. Another commenter suggested that HUD should limit the ability of
a non-borrower to remain on title to spouses, or alternatively, grant a
life estate right to the borrower so that the borrower could keep the
home.
HUD Response: While HUD understands the potential issues that could
arise from shared legal ownership of a property, HUD has determined it
is not in a place to dictate to a homeowner or homeowners how to best
structure legal ownership to a property. Further, even should HUD be
inclined to limit those individuals on title at origination, there is
nothing that would prevent the borrower from subsequently adding
additional individuals to title. These
[[Page 7102]]
individuals whether added before or after origination would have
certain legal rights as would any other legal owner of a property.
Ultimately, how a homeowner or homeowners elect to hold title is within
their control.
Comment: HUD should clarify when a certification must be signed by
all non-borrowing spouses and non-borrowing owners to consent to the
borrower obtaining a HECM. The commenter recommended that the
certification be required at the time of closing or funding.
HUD Response: HUD will take these comments under consideration when
implementing related policy through guidance.
Comment: HUD should clarify that HECM servicers may encourage
borrowers on currently outstanding HECMs to add NBSs and heirs to the
title when preparing for end-of-life arrangements.
HUD Response: HUD has determined it is not appropriate to dictate
to a homeowner or homeowners how to best structure legal ownership to a
property.
12. Seasoning Requirements for Existing Non-HECM Liens
Comment: An unintended consequence of the rule is that it disallows
a HECM even when the non-HECM lien would not result in exceeding the 60
percent of the initial disbursement limit. Some commenters suggested
that the policy should be changed so that liens seasoned for less than
one year can be paid off at closing if the PLU is 60 percent or less.
HUD Response: HUD has considered this proposal and is incorporating
a change to the final rule for HELOCs. The final rule allows borrowers
to pay off unseasoned HELOCs using their own funds, HECM funds, or a
combination of HECM funds and non-HECM funds. The final rule allows the
use of HECM funds to pay off unseasoned HELOCs if the IDL or Borrower's
Advance remains at or under the percentage set by the Commissioner in
Sec. 206.25(a).
Comment: The seasoning requirement should be eliminated altogether.
The commenter stated that many seniors take out a home equity line of
credit without realizing a reverse mortgage would be a better option.
The commenter explained that if an emergency makes it difficult for
this senior to make monthly payments on the HELOC, it would put the
borrower in an even worse financial situation if the borrower could not
apply for a HECM for twelve months. Another commenter stated that this
requirement only hurts the seniors who have to wait up to twelve months
to get their HECM loan. One commenter asked what is wrong with allowing
debts to be paid off at closing. Some commenters stated that it is not
reasonable to expect a homeowner to possibly know that an ordinary
consumer transaction such as opening a home equity line of credit will
close the door to a HECM. One commenter suggested two alternatives: (1)
Reduce the seasoning requirement to draws made in the last 60 to 90
days; or (2) make the effective date the date of closing rather than
the date of application.
HUD Response: This final rule retains an amended seasoning
requirement that imposes the 12-month requirement beginning at the date
of the HECM closing rather than the HECM loan application, and at
closing, allows the pay-off of HELOCs that do not meet seasoning
requirements from borrower funds, HECM funds, or a combination of a
borrower's own funds and HECM funds if the IDL or Borrower's Advance
remains under the percentage set by the Commissioner in Sec.
206.25(a).
Comment: The seasoning requirement should be rewritten to exclude
construction and rehab loans, as long as the borrower can show that all
loan proceeds were paid to contractors. One commenter stated that in
many cases, these loans are required to bring the property into
compliance for a HECM.
HUD Response: Existing policy does not consider funds paid to third
parties for construction and rehab to be ``cash to the borrower''. As
long as documentation is provided to show that loan proceeds in excess
of $500 were paid to a contractor, the seasoning requirement in Sec.
206.36 is considered satisfied.
Comment: HUD should clarify the current interpretation by wholesale
lenders concerning such loan proceeds passing through the bank account
of the borrower.
HUD Response: If documentation is provided to show that the loan
proceeds in excess of $500 were paid to a third party, funds that were
received by the borrower and paid through the borrower's bank account
satisfies the seasoning requirement in Sec. 206.36.
Comment: Rather than allowing the Commissioner to impose additional
seasoning requirements through notice and comment, the seasoning
requirements under Mortgagee Letter 2014-21 should remain the same and
be incorporated into the regulations.
HUD Response: As stated in the proposed rule and retained in the
final rule in Sec. 206.36, the seasoning requirements that may be
established by the Commissioner will not prohibit the payoff of non-
HECM liens if the liens have been in place for longer than 12 months or
have resulted in cash to the borrower in an amount of $500 or less.
Comment: HUD should allow for greater flexibility for paying off
existing mortgages by imposing a 1.75 percent upfront MIP cap rather
than a 2.5 percent cap or by increasing the percentage allowable from
42 percent to 52 percent with a 60 percent cap on distributions.
HUD Response: HUD will take these comments under consideration when
implementing future policy guidance.
11. Financial Assessment
Comment: The introduction of non-property related expenses is
outside the scope of the financial assessment. One commenter stated
that a senior will pay the property taxes when given a choice between
paying the property taxes or paying off a credit card.
HUD Response: It is critical to evaluate the willingness (credit
history) and financial capacity of the borrower in order to determine
whether the HECM loan is a sustainable solution for the borrower in
order to reduce defaults and manage risk to the MMIF.
Comment: Proof of on-time property taxes and insurance payments
should not be required. The commenter stated that those who have a
history of less-than-stellar credit, even if they pass the Financial
Assessment, should be considered for a LESA.
HUD Response: Current regulations in Sec. 206.205 require that if
the borrower does not meet the Financial Assessment requirements that a
Fully- or Partially-Funded LESA is required. And all HECM borrowers
have the option to voluntarily request a LESA for payment of taxes and
insurance or voluntarily request the mortgagee to pay taxes and
insurance out of the HECM proceeds if a LESA is not required.
Comment: Willingness is the primary cause of tax and insurance
defaults.
HUD Response: HUD rejects this comment and recognizes the majority
of its borrowers demonstrate a willingness to pay their property
charges in a timely manner. HUD's guidance, as provided in the revised
HECM Financial Assessment and Property Charge Guide attached to
Mortgagee Letter 2016-10, includes instructions for reviewing and
evaluating the applicant's credit history, including tax and insurance
payment history, and extenuating circumstances of prospective borrowers
to determine whether the HECM loan is a sustainable solution and
whether a LESA must be required.
Comment: Borrowers with a certain minimum credit score should be
exempt from the income assessment.
[[Page 7103]]
HUD Response: HUD is receptive to adding FICO Scores to the
Financial Assessment process; however, at this time, sufficient
performance data is not available to support the implementation of FICO
score criteria for HECMs. HUD is now collecting FICO information on
HECM borrowers and will, over time, evaluate how that may be
incorporated in the Financial Assessment process.
Comment: Additional compensating factors should be taken into
consideration at the discretion of the direct endorsement underwriter,
just as in traditional mortgages.
HUD Response: HUD does not allow additional compensating factors to
be taken into consideration of the direct endorsement underwriter on
forward mortgages and does not intend to adopt this recommendation for
the HECM program.
Comment: HUD should audit recent financial assessments to determine
how much documentation is unnecessary. One commenter stated that many
guideline requirements are beyond risk management and ambiguous, and
suggested that HUD could establish quarterly meetings with industry
underwriters and sales leaders for a path toward closing good loans
with limited documentation.
HUD Response: HUD continues to closely monitor performance of the
HECM portfolio and will update guidance on the Financial Assessment as
needed.
Comment: HUD should wait to implement further changes to the
financial assessment, since the impact of the changes that took effect
in April 2015 are not yet fully understood.
HUD Response: The proposed rule does not include any changes to the
Financial Assessment requirements. HUD continues to closely monitor the
performance of the HECM portfolio and will update guidance on the
Financial Assessment as needed.
Comment: HUD should allow seniors to pay off revolving debt at
closing from proceeds in order to qualify under the financial
assessment rules, particularly since this can be done with forward
mortgages.
HUD Response: In this final rule, HUD has included use of HECM
proceeds to be used to pay-off unsecured debt, as defined by the
Commissioner through Federal Register notice, as a mandatory
obligation.
Comment: The financial assessment guidelines are overly restricting
access to the HECM program. One commenter stated that a LESA eliminates
some concern regarding residual income, since a person with a full LESA
is covered with regards to tax and insurance. Another commenter stated
that the Financial Assessment guidelines apply HUD practices designed
for younger, employment-aged consumers and should be more closely
correlated to the actual situation of aging homeowners over time. The
commenter suggested that the rule should recognize the evolving nature
of the Financial Assessment protocol and require further review to
expand the population of low-risk senior homeowners who are eligible to
participate in the HECM program. Another commenter stated that even
borrowers with excellent credit are forced to go through many
underwriting conditions that would not be required for an FHA forward
mortgage. Another commenter stated that the process of obtaining a HECM
has become unnecessarily documentation-intensive and rigid with respect
to the specific documentation format.
HUD Response: As stated in Sec. 206.37(b)(1), the financial
capacity of the borrower must be evaluated to determine whether the
HECM is a sustainable solution for the borrower. HUD has always
required full documentation for borrowers on all its mortgage programs,
except for streamlined refinances. Providing specific documentation
requirements ensures consistency and these requirements may vary from
forward mortgages because of the different profile of the programs and
the borrowers. However, a significant amount of the required financial
assessment documentation reflects standard documentation criteria for
real estate secured loans. The need to require additional cash flow and
projected financial documentation on HECMs reflects the unique
structure of this type of mortgage and borrower. HUD appreciates the
recommendation and will take it under consideration for future policy
guidance.
Comment: The requirement to use the prior year's tax bill amount
multiplied by 1.04 or an amount set by the Commissioner through notice
is unnecessary as the LESA formula already has a 1.2 times multiplier
to the annual taxes and insurance.
HUD Response: When the mortgagee requires the payment of taxes and
flood and hazard insurance at closing, or the borrower requests that
their property charges are paid at closing, and a new tax bill has not
been issued or is unavailable, the 1.04 multiplier is used to calculate
the projected amount of taxes and insurance to be disbursed during the
first 12 months. The 1.2 multiplier is used for the LESA and takes into
account expected increases in property taxes and hazard and flood
insurance over the life expectancy of the youngest mortgagor.
Comment: HUD should clarify that Financial Assessment underwriting
should not include utility payments in the expenses of HECM borrowers.
HUD Response: Utility payments, using the residual income formula
in the Financial Assessment Guide, is a requirement and HUD does not
intend to change this policy at this time.
13. Disclosure, Verification, & Certifications
Comment: HUD should clarify, in guidance if not in the regulations,
that borrowers will not be required to grant the agent specified power
of attorney with the ability to access HECM funds. Some commenters
stated that some borrowers will not know someone trustworthy enough for
that purpose. Another commenter suggested that HUD should restrict this
person's role to that of a ``trusted contact'' person. One commenter
stated that HUD should clarify that the designation of an additional
contact is optional on the part of HECM borrowers.
HUD Response: It was not HUD's intent to have all borrowers
designate an agent with the authority to make financial decisions or
withdraw funds. It is HUD's intent that HECM borrowers be requested to
designate a point of contact that mortgagees would be required to use
in the event a problem arises or in the event of the borrower's death
or incapacitation. Accordingly, HUD has revised Sec. 206.40(c) to
clarify that the contact person is not acting as an agent and that the
mortgagee will be required to request the designation, but that the
borrower is not required to designate such a contact person.
Comment: HUD should require borrowers to provide a trusted contact
at the time of loan origination, who would be notified in the event HUD
could not establish contact with the borrower. The commenter stated
that a failure to respond by the borrower would result in a
notification sent to the trusted contact.
HUD Response: HUD has revised Sec. 206.40(c) to clarify that the
contact person will not be an ``agent'' and that the mortgagee will
only request that the borrower designate such a contact person that
mortgagees would be required to use if they cannot reach the borrower
directly in the event a problem arises or in the event of the
borrower's death or incapacitation.
Comment: The servicer should verify the agent's information
annually when the borrower's certification of residency is obtained, to
ensure that the information is up-to-date.
[[Page 7104]]
HUD Response: In Sec. 206.211(a), the proposed rule includes the
borrower designation of alternate individual as part of the annual
certification.
Comment: The requirement to collect an alternative point of contact
for notifications from the mortgagee should be required at the time of
loan origination and updated annually.
HUD Response: HUD has revised Sec. 206.40(c) to clarify the
mortgagee shall request but not require the borrower to designate an
alternative individual at origination. In section 206.211(a), the
proposed rule includes the borrower designation of alternate individual
as part of the annual certification.
Comment: HUD should make certain revisions to the Eligible Non-
Borrowing Spouse Certification. The commenter stated that the
certification should affirm that the NBS does not have, and is not
aware of, any claims against the mortgagee. The commenter also stated
that the certification should affirm that the NBS agrees to execute
documentation reasonably requested in order to toll the running of any
applicable statute of limitation after the borrower passes away but the
NBS remains in the property during a deferral period. The commenter
finally stated that similar changes should be made to the
certifications issued under FHA Info, prior to the issuance of
Mortgagee Letter 2016-05 for HECMs subject to the Mortgagee Letter and
the MOE Assignment election.
HUD Response: HUD will take these comments under consideration when
implementing related policy through guidance. Additionally, FHA reminds
mortgagees that the model loan document provided must be adapted by the
lenders to local and state requirements that preserve first lien
status.
Comment: HUD should allow mortgagees to amend the HECM loan
documents to revise the recitals in the security instrument to make
clear that the non-borrowing spouse is not a borrower. The commenter
also stated that the repair rider and other riders should be indicated
as secured items in the initial recitals of the HECM mortgages.
HUD Response: HUD will take these comments under consideration when
implementing related policy through guidance. Additionally, FHA reminds
mortgagees that the model loan document provided must be adapted by the
lenders to local and state requirements that preserve first lien
status.
Comment: HUD should add a seventh Qualifying Attribute that the
non-borrowing spouse must agree to execute certain documentation in
order to toll the running of any applicable statute of limitation
during a deferral period.
HUD Response: HUD will take these comments under consideration when
implementing related policy through future rulemaking or policy
guidance. Additionally, FHA reminds mortgagees that the model loan
document provided must be adapted by the lenders to local and state
requirements that preserve first lien status.
Comment: HUD should consider defining the due and payable date as
the later of when the Eligible NBS no longer meets all of the
Qualifying Attributes or when the borrower dies, in those cases where
there is an Eligible NBS present. The commenter stated that this
language could be used by mortgagees in states that do not allow the
tolling of a statute of limitations.
HUD Response: HUD will take these comments under consideration for
future rulemaking. Additionally, HUD reminds mortgagees that the model
loan document provided must be adapted to local and state requirements
that preserve first lien status.
14. Monetary Investment for HECM for Purchase
Comment: Like most other loan products, there should only be a
restriction to payment of those items that are reasonable and
customary. Many commenters stated that seller contribution rules for
the HECM for Purchase program should be the same as those in the FHA
forward market. Some commenters stated that further restrictions result
in the senior borrowers having more of a cost burden than similar
borrowers using FHA's forward mortgage program as well as conventional
and VA mortgage borrowers. One commenter stated that HECM buyers are
currently unnecessarily burdened with paying for transfer tax, owner's
title insurance, and some escrow fees, whereas forward mortgage buyers
have these expenses paid by a third party. Another commenter stated
that these restrictions cause seniors to pay more than what they would
if they chose a forward mortgage, especially with new construction. One
commenter stated that not allowing for customary transaction charges
normally paid by the seller can create confusing market irregularities
when a HECM is used to purchase a new home. The commenter also stated
that some HECM rules are in direct conflict with state law.
HUD Response: In addition to allowing seller payment of fees
required by State or Local tax laws and a Home Warranty Policy, the
final rule has been revised to allow fees customarily paid by a seller
in the subject property locality to be a permissible interested party
contribution. The final rule also retains the proposed rule language to
grant flexibility to the Commissioner to consider additional
permissible interested party contributions through notice for comment,
and will take these comments under consideration in possibly issuing
such a future notice.
Comment: The amount of closing costs that other parties can pay
should be expanded to further support the use of the HECM for Purchase
program. Some commenters stated that it does not make sense to prevent
other parties from helping to cover other borrower costs, when these
practices are perfectly acceptable for all other types of mortgage
transactions. Some commenters stated that HUD should allow lenders
credit for buyer closing costs up to 3 percent. Other commenters
suggested that the rule be changed to allow the seller to pay 3 to 6
percent of closing costs, similar to the forward side. Another
commenter stated that the lender should be able to pay closing costs
without limitation, other than the counseling fee. Commenters stated
that the practice of prohibiting sellers from paying customary fees or
closing costs is unfair to reverse mortgage borrowers. Another
commenter stated that if HUD allows the same closing costs to be paid
by the seller as are allowed in a traditional FHA loan, HECM for
Purchase loans will skyrocket in popularity and greatly benefit the
senior real estate market. One commenter stated that even a 2 percent
allowable concession would put the consumer into a better cost
structure. Another commenter recommended that HUD exclude lender
closing cost credits, adjustments, and discounts from the definition of
``interested party'' contributions.
HUD Response: In addition to allowing seller payment of fees
required by State or Local tax laws and Home Warranty Policy, the final
rule has been revised to allow fees customarily paid by a seller in the
subject property locality to be a permissible interested party
contribution. The final rule also retains the proposed rule language to
grant flexibility to the Commissioner to consider additional
permissible interested party contributions through notice for comment,
and will take these comments under consideration in possibly issuing
such a future notice.
Comment: HUD should specify what it means by ``typical'' and
``required by state law.''
HUD Response: HUD appreciates the recommendation and will take it
under
[[Page 7105]]
consideration for future policy guidance.
Comment: HUD should allow the seller to pay for the buyer's closing
costs and thereby increase the popularity of HECM for Purchase loans.
The commenter stated that many borrowers would use a HECM for Purchase
loan that they do not intend to live in for the long-term, which would
be a great loan for the MMIF.
HUD Response: In addition to the allowing seller payment of fees
required by State or Local tax laws and Home Warranty Policy, the final
rule was revised to allow fees and charges customarily paid by a seller
in the subject property locality to be included as a permissible
interested party contribution. HUD will continue to explore responsible
lending practices and protections for the benefit for this protected
class.
Comment: Continuing the ban on closing costs is a good idea for new
construction but not for resales.
HUD Response: HUD appreciates the recommendation and will take it
under consideration for future policy guidance.
Comment: HUD should find a way to relieve all closing costs if the
borrower agrees to dedicate at least part of the funds toward life and/
or annuity products which have prematurity distribution clauses.
HUD Response: Section 255(o) of the National Housing Act prohibits
prospective borrowers from being required to purchase additional
products, such as annuities as a requirement or condition of HECM
eligibility. Currently, closing costs associated with a HECM are
limited to certain items such as, but not limited to, MIP, mortgagee's
title insurance, hazard and/or flood insurance, loan origination fees,
the discharge of all liens against the property which serves as
collateral for the HECM, and other reasonable and customary amounts,
but not more than the amount actually paid by the mortgagee.
Comment: HUD should clarify that lender-paid broker fees that are
disclosed as a ``credit'' on the HUD-1 for RESPA purposes are not
lender credits for purposes of the HECM for Purchase program. The
commenter stated HUD should clarify that although lender-paid mortgage
broker fees are reflected as a ``credit'' on line 802 of the HUD-1,
such fees paid by lenders to mortgage brokers are not a credit for
purposes of the HECM for Purchase program.
HUD Response: HUD appreciates the recommendation and will take it
under consideration for future policy guidance.
15. Eligible Properties
Comment: HUD should require the Certificate of Occupancy as a
closing condition rather than for purposes of an application. Another
commenter stated that HUD should remove the requirement for a
certificate of occupancy to be issued prior to application. The
commenter stated that the rule as proposed would restrict consumer
access to the HECM for Purchase program. One commenter stated that the
builder may not be able to afford to complete the home, and then have
the buyer apply for the HECM and wait another 3-6 weeks to close.
HUD Response: The timing for taking the initial loan application
will be addressed in future policy guidance rather than this final
rule.
Comment: Requiring the certificate of occupancy to be completed on
new construction before the HECM can be originated is very burdensome
for seniors. Some commenters suggested that the HECM regulations should
follow standard FHA rules for forward mortgages wherein the case number
and application may ensue upon 90 percent of property completion with
the Certificate of Occupancy obtained prior to closing. The commenter,
and others, stated that this would enable seniors to compete for new
construction homes in 55-and-over communities and energy efficient
properties. Another commenter suggested that HUD should allow for an
order of a case number and appraisal any time after the home is 50
percent complete. Another commenter stated that newly-built senior
housing that is more accommodative to aging independently is a major
national demographic trend.
HUD Response: HUD appreciates the comments concerning the timing
for collecting habitability documentation and will take it under
consideration for future policy guidance.
Comment: As an alternative, HUD should allow for a ``temporary'' or
``conditional'' Certificate of Occupancy to be accepted at application.
The commenter suggested that the conditional or temporary issues to be
addressed would be sod, landscaping, or perhaps an unfinished driveway.
HUD Response: HUD appreciates the recommendation and will take it
under consideration for future policy guidance.
Comment: HUD should clarify that the leasehold period is based on
the life of the borrower rather than the life of the mortgagor.
HUD Response: The NHA requires that the leasehold period must be
under a lease for not less than 99 years that is renewable, or under a
lease that has a term that ends no earlier than the minimum number of
years, as specified by the Secretary, beyond the actuarial life
expectancy of the mortgagor or comortgagor, whichever is the later
date. The leasehold period cannot be based on the life of the borrower
as the NHA requires that it be based on the life of the mortgagor.
Comment: The proposal to add a new flood insurance mandate ``to the
extent required by the Commissioner'' is vague and unnecessary. One
commenter stated that the proposed rule does not contain any
description of the criteria the Commissioner would use to make the
determination as to whether flood insurance was required. The commenter
also stated that federal law and the flood insurance program were
already designed to protect mortgagees and the federal government from
the risk of property loss due to floods. Another commenter stated that
HUD should make it clear that flood insurance is not required unless
required under the National Flood Act because the property is in a
flood zone.
HUD Response: These requirements are not new additions to the HECM
program. They were previously listed in the regulations at 24 CFR part
203 and incorporated into the HECM program by reference. This rule
simply moves the regulations into part 206 in order to reduce the
number of cross-references. HUD intends to retain these regulatory
requirements.
Comment: Section 206.45(c)(1)(ii) should be deleted or paragraph
(1) should be edited by adding a paragraph break after the first comma
of Sec. 206.45(c)(1)(ii). The commenter stated that, without a
paragraph break, it is unclear whether the phrase ``if flood insurance
under the National Flood Insurance Program (NFIP) is available''
applies only to paragraph (ii) or paragraph (i) as well.
HUD Response: The final rule has been revised to clarify the flood
insurance requirements.
Comment: HUD should remove its inclusion of collateral
``subsequently erected'' as it relates to hazard insurance requirements
because risk can be effectively mitigated through insurance
requirements for the collateral used to secure the loan at the time of
origination. One commenter stated that the ability for the servicers to
monitor collateral that has been subsequently erected by the borrower
is impractical and would require periodic inspections of the property
at an added
[[Page 7106]]
cost to the borrower. Another commenter requested that the requirement
be to protect the collateralized value at the time of origination.
HUD Response: These requirements are not new additions to the HECM
program. They were previously listed in the regulations at 24 CFR part
203 and incorporated into the HECM program by reference. This rule
simply moves the regulations into part 206 in order to reduce the
number of cross-references. HUD intends to retain these regulatory
requirements.
16. Repair Work
Comment: HUD should clarify that repair administration fees need
not be listed on the HUD Settlement Statement at closing.
HUD Response: The HUD-1 Settlement Statement is under the purview
of the CFPB and is a statement of actual charges and adjustments paid
by the borrower and the seller, if applicable, to be given to the
parties in connection with the settlement.
Comment: HUD should permit the mortgagees to establish a set-aside
range between 150 and 200 percent of the estimated cost of repairs. The
commenter stated that when an appraiser makes repair estimates, it
would be more beneficial to have up to 200 percent of the estimated
cost set aside, whereas if a qualified contractor makes the repair
estimates, 150 percent should suffice.
HUD Response: HUD currently requires the repair set aside to be
established in an amount equal to 150% of the estimated cost of repairs
when such required repairs do not exceed 15% of the MCA. The 150% limit
provides a sufficient range of flexibility; however, borrowers are also
permitted to add additional funds to the Repair Set Aside, but the
funds cannot be drawn until the repairs are completed.
17. ``Spot Approval'' Exception for Condominiums
Comment: The ``spot approval'' exception should be reinstated for
expired approvals. One commenter stated that in some cases, the ``spot
approval'' exception is the only way in which some elderly homeowners
can stay in their condominium unit when the property management does
not get the entire project FHA approved. One commenter stated that
without access to FHA, seniors who live in a non-certified condominium
project are cut off from a major potential source of needed cash to pay
bills and support their retirement years. The commenter asked whether
there is still an opportunity to reconsider maintaining the spot
approval exception and whether there are alternatives to the spot
approval. Another commenter suggested that if the spot approval process
is not reinstated, the approval process for condominiums needs to be
completely revamped because in some markets, it is impossible to get a
condominium FHA approved. One commenter stated that many condominium
developments do not fully understand FHA approval and that homeowners
are afraid to speak up to say that a HECM would improve their financial
circumstances so that they would be able to continue to stay in the
development. Another commenter asked whether spot approvals could be
allowed for HECMs only, as the previous spot approval process was
poorly handled and abused frequently. The commenter stated that
condominiums provide an attractive, low-maintenance option for seniors.
Another commenter requested that HUD re-visit, update, and remedy the
spot approval process for single-family FHA-insured loans, including
HECMs.
HUD Response: HECMs are subject to existing HUD Condominium
eligibility and approval processes as published in ML 2016-15, ML 2016-
13, ML 2015-27, and ML 2012-18. This final rule updates the existing
HECM regulations regarding spot loans to comply with condominium
guidelines that were implemented under HERA via the mortgagee letters
referenced above. HUD appreciates the recommendation and will take it
under consideration for future rulemaking and policy guidance.
18. Eligible HECM for Purchase Sales
Comment: Ninety days after acquisition is too long to require the
seller to wait in order to re-sell the property. One commenter stated
that 75 days is plenty of time to fix up a house, get an offer, and
close, and that a seller could sell to conventional and VA loan
customers earlier.
HUD Response: This requirement does not represent a change in the
regulations. This rule simply restates the requirements of part 203
that were previously incorporated into part 206 through cross-
references.
19. MIP
Comment: The MIP is too high. One commenter stated that the
elevated upfront MIP will often alienate a senior due to cost and
suggested, alternatively, that the upfront MIP could be added to the
balance similar to the FHA forward mortgage process. Another commenter
suggested that the refund of MIP be permitted on a sliding scale or
prorated basis during the first few years of the loan.
HUD Response: It has been HUD's longstanding practice to allow
borrowers to finance the initial MIP charge. In response to the sliding
scale or proration suggestion, once a mortgage is insured, HUD's
longstanding policy has been to require termination of the mortgage
without refunding initial MIP. This practice will continue. The limited
circumstances for warranting a refund of initial MIP are outlined in
paragraph 7-13 of HUD Handbook 4235.1.
Comment: HUD should change the upfront MIP structure for all HECMs.
Several comments proposed a tiered MIP structure tied to the percent of
Principal Limit disbursed during the first 12 months of the HECM. One
commenter suggested a .01 percent upfront MIP for initial draws up to
25 percent, a half-percent upfront MIP for initial draws between 26 and
50 percent, two and half percent upfront MIP for initial draws between
51 and 75 percent, and a three and a half percent upfront MIP for
initial draws between 76 and 100 percent. Another commenter suggested
that any initial draw under 50 percent would be charged a half-percent
upfront MIP; an initial draw between 50 and 60 percent would be charged
a one percent upfront MIP; an initial draw between 60 and 70 percent
would be charged one and a half percent upfront MIP; etc.
HUD Response: HUD will take these comments under consideration when
implementing related policy through guidance.
Comment: The initial MIP should be refundable for a HECM terminated
in the first twelve months due to the death of the borrower(s).
HUD Response: Once a mortgage is insured, HUD's longstanding policy
has been to require termination of the mortgage without refunding
initial MIP.
Comment: HUD should review the legislative history and authority
regarding HUD's ability to increase the MIP and re-consider proposing
this change at another time.
HUD Response: This final rule updates the existing HECM regulations
to include statutory MIP requirements that were implemented under
Public Law 111-229 on August 11, 2010, that amended subparagraph (B) of
section 203(c)(2) of the National Housing Act (12 U.S.C.
1709(c)(2)(B)).
Comment: The consumer should only be credited with 100 percent of
the initial MIP if they are too short to close; otherwise, a fixed
amount or percentage should be credited. The commenter stated that
lenders that normally credit 100 percent have the servicing rights so
[[Page 7107]]
they will recoup this credit on the back end, but some other loan
officers cannot offer the same deal and are disadvantaged.
HUD Response: HUD requires the payment of initial MIP as a
condition of endorsement. HUD is responsible for oversight and
management of the HECM portfolio, not competitive pricing. HUD
encourages and supports a borrower's decision to look for the best
financing option that will meet their individual short- and long-term
needs.
Comment: HUD should refrain from changing the time period of 10
days to remit payment of initial MIP to the Commissioner. The commenter
stated that there are occasional cases in which the commenter is
unaware of an error with the MIP payment, and 5 days would not be
sufficient time to resolve the issue and remit payment before incurring
a late charge.
HUD Response: FHA is not changing the 15-day requirement to remit
initial MIP to the Secretary. However, the final rule retains the
requirement to assess a late charge when MIP is remitted more than 5
days after the payment date as described in Sec. 206.111(a).
20. Insurance of Mortgage
Comment: HUD should use the principal limit on the deed instead of
150 percent of the maximum claim amount. The commenter explained that
using a deeded amount of 150 percent of the maximum claim amount causes
reverse mortgage borrowers in certain states to pay approximately 260
percent of the tax they should owe. The commenter stated that these
states charge an intangible tax or deed/mortgage tax on the deeded
amount of the loan.
HUD Response: HUD appreciates the recommendation and will take it
under consideration for future policy guidance.
21. Commissioner Authorized to Make Payments
Comment: If the regulations permit the Commissioner to require or
not require a subordinate mortgage through notice, HUD should clarify
how this change will affect the claims process.
HUD Response: The proposed rule provides flexibility for the
Commissioner to consider future policy changes. HUD appreciates the
recommendation and will take it under consideration for future policy
guidance.
22. Acquisition and Sale of Property
Comment: Acquiring appraisals in the currently strong real estate
market typically takes 45-60 days, so the proposed 30-day time frame is
not realistic. One commenter asked what happens when the appraisal is
not performed within 30 days of application if the delay is a result of
borrower action or inaction. Another commenter stated that the longer
appraisal turnaround time can be attributed to the market, weather,
review of title prior to appraisal, borrower illness, borrower-created
delays, or the rural location of a property.
HUD Response: HUD's longstanding policy has been to use 30 days as
the appraisal timeframe. However, should there be any issues due to
market conditions making appraisers unavailable, the mortgagee as
always may request an extension, which HUD, in its discretion, may
grant.
Comment: HUD should revise the proposed language to state that a
servicing mortgagee must have a valid appraisal in place at the time of
the foreclosure sale date based on HUD's current definition of a valid
appraisal.
HUD Response: HUD will issue guidance subsequent to the publication
of the final rule in which it will clarify the use of a valid appraisal
for establishing the bid amount at a foreclosure sale.
Comment: HUD should provide additional clarity regarding the
effective date for the correction involving the appraisal date
following the borrower's death instead of the foreclosure sale. The
commenter stated that HUD and participating lenders may have disbursed
excessive funds as a result of multiple appraisal orders and subsequent
curtailments due to the previous drafting error. Some commenters
suggested that this drafting error correction should be retroactive in
order to protect servicing mortgagees for missing the timeline.
HUD Response: This final rule does not and cannot amend insurance
contracts for HECM loans.
Comment: HUD should differentiate the type of ``value'' requested
in reference to the term, ``appraised value.'' The commenter highly
recommended, in the case of a foreclosure sale, for the appraisal to
include an estimate of the property's market value and liquidation
value.
HUD Response: HUD intends to retain its longstanding practice of
requiring the ``as is'' appraised value.
Comment: HUD should clarify that appraisals for pending property
sales should be ordered from a HUD-rostered appraiser within 30 days
according to the uniform standards, while in cases of foreclosure,
appraisals should be received within 30 days prior to the expected
foreclosure sale.
HUD Response: Section 206.125(b) of the final rule was revised to
provide the Commissioner with the flexibility to have the property
appraised by an appraiser on the FHA Roster or other qualified
individual. HUD will publish guidance subsequent to the publication of
the final rule in which it can clarify the use of a valid appraisal for
establishing the bid amount at a foreclosure sale.
Comment: Picky appraisal conditions are infuriating appraisers to
the point that they are refusing to accept the orders.
HUD Response: HUD appreciates the comment and will take it under
consideration for future policy guidance.
Comment: HUD should tighten appraiser eligibility standards. The
commenter suggested that HUD consider a requirement for FHA appraisers
to demonstrate verifiable education on FHA appraisal requirements, as
authorized by the Housing and Economic Recovery Act of 2008.
HUD Response: Regulations of appraiser requirements are outside the
scope of this proposed rule, but HUD appreciates the comment and will
take it under consideration.
Comment: There is currently a significant undersupply of
appraisers. One commenter suggested that the requirements to become an
appraiser should be revised. Another commenter stated that the
undersupply is causing borrowers to pay above-market rates and that the
wait times are beginning to increase beyond one month in certain areas.
The commenter suggested that some funds should be placed into
attracting talent into the appraiser pool.
HUD Response: Regulations of appraiser requirements are outside the
scope of this proposed rule, but HUD appreciates the comment and will
take it under consideration.
Comment: For the Cash for Keys program, the amount should be
consistent with Mortgagee Letter 2016-03, up to a maximum of $3,000.
HUD Response: HUD will take these comments under consideration when
implementing related policy through guidance.
Comment: HUD should allow for the Cash for Keys option in lieu of
evictions and not merely deed-in-lieu transactions.
HUD Response: HUD has adopted this change in the final rule and
will make Cash for Keys available after foreclosure to bona fide
tenants only. A bona fide tenant means a tenant of the property who is
not a mortgagor, borrower, a spouse or child of a mortgagor or
[[Page 7108]]
borrower, or any other member of a mortgagor's or borrower's family.
The incentive to have the borrower or person with legal right to
dispose of the property provide a deed-in-lieu would be negated if they
were aware that they could force the mortgagee to foreclose, allowing
them to remain in the property longer and still be paid a Cash for Keys
incentive.
Comment: Cash for Keys should not only be available during the
first six months following the due date. The commenter stated that
there may be circumstances in which a property cannot be transferred
within this time frame, but a deed-in-lieu of foreclosure would still
be an attractive option for both parties.
HUD Response: Deeds in lieu are offered as a means to save the time
it takes to foreclose, particularly in states with long foreclosure
timeframes and to limit the expenses HUD reimburses in eventual claims.
As indicated in the preamble to the proposed rule, 9 months allows a
borrower or other party with the legal right to dispose of the property
6 full months to sell the property and then 3 additional months for the
mortgagee to obtain a title search and get the deed signed, provided
that title is clear. Allowing a deed in lieu to occur after that time
does not represent the time or cost savings intended by a deed in lieu.
Comment: Nine months is not sufficient time to allow the borrower
to attempt to sell the property under the time frame for a deed-in-lieu
of foreclosure following the time at which the HECM becomes due and
payable. The commenters stated that deed-in-lieu of foreclosure
transactions should be allowed up until the foreclosure sale date. The
commenters also stated that probate proceedings can make it difficult
for the heirs to sell the property within nine months.
HUD Response: Deeds in lieu are offered as a means to save the time
it takes to foreclose, particularly in states with long foreclosure
timeframes and to limit the expenses HUD reimburses in eventual claims.
As indicated in the preamble to the proposed rule, 9 months allows a
borrower or other party with the legal right to dispose of the property
6 full months to sell the property and then 3 additional months for the
mortgagee to obtain a title search and get the deed signed, provided
that title is clear. Allowing a deed in lieu to occur at any time up
until the foreclosure sale date does not represent the time or cost
savings intended by a deed in lieu.
Comment: Sixty days is not sufficient for notice to be provided to
HUD regarding the mortgage becoming due and payable. One commenter
stated that death cannot always be discovered within this timeframe,
which results in servicers facing significant curtailment risk due to
their inability to provide such timely notice. The commenter suggested
as an alternative to require mortgagees to report notice of the passing
of the last surviving borrower within ten days of receiving
notification of the borrower's death following reasonable diligence in
monitoring the loan portfolio. Another commenter recommended
notification within 60 days of the servicer discovering and confirming
the title was conveyed and that no HECM borrower remains on title. One
commenter recommended that the required timeline should begin when the
servicer knew or reasonably should have known of the death.
HUD Response: The timeframes in the proposed rule for the due date
did not change, with the exception of adding the end of a deferral
period. However, the final rule codifies in Sec. 206.125 the guidance
issued in ML 2015-10, and HUD believes these are acceptable timeframes.
Comment: The proposal to base the foreclosure on the due date
conflicts with ML 2015-10 and should remain as is.
HUD Response: HUD believes the initiation of foreclosure is more
appropriately aligned with the due date, i.e., the date of notice to
HUD that the borrower has died or conveyed title to the property or the
date HUD grants due and payable permission. Basing the foreclosure
initiation date on when notice is made to the borrower poses increased
risk to the MMIF because it allows mortgagees to delay the process
unnecessarily by simply withholding the required notice and thereby
increasing eventual claim expenses.
23. Payment of Claim
Comment: As in Mortgagee Letter 2016-03, HUD should require
servicers to exercise reasonable diligence in prosecuting the
foreclosure proceedings to completion and in acquiring title to and
possession of the property pending varying state procedures. The
commenter stated that the process associated with the foreclosure of a
property with HECM financing can be lengthy and that the two-year
reimbursement period would put both the MMIF and servicer at risk.
HUD Response: HUD has taken public comments into consideration and
has replaced the two-year reimbursement period in Sec. 206.129(d)(3)
with a limit of two-thirds of total advances for the allowable expenses
outlined in this section.
Comment: HUD should remove the proposed two-year limitation on
insurance claim reimbursements for property charge advances. One
commenter stated that if this limitation were applied to existing
HECMs, the number of HECM foreclosures would increase as servicers
called the loans due and payable as the two-year limit was reached. The
commenter also stated that this result would conflict with HUD guidance
allowing the deferral of due and payable status for low-balance
arrearages and ``At Risk'' borrowers. Another commenter stated that the
process can be delayed by factors outside of a servicer's control, such
as a tax and insurance default and a repayment plan, new tax and
insurance disbursements, and default/foreclosure timelines.
HUD Response: HUD has taken public comments into consideration and
has replaced the two-year reimbursement period in Sec. 206.129(d)(3)
with a limit of two-thirds of total advances for the allowable expenses
outlined in this section.
Comment: Regarding the regulations addressing the amount of payment
when the borrower sells the property, HUD should include provisions for
loans assigned prior to the effective date of the rule that are or are
not in due and payable status. The commenter stated that for such loans
that are due and payable, the claim amount should be based on the
outstanding loan balance as of the due date and should include the
allowance for items to capture the costs of title, foreclosure costs,
and costs associated with the acquisition of the property.
HUD Response: The language in the final rule has been revised to
clearly define what is reimbursable where the borrower sells the
property, pre and post due and payable, based on the effective date of
the final rule.
Question 1: Should the HECM program provide for the pro rata
curtailment of debenture interest and reduction of expenses incurred as
a result of the mortgagee's delay in filing the mortgage insurance
claim, and if so, how should such a policy be structured to ensure
feasible implementation?
Comment: Debenture interest should be curtailed on a pro rata
basis, but curtailing expenses could create an incorrect incentive on
the part of servicers to refrain from expending such amounts, which
would perhaps impact recoveries and place the MMIF at risk.
HUD Response: The regulations do not remove the requirement for
mortgagees to protect the lien interest or to preserve and protect the
property.
[[Page 7109]]
HUD is exploring options to ensure mortgagees meet required timeframes.
There is great risk to the FHA MMIF when mortgagees fail to timely
prosecute foreclosures or take other required actions.
Comment: Debenture interest should be paid from the date of
notification to HUD. The commenter stated that servicers must
demonstrate reasonable diligence in monitoring for death but should not
be penalized for issues related to reporting bureaus.
HUD Response: HUD believes without this time frame; mortgagees will
have little incentive to move the HECM to termination in a timely
manner. In addition, HUD believes mortgagees have resources to identify
the borrower's death, but because there may be an expense related to
such resources, the mortgagees prefer not to subscribe to them. HUD
contends that 60 days is sufficient time to identify a borrower's death
through available resources, and move the HECM toward its logical
conclusion.
Comment: The debenture interest rate should continue to be based on
the endorsement date rather than the date on which the default on the
mortgage occurred.
HUD Response: HUD did not propose changing the date upon which the
debenture interest rate is based. It only proposed to restate the
requirements of part 203 that are applicable to the HECM program
instead of cross-referencing to part 203, which includes the debenture
interest calculations.
24. First Lien Status
Comment: As a result of this rule change, lenders and servicers in
super lien states will do a more thorough job of monitoring HOA
payments to ensure that the liens do not occur in the first place. The
commenter stated that this rule change would allow homeowner
associations to receive the funds they are owed sooner.
HUD Response: HUD appreciates the comment.
Comment: The proposed rule change on the lien priority for
homeowners' associations and condominiums disregards the laws of 21
states and the District of Columbia. Commenters noted that allowing
homeowners' association and condominium ``super liens'' to take
precedence over HECM liens would probably render such properties un-
loanable. Some commenters stated that the proposed changes would
effectively eliminate a condominium or house purchase in those states
by anyone planning to finance with a HECM for Purchase. One commenter
stated that condominiums provide a maintenance-free lifestyle that is
especially popular with the HECM customer base. Another commenter
estimated that there would be about a sixteen percent loss of volume as
a result of this rule change. One commenter stated that this change may
cause further restrictions to financing options for senior homeowners
living in low maintenance condominiums. Commenters stated that the rule
change exposes community association homeowners and residents,
including senior citizens, to risk of higher housing costs and unjust
financial burdens. One commenter stated that these state association
lien priority laws intend to prevent the unjust enrichment of lenders
at the expense of community association homeowners that occurred during
the Great Recession. Another commenter stated that the proposed rule
may disqualify more than 4 million senior citizens living in
condominiums. One commenter stated that removing the HECM option for
homeowners and potential homeowners in these markets would have dire
consequences on the senior population, the economic stability in those
markets, and a negative impact on the MMIF due to the reduction of HECM
loans. Another commenter stated that the difficulty surrounding
assignment of loans in such markets could result in an inadvertent
curtailment or cessation of HECM mortgage origination and servicing.
One commenter stated that seniors move into condominiums without
considering a HECM, and then find out later that this is not an option.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens for the final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
Comment: HUD should prohibit HOA liens of record at the time of
assignment, and not afterwards. The commenter stated that servicing
mortgagees have no way to determine whether HOA dues are past due, and
a lien from past due HOA dues may only be reflected on a title report
ordered as part of or prior to an assignment.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
Comment: The non-payment of HOA/COA fees is already a condition of
default for HECMs. The commenter encouraged HUD to share data regarding
the extent of HOA defaults to help advocates better understand the
scope of this issue.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
Comment: Instead of threatening seniors' ability to take advantage
of the HECM program in certain states, HUD should focus on ensuring
compliance from the lending community with program rules and guidelines
concerning foreclosure, property preservation, and title conveyance.
The commenter stated that the proposed rule threatens pro-homeowner,
pro-consumer state statutes by excluding senior citizens from the HECM
program in these states.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
Comment: HUD's proposal will likely have a disproportionate,
negative impact on female HECM borrowers residing in condominiums in
association lien priority jurisdictions.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a
[[Page 7110]]
valid, legally enforceable first lien and title to the property
securing the mortgage must be good and marketable. In the event that
HUD discovers later that good and marketable title is lacking due to a
lien, HUD may require repurchase.
Comment: HUD does not justify this rule change by indicating any
losses HUD may have suffered insuring reverse mortgages due to state
law association lien priority.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
Comment: HUD should include in the LESA any association assessments
in states that recognize association lien priority. One commenter
suggested requiring a set-aside for 6 months' worth of fees for
borrowers in those markets that have super lien laws. Another commenter
stated that HUD should explore whether HOA dues should be included as
part of the required set-aside, as well as what the impact would be on
low-income households.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
Comment: The different treatment of utility charges and condominium
or HOA fees results in irrational discrimination against owners in such
associations. The commenter stated that if a nonpayment of utilities
would result in a lien, then HUD will reimburse the lender for
advancing the payment as a property charge. However, the commenter
stated, if the utilities are centrally metered and paid for by a
condominium association or HOA and reimbursed through assessments, then
HUD would not have to reimburse the lender for advancing payments.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
Comment: HUD should clarify its position and procedures under
circumstances where state laws limit a mortgage's first lien status.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
Comment: HOA dues should be considered property charges and treated
like taxes and insurances with regard to default and repayment plans in
the super lien states in which delinquent HOA dues may become a
superior lien to the HECM. Commenters stated that the consumer should
be allowed to repay any advances made on these liens, just like any
other property charge. One commenter stated that this would protect
HUD's lien position and the MMIF, and provide loss mitigation options
to HECM borrowers.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
Comment: HUD should expressly prohibit the extinguishment of HECM
mortgage lien interests by HOA super liens. Commenters stated that HUD
has successfully relied on the Constitution's Supremacy Clause to bar
HOA foreclosure sales from extinguishing first liens deeds of trust in
Nevada when they are insured through HUD.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
Comment: HUD should clarify that this requirement would not apply
to existing HECM loans where HUD has issued a commitment to insure.
HUD Response: HUD has removed the language referring to homeowners'
association liens and condo association liens in this final rule.
However, HUD reminds mortgagees that in order for a HECM to be eligible
for loan assignment, the mortgage must be a valid, legally enforceable
first lien and title to the property securing the mortgage must be good
and marketable. In the event that HUD discovers later that good and
marketable title is lacking due to a lien, HUD may require repurchase.
25. Effect of Noncompliance With Regulations
Comment: The proposed new section 206.137 would violate the basic
precept in the National Housing Act that mortgage insurance on an FHA
loan is incontestable in the hands of the holder. The commenter stated
that this provision would cause a problem with loans being pooled or
sold in the secondary market, as almost all HECM loans are.
HUD Response: Section 206.137 does not represent a change in the
regulations. This rule incorporates this provision from 24 CFR part 203
into part 206, whereas it had previously been incorporated by cross-
reference.
26. Final Payment
Comment: HUD needs to process all past due HECM supplemental claims
and streamline the process for paying such claims in the future within
a time period less than that proposed in new section Sec. 206.144.
HUD Response: Section 206.144 does not represent a change in the
regulations. This rule incorporates this provision from 24 CFR part 203
into part 206, whereas it had previously been incorporated by cross-
reference.
27. Providing Information
Comment: HUD should expand its requirement to provide the borrower
with a single statement at the end of each month to include additional
[[Page 7111]]
documentation that will help to modernize the HECM program. The
commenter suggested that the borrower be provided with visual charts
and diagrams depicting the loan status, analysis tools for borrowers to
explore changing the disbursement plan, online banking methods to
review account statement data, and account statement formats that
comply with the Plain Writing Act. Another commenter stated that
specific contact information for HECM experts with the mortgagee or
servicer should be included on the monthly statement.
HUD Response: HUD does not intend to prescribe a burdensome process
for providing monthly statements. However, HUD does not restrict
mortgagees from offering any additional information through the monthly
statement. Additionally, servicers' monthly statements already include
a phone number for borrowers to contact a HECM representative.
Comment: Mortgagees should be required to provide borrowers with a
dedicated phone number they can call and speak to employees on a team
specifically trained to address inquiries concerning HECM mortgages.
HUD Response: The final rule, as did the proposed rule, states that
the borrower may speak to the employee or employees specifically
designated by the mortgagee or its servicer to address inquiries
concerning mortgages insured under this part. Since the part in
question is 24 CFR part 206, which deals solely with the HECM program,
the language in the rule already addresses the commenter's concern.
Comment: HUD should retain the requirement that the mortgagee
provide a single point of contact for HECM loan inquiries. The
commenter stated that as seniors can be targets for fraud or elder
abuse, providing a consistent point of contact can provide borrowers
with a level of comfort when dealing with their reverse mortgage
company.
HUD Response: With the growth of the HECM portfolio, the staffing
turnover within the mortgage industry, and the challenges a borrower
can face if their single point of contact is away from the office when
needed, it is no longer feasible for borrowers to be provided the name
of a single person with whom they may speak. HUD feels that having a
group of mortgagee staff specializing in HECMs available to borrowers
gives borrowers more opportunity to speak to someone who can assist
them. HUD is adamant, however, that borrowers must be able to reach a
live person when calling a mortgagee and not have to rely on voice mail
and a return call.
28. Life Expectancy Set-Asides
Comment: HUD should allow the life expectancy set-aside to be re-
evaluated after closing in order to use the correct property tax amount
for that year rather than the previous year's amount.
HUD Response: Currently, HUD requires the servicing mortgagee to
disburse payments based on the actual property tax and insurance
amounts for that year.
Comment: Lenders should have the ability to change the first-year
set-aside to $0, as pre-closing charges are being paid from the loan
proceeds.
HUD Response: Currently, HUD permits the mortgagee to require, or
when requested by the borrower, to disburse funds for payment of taxes
and insurance at closing, when such property charges are coming due
within 30-45 days following closing. Payment of taxes and insurance by
the Mortgagee usually requires multiple disbursements by the lender
over the initial disbursement period depending on due dates for tax and
insurance payments, thus, it is not feasible to omit the first year of
Life Expectancy Set Aside payments.
Comment: The borrower's election to have the servicer pay taxes and
insurance by drawing from a line of credit or withholding funds from
monthly tenure payments should not be irreversible and should be
available to borrowers at any time during the HECM. One commenter
stated that few borrowers would elect this option without such
flexibility.
HUD Response: HUD appreciates the recommendation and has added
language that provides the Commissioner with the authority to issue a
Federal Register Notice to expand the property charge payment options
at a future date.
Comment: HUD should eliminate the lifetime and partial LESA and
implement a three-year tax and insurance reserve set-aside. The
commenter stated that LESAs can amount to hundreds of thousands of
dollars or even exceed the entire amount of the potential HECM,
particularly in higher property tax areas.
HUD Response: HUD explored various options to address its property
charge default risk, including shorter periods. After careful
consideration and review, the LESA provided the most security for
allowing the borrower to age in place and comply with the terms and
conditions of the mortgage.
Comment: Partially-funded LESAs should be paid directly to the tax
authority or insurance company. The commenter stated that disbursement
to the borrower introduces additional risk that property charges will
not be paid.
HUD Response: HUD explored various options to address its property
charge default risk, including identifying prospective borrowers who
have shown a willingness to pay their financial obligations but fall
short of having the means to make the payment. The Partially-Funded
LESA fills the gap for allowing the borrower to be responsible for such
payments. Additionally, tax payments cannot be paid on a partial basis
and would be operationally infeasible.
Comment: Thirty days is an insufficient time frame for a borrower
to respond to the mortgagee's notification of a missed property charge
payment. The commenter stated that thirty days is a short time to
respond to the mortgagee's request regarding the non-payment,
especially when there is a delay in the mortgagee's processing or
mailing of the initial notice. The commenter suggested that the time
period be extended to 90 days.
HUD Response: This provision simply codifies what has been
implemented through ML 2015-10. HUD believes the timeframe is
sufficient for a borrower to have contacted the mortgagee to express
their willingness to repay the funds due.
Comment: HUD should provide a time frame or guidance concerning how
the mortgagee is to determine the borrower is unwilling or unable to
repay the mortgagee for funds advanced to pay property charges outside
of a LESA.
HUD Response: ML 2015-11 provides the availability of loss
mitigation options for a mortgagee to work with the borrower.
29. Allowable Charges and Fees After Endorsement
Comment: What is the goal of allowing a servicing charge to be
included in the mortgage Note rate?
HUD Response: The option for allowing a servicing charge which is
included in the mortgage Note Rate provides flexibility for the lender
to cover servicing costs in a manner that is consistent with mortgage
industry practices if a Servicing Fee Set Aside is not established. In
addition, allowing the servicing charge to be included in the Note Rate
provides the borrower access to more funds from which to draw against
since such funds are not being withheld in the Servicing Fee Set Aside.
[[Page 7112]]
Question 1: What is an appropriate servicing fee range (minimum and
maximum dollar amounts) for the flat monthly servicing fee, and what
factors support the upper and lower bounds of that range?
Comment: HUD should not allow this charge. The commenter stated
that the charge would infuriate and confuse the borrower, as well as
complicating the loan and contributing to the headline that reverse
mortgages are too expensive.
HUD Response: Servicing fee charges are an allowable fee that has
been a part of the HECM program since inception. Servicing fees provide
compensation to servicers for servicing the HECM loan.
Comment: HUD should increase the dollar amounts for allowable
servicing fees based on the Consumer Price Index from the last
servicing fee adjustment in 1998. The commenter stated that reverse
mortgage borrowers usually require more time spent on servicing-related
issues as compared to forward mortgage borrowers. The commenter also
justified a raise in servicing fees based on the increase in servicing
policy requirements implemented since 1998.
HUD Response: HUD will take these comments under consideration when
implementing related policy through guidance.
Comment: There is no reason for the annual adjustable and fixed
rate loans to have a different dollar amount servicing fee than the
monthly adjustable HECMs. The commenter stated that all of these
products have the same servicing requirements. HUD Response: Adjustable
rate loans require additional support for future draws and payment plan
changes.
Question 2: What is an appropriate servicing fee range, in basis
points, that could be included in the Note rate, and what factors
support the upper and lower bounds of that range?
Comment: There is no reason to separate the servicing fee from the
lender margin. The commenter stated that on a fixed rate loan, the
lender always has the option of charging a higher interest rate to
cover increased servicing costs, and on an adjustable rate loan, the
margin can be increased to cover rising servicing costs.
HUD Response: The Note rate includes the lender's margin and may
also include a servicing fee as stated in Sec. 206.207(b).
Comment: The basis range is acceptable as currently prescribed and
adjustments to this range should be made by the Government National
Mortgage Association (GNMA).
HUD Response: The current prescribed range is in accordance with
GNMA servicing parameters.
30. Housing Counseling
Comment: HUD should include continuing education requirements so
that counselors keep up-to-date on the ongoing changes in the HECM
program. The commenter noted that some clients have indicated
counselors have discouraged them from using a HECM and that the
counselors seem unaware of the usefulness of a HECM ARM as a financial
planning tool.
HUD Response: All counseling sessions are required to cover all the
potential risk for a HECM, including property charges, ineligible NBS,
etc. The rule would not change those existing counseling requirements
in these areas. One of the primary purposes of HECM counseling is to
provide education on all aspects of HECMs from an objective third
party. The current HECM counselor roster rule requires that counselors
take continuing education every 2 years and retake the HECM counselor
test every 3 years. This ensures that counselors stay current with
program requirements.
Comment: Counseling should be mandatory for all seniors considering
FHA loans. The commenter stated that it is unconscionable for seniors
to receive a forward 20-30-year loan and not receive counseling on the
option of a HECM loan. HUD Response: Counseling by a counselor on the
HECM roster is statutorily required. Given the unique nature of a HECM
loan, the requirement for counseling is a critical consumer protection
for an ``at risk'' population.
Comment: Borrowers are not very well-prepared for the multiple
downside risks inherent in reverse mortgages. One commenter stated that
many borrowers are told by unscrupulous loan brokers that there are no
further obligations to fulfill once they receive the HECM, and that
current counseling is ineffective at correcting those
misrepresentations. The commenter suggested that HUD study this
counseling problem and adjust counseling requirements accordingly.
Another commenter stated that the counselors should have training and
additional responsibility to inform the borrower whether a reverse
mortgage is right for the borrower. Alternatively, the commenter
stated, the counselor should be required to inform the borrower that
they should seek financial or legal advice to understand the
suitability and consequences of the HECM.
HUD Response: HUD disagrees with these comments. HUD believes HECM
Roster Counselors are qualified and fully capable, based on their
training and continuing education, to thoroughly educate clients on
reverse mortgages. Furthermore, HECM Roster Counselors must follow a
strict protocol when providing counseling to potential HECM Borrowers.
The protocol, found in Appendix 2 of HUD Handbook 7610.1, Rev.5,
requires HECM Counselors to educate clients on the financial
implications of obtaining a HECM, the effect of obtaining a HECM or
other reverse mortgage product on public benefits and on borrower and
non-borrower spouse post-closing obligations for items, including, but
not limited to, repairs, payment of taxes and insurance and loan re-
payment when the loan becomes due and payable.
HUD believes that the proper role of a HECM Counselor is to educate
clients on the features of reverse mortgages and on the appropriateness
of a reverse mortgage or other financial options to meet the client's
needs. HUD further believes that it is not the role of the HECM
Counselor to advise the client whether to proceed with a reverse
mortgage, or which reverse mortgage product to use, but to provide
guidance and resources to enable the client to make an informed
decision. HUD disagrees that HECM Counselors should be required to
inform clients that they should seek financial or legal advice to
understand the suitability and consequences of the HECM. As with
forward mortgages, it is the consumers' decision whether or not to seek
financial or legal advice before entering into a loan transaction.
Comment: Counselors should not explicitly tell borrowers to shop
for loans or that they can get certain terms such as a zero origination
fee. One commenter stated that the role of the counselor should be
strictly limited to providing counseling on how the program works and
not to give the borrower advice.
HUD Response: A thorough HECM counseling session includes a
presentation of all the alternatives to a HECM. Counselors may
recommend that the borrower shop around for better priced products as
part of such a session, but are not permitted to direct a client to any
specific lender or provide lender price comparisons.
Comment: HUD should clarify to what ``electronic database'' the
counselor needs to upload the counseling certificate. One commenter
asked whether an electronically uploaded certificate would waive the
requirement for an original borrower signature on the counseling
certificate. Another commenter asked for clarification on this point.
The commenter also stated that HUD should give seniors and
[[Page 7113]]
mortgagees the option to receive a hard copy of the counseling
certificate.
HUD Response: Upon further consideration to require HECM counselors
to upload the certificate to an ``electronic database,'' HUD is no
longer pursuing this option as it would impose a financial burden upon
borrowers to send a signed and dated copy of the certificate back to
the counselor and difficult for the counselor to manage the process.
Comment: Non-borrowing spouses should not have an additional
counseling component. The commenter stated that such a requirement
would cause an unnecessary increase of fees as well as delay time to
begin the HECM financing process. The commenter also stated that HUD
would need to address the problem of educating all HECM counselors and
updating the information they provide to borrowers and non-borrowing
spouses.
HUD Response: Non-borrowing spouses have been required to receive
counseling since 2009. HECM counselors make every effort to counsel
both borrowers and non-borrowing spouses jointly unless extenuating
circumstances exist that prevent this. This is part of the guidance to
counselors in the HECM protocol. HECM counselors are also encouraged to
include family members in a counseling session. The clients have the
ultimate decision as to who to include in these sessions, and this may
include legal counsel, financial advisors, etc.
Comment: HUD should clarify that mortgagees may denote on the HECM
mandated counseling disclosure that the borrower is required to undergo
face-to-face counseling or be counseled by a counselor or counseling
agency that is ``domiciled'' within a particular state. The commenter
also suggested that HUD indicate which counseling agencies can provide
such face-to-face counseling or is domiciled within a state. The
commenter stated that several states have face-to-face counseling
requirements or requirements that the senior be counseled by a
counselor or counseling agency that is ``domiciled'' in a particular
state.
HUD Response: HUD will consider this recommendation as part of the
current HECM counseling protocol revisions.
Comment: HUD should require information about suitability to be
provided to prospective borrowers prior to the counseling session. One
commenter suggested that HUD refer to California Civil Code Section
1923.5 as a guide for providing the potential borrower such
information.
HUD Response: HUD will consider these suggestions as part of the
current HECM counseling protocol revisions.
Comment: Counseling should be in-person or face-to-face
electronically and should be digitally recorded and broken up into two
sessions. The commenter also suggested that the counseling should
include all members of the household in a discussion on inter-family
loans and provide clear information on where to turn for help if the
borrower later has problems with the reverse mortgage.
HUD Response: HUD will consider these suggestions as part of the
current HECM counseling protocol revisions.
Comment: HUD should not restrict financial professionals from
helping borrowers seek professional money management advice. The
commenter stated that HUD should not ask the homeowner if they plan to
use the HECM proceeds to purchase life or annuity products. The
commenter also stated that almost all HECM lenders are trying to tie
the product more closely with the financial and estate planning
communities.
HUD Response: The language in the rule is consistent with the
statutory requirement in Sec. 255(d)(11) of the NHA.
31. Maximum Closing Costs Allowed on Sale of Property
Question 1: Is 11 percent a reasonable cap? HUD chose this percentage
based on the policy for sale of its REO inventory, which allows for
payment of 6 percent sales commission and 5 percent for other closing
costs, but is interested in comments to indicate whether the amount
should be higher or lower, and why the commenter believes the
adjustment is appropriate.
Comment: The maximum closing costs allowed should be based on a
sliding scale so that the expenses are limited to the greater of
$15,000 or 11 percent of the sales price of the property. The commenter
stated that strictly limiting such charges to 11 percent for properties
that sell for small dollar amounts may not even cover the actual
expenses incurred by the mortgagee.
HUD Response: The final rule now states that closing costs shall
not exceed the greater of: (a) 11 percent of the sales price; or (b) a
fixed dollar amount as determined by the Commissioner. The amount as
determined by the Commissioner will be issued through Federal Register
notice.
Comment: The schedule of allowable costs under the 11 percent cap
should include lien payoff, cleaning, and repairs. The commenter stated
that the economics of a HECM short sale often lead to property
maintenance issues. The commenter also stated that allowable closing
costs need to be clearly communicated to servicers.
HUD Response: Due to the non-recourse nature of HECM loans, short
sales represent a risk to the FHA MMIF through claims. Furthermore,
short sales do not allow the borrower or seller to retain any funds and
the sales price is based on the ``as is'' appraised value. Therefore,
it is not necessary for the borrower to make extensive repairs.
Comment: This amount is unworkable for lower balance home values,
unless there is a tiered approach. One commenter stated that this
limitation can result in a shortage of closing costs when selling lower
value homes because many of the costs are fixed and unrelated to the
sale price of the property.
HUD Response: The final rule states that closing costs shall not
exceed the greater of: (a) 11 percent of the sales price; or (b) a
fixed dollar amount as determined by the Commissioner. The amount as
determined by the Commissioner will be issued through Federal Register
notice.
Question 2: Should HUD implement a tiered approach to the maximum
percent of closing costs in relation to sales price? For example,
should a property selling for under $100,000 be allowed a higher
percentage of closing costs than a property selling for over $100,000?
Comment: HUD should adopt a tiered approach to take into account
that 11 percent may not be sufficient for lower balance home values.
One commenter stated that a greater percentage should be assigned to
lower sales prices.
HUD Response: The final rule now states that closing costs shall
not exceed the greater of: (a) 11 percent of the sales price; or (b) a
fixed dollar amount as determined by the Commissioner. The amount as
determined by the Commissioner will be issued through Federal Register
notice.
Question 3: Should HUD implement a tiered approach to the maximum
dollar amount of closing costs in relation to the sales prices? For
example, should a property selling for under $100,000 be allowed a
different dollar amount than a property selling for over $100,000?
Comment: HUD should set a minimum dollar amount for lower balance
home values.
HUD Response: The final rule now states that closing costs shall
not exceed the greater of: (a) 11 percent of the sales price; or (b) a
fixed dollar amount as
[[Page 7114]]
determined by the Commissioner. The amount as determined by the
Commissioner will be issued through Federal Register notice.
Comment: A fixed closing costs dollar amount limitation in line
with customary costs would be more appropriate if closing costs are to
be capped. The commenter volunteered to work with HUD to establish
customary costs based on the commenter's data and experience.
HUD Response: The final rule now states that closing costs shall
not exceed the greater of: (a) 11 percent of the sales price; or (b) a
fixed dollar amount as determined by the Commissioner. The amount as
determined by the Commissioner will be issued through Federal Register
notice.
32. Non-Borrowing Spouse Communication
Question 1: What difficulties have Non-Borrowing Spouses, heirs, and
successors in interest had in obtaining information about HECMs and
understanding and exercising their rights?
Comment: HUD should create a written guide for the heirs that is to
be delivered by the servicer with the initial letter of repayment. The
commenter opined that it would be very beneficial for all parties,
including FHA's MMIF, if a standard guide was created to outline the
steps the heirs should be taking, and that it would result in faster
repayment, more participation in the Cash for Keys initiative, and
fewer foreclosures. The commenter suggested alternatively that the
guide could be created by a group chosen by NRMLA.
HUD Response: HUD will take this suggestion under consideration for
future policy guidance.
Comment: Many servicers are not properly communicating about how
someone can qualify as an Eligible Non-Borrowing Spouse. Commenters
stated that servicers provide conflicting and inaccurate information,
reject paperwork for unexplained reasons, and lose paperwork. One
commenter suggested that HUD develop a standardized letter to contact
non-borrowing spouses or heirs that is written in simple, clear
language.
HUD Response: HUD expects mortgagees to comply with the regulatory
requirements of Sec. 206.125(a)(2), which specifies the information
required to be provided to the borrower's estate or heirs. HUD does not
intend to develop a standardized letter.
Comment: Heirs have had great difficulty getting information from
the servicer about options and steps required at the time of loan
repayment.
HUD Response: HUD has clarified in the final rule that mortgagees
must request that HECM borrowers designate a point of contact that
mortgagees would be required to use in the event a problem arises or in
the event of the borrower's death or incapacitation. Accordingly, HUD
has revised Sec. 206.40(c) to clarify that the contact person is not
acting as an agent and that the mortgagee will be required to request
the designation, but that the borrower is not required to designate
such a contact person.
Question 2: What adjustments could HUD make to this rule to address the
identified difficulties and facilitate communication with Non-Borrowing
Spouses, heirs, and successors in interest?
Comment: HUD should encourage servicers to request that borrowers
designate family members or others who are authorized to speak with
them about a loan on behalf of a borrower or following the death of a
borrower.
HUD Response: HUD has clarified in the final rule that mortgagees
must request that HECM borrowers designate a point of contact that
mortgagees would be required to use in the event a problem arises or in
the event of the borrower's death or incapacitation. Accordingly, HUD
has revised Sec. 206.40(c) to clarify that the contact person is not
acting as an agent and that the mortgagee will be required to request
the designation, but that the borrower is not required to designate
such a contact person. The mortgagee shall communicate with an
alternate individual if one has been designated by the borrower.
Comment: HUD should produce and require collateral material
regarding what happens when the loan is due and payable. The commenter
stated that the material should be available to the non-borrowing
spouse and the borrower's heirs, and should be available on HUD's Web
site.
HUD Response: HUD will take this suggestion under consideration for
future policy guidance.
Comment: HUD should create a template certification packet for all
servicers to use for surviving non-borrowing spouse situations.
HUD Response: HUD certification language requirements for NBS are
contained in ML 14-07 and ML 15-02.
Comment: HUD should require servicers to provide at least the loan
balance and standard information about options for repayment to anyone
who can prove an heir interest in the property, or who is an executor
of the estate. The commenter stated that the borrower should also be
encouraged to designate who should have access to detailed information
about the account.
HUD Response: HUD has clarified in the final rule that mortgagees
must request that HECM borrowers designate an alternate individual that
mortgagees would be required to use in the event a problem arises or in
the event of the borrower's death or incapacitation. Accordingly, HUD
has revised Sec. 206.40(c) to clarify that the alternate individual is
not acting as an agent and that the mortgagee will be required to
request the designation, but that the borrower is not required to
designate such an individual. If the borrower has designated an
alternate individual, mortgagees would be required to contact the
designated individual if they cannot reach the borrower directly in the
event a problem arises or in the event of the borrower's death or
incapacitation. HUD currently has procedures for communicating with the
borrower's estate upon the death of the last borrower.
33. Benefits & Costs
Comment: The estimated $1.9 billion cut in endorsements is very
conservative if the changes to the HECM program are made as proposed.
The commenter stated that the impact on endorsement volume of the
financial assessment is not yet fully understood. The commenter also
stated that the post-closing inspection requirement and including
utilities as a property charge will drive away many of the affluent
borrowers that are more common after the establishment of the financial
assessment. The commenter also pointed to the super lien issue as a
change that could cause an immediate drop in endorsement volume of $1.9
billion on its own.
HUD Response: FHA appreciates your comments and will defer
implementing this policy to allow further research and analysis to be
conducted.
Comment: The RIA fails to quantify how disqualification of
otherwise eligible HECM borrowers residing in community associations in
association lien priority jurisdictions balances HUD's duty to protect
taxpayers and ensure access to credit. The commenter stated that HUD
did not demonstrate it considered less damaging but effective policy
alternatives than their proposal on first lien status in the 22
jurisdictions with association lien priority statutes from the HECM
program.
HUD Response: HUD appreciates your comments and will defer
implementing
[[Page 7115]]
this policy to allow further research and analysis to be conducted.
34. Mortgagee Letter 2015-11
Comment: HUD should add an additional factor under the critical
circumstances for the ``at risk'' loss mitigation option: a diagnosis
of Alzheimer's or other dementia of family member receiving care at the
residence.
Comment: HUD should extend the repayment period for property charge
advances and extend the foreclosure time frames for ``at risk''
homeowners.
HUD Response: These two comments reference a mortgagee letter
outside the scope of this proposed rule. The proposed rule states, and
the final rule continues to state, at Sec. 206.205(e)(2)(ii) that
``the mortgagee may provide any permissible loss mitigation made
available by the Commissioner through notice.'' Specific discretionary
loss mitigation options are provided through mortgagee letters, not the
regulations, and HUD will consider these comments in the development of
such future policy guidance.
35. Other Comments & Suggestions
Comment: The limit on HECMs should be raised from $625,000. One
commenter stated that, due to the strong housing recovery, many housing
markets have average appraised values well over $625,000, and this
limit unduly discriminates against seniors, so the cap should be raised
to $1 million. Another commenter suggested that the cap should be
raised to $1.5 million, or at the least, should be indexed to
inflation.
HUD Response: HUD is unable to adopt this suggestion because HECM
mortgage limits must comply with current statutory requirements. The
private sector has the ability to develop a market for larger reverse
mortgages.
Comment: There should be a new program using a fixed 5.06 percent
that will pay off all current liens on the property up to 80 percent of
the appraisal value regardless of the age of the youngest borrower. The
current loan programs do not properly cover upside-down borrowers.
HUD Response: HUD continues to evaluate and monitor risks to the
program and the MMIF. The current principal limit factors have been set
to ensure the HECM program remains financially sound and viable for
current and future senior borrowers.
Comment: HUD should work towards reducing costs and improving the
image of its HECM program. One commenter stated that HUD should start a
public relations campaign to highlight the features and benefits of the
program, just as it does for forward loans. The commenter also
suggested that HUD respond to all the false and misleading comments
made about the HECM program. Another commenter stated that HUD needs to
improve consumer awareness by confirming safeguards and offering free
education.
HUD Response: In addition to the required counseling for
prospective HECM borrowers, HUD provides various online resources for
prospective borrowers, HECM counselors, and HECM lenders.
Comment: HUD should explain why bridge loans are allowed with
forward loans but not with reverse mortgages.
HUD Response: HUD does not have restrictions on the use of bridge
loans for the HECM program. However, Sec. 206.32 states that in order
for a mortgage to be eligible for a HECM, a borrower must establish to
the satisfaction of the mortgagee that after the initial payment of
loan proceeds under Sec. 206.25(a), there will be no outstanding or
unpaid obligations incurred by the borrower in connection with the
mortgage transaction, except for mortgage servicing charges permitted
under Sec. 206.27(b) and any future Repair Set Aside established
pursuant to Sec. 206.19(f)(1).
Comment: HUD should clarify what constitutes ``sufficient inquiry''
for the purposes under Sec. 206.43. The commenter also asked for
clarification that the mortgagee does not violate HUD regulations if
the mortgagee does not make disbursements directly to the estate
planning firm if it is determined that the borrower may have engaged
such an estate planning firm.
HUD Response: HUD will clarify the meaning of ``sufficient
inquiry'' through guidance.
Comment: The IRS should make a positive ruling to allow the carry-
forward status of the accrued interest and MIP against retirement
income.
HUD Response: The rulings of the IRS are outside of the scope of
this rule and HUD's authority in general.
Comment: HUD should emphasize the value of placing the property in
a living trust with a durable power of attorney. The commenter stated
that many borrowers may become incapacitated, resulting in default, and
that the servicer would be unable to discuss home retention or workout
options without anyone having legal authority.
HUD Response: Trusts are currently eligible under the HECM program,
but the homeowner has the responsibility for identifying the proper
legal measures that can be taken to oversee their personal affairs if
the homeowner becomes incapacitated.
Comment: HUD should examine the Property Assessed Clean Energy
(PACE) program to determine if there is potential for default so that
immediate notification can be sent to the borrowers warning them not to
attach these liens to their properties. The commenter stated that PACE
liens appear to be superior to HECMs and that property taxes may double
or triple after the placement of the liens.
HUD Response: This recommendation is outside the scope of this
rule. HUD's recent guidance on the PACE program (ML 2016-11) states
that properties with PACE obligations are not eligible for an FHA-
insured HECM loan.
Comment: For all regulations and mortgagee letters, HUD should
create accompanying template documents which all lenders and servicers
are required to use. The commenter stated that such consistent and
clear guidance would make it easier for HUD to have oversight,
regulatory control, and enforcement capability.
HUD Response: HUD does not provide templates for every regulation
and mortgagee letter because various state laws govern specific
information that must be provided and because minor changes would
require HUD to reissue multiple templates. Instead, HUD prescribes what
information must be communicated and allows servicers to apply their
business practices in creating the letters.
Comment: HUD should create or task a unit such as the National
Servicing Center to help individual consumers understand their rights
and options, provide immediate response to consumers with urgent issues
such as foreclosure, and act as liaison between consumer and servicer
when necessary.
HUD Response: This comment falls outside the scope of the proposed
rule, but HUD believes that the National Servicing Center already
provides many of these services to HECM borrowers.
Comment: HUD should put a moratorium on all tax and insurance
defaults until HUD has a structure and system in place to review and
enforce consumer protections to ensure defaults are compliant with
consumer protection regulations and valid.
HUD Response: This is outside the scope of the proposed rule.
Comment: HUD should not allow changes by the servicer to the HECM
contract.
HUD Response: This is outside the scope of the proposed rule.
Comment: Force-placed insurance premiums should not be a default
trigger.
HUD Response: Regulations at Sec. 206.27(b) require the borrower
to pay
[[Page 7116]]
property charges, including insurance. A borrower's failure to obtain
insurance causes the mortgagee to force-place insurance. A default
occurs where there are no HECM funds to pay for insurance and a
borrower fails to reimburse the mortgagee for the funds advanced to pay
these charges.
Comment: There is concern over state law developments that purport
to impose duties or limitations upon HECM servicers. The commenter
stated that these state laws are viewed as inconsistent with HECM
regulations and guidelines, conflicting with generally accepted
servicing principles, and having the potential effect of harming
consumers and property values.
HUD Response: HUD provides requirements that mortgagees must comply
with to file for claim benefits. It is the mortgagee's responsibility
to comply with both federal and state requirements in order to obtain
claim benefits.
V. Findings and Certifications
Paperwork Reduction Act
The information collection requirements contained in this proposed
have been approved by the Office of Management and Budget (OMB) under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned
OMB Collection Numbers 2502-0524 and 2502-0611. In accordance with the
Paperwork Reduction Act, an agency may not conduct or sponsor, and a
person is not required to respond to, a collection of information
unless the collection displays a currently valid OMB control number.
Regulatory Planning and Review--Executive Orders 12866 and 13563
Under Executive Order 12866 (Regulatory Planning and Review), a
determination must be made whether a regulatory action is significant
and, therefore, subject to review by OMB in accordance with the
requirements of the order. This rule was determined to be a
``significant regulatory action,'' as defined in section 3(f) of
Executive Order 12866.
Executive Order 13563 (Improving Regulations and Regulatory Review)
directs executive agencies to analyze regulations that are outmoded,
ineffective, insufficient, or excessively burdensome and to modify,
streamline, expand, or repeal them in accordance with what has been
learned. Executive Order 13563 also directs that, where relevant,
feasible, and consistent with regulatory objectives, and to the extent
permitted by law, agencies are to identify and consider regulatory
approaches that reduce burdens and maintain flexibility and freedom of
choice for the public. This rule reduces burdens on mortgagees by
codifying in one place all the regulatory policy related to the HECM
program. Prior to this rule, mortgagees had to deduce the current
program requirements by determining which HECM regulations in 24 CFR
part 206 were superseded by HERA and RMSA mortgagee letters.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally
requires an agency to conduct a regulatory flexibility analysis of any
rule subject to notice and comment rulemaking requirements, unless the
agency certifies that the rule will not have a significant economic
impact on a substantial number of small entities. Many of the policies
discussed in this rule, such as the requirement that mortgagees perform
a Financial Assessment of prospective HECM borrowers, the requirements
of the HECM for Purchase program, the introduction of the Single Lump
Sum payment option, and the limitation on disbursements during the
First 12-Month Disbursement Period, have already been implemented by
mortgagees large and small. The codification of these policies will not
impact large or small mortgagees, other than easing burden by providing
them with one location to find all HECM regulatory requirements.
The new policy changes in this rule would address important
concerns with the HECM program, including the risk the program has, in
the past, posed to the MMIF, as well as the continued availability of
this program for seniors. Some of the new policy proposals are expected
to relieve burdens on all mortgagees, large and small. For example, the
amendment to the definition of ``expected average mortgage interest
rate'', providing the mortgagee with the ability to lock in the
expected average mortgage interest rate prior to the date of loan
closing, will align the provision with current industry policy.
Removing the duplicative appraisal requirement and creating a Cash for
Keys incentive structure will both relieve burden on mortgagees. Other
policies contained in the rule may result in mortgagees incurring
additional costs. However, as detailed in the regulatory impact
analysis for the rule, these costs are not estimated to rise to the
level of having a significant impact on a substantial number of small
entities. Moreover, HUD has attempted to mitigate the economic impacts
of these provisions. One example is the requirement that all mortgagees
disclose all available HECM program options. To minimize the effect of
this provision on all mortgagees, FHA intends to create disclosure
documents listing all available options for mortgagees to provide to
prospective borrowers. Another example is the limitation on insurance
claim reimbursement for the mortgagee's payment of certain property
charges. Rather than limiting this reimbursement based on the timing of
the property charges, requiring mortgagees to track when each property
charge occurred, HUD is limiting the reimbursement to two-thirds of all
property charges, consistent with how mortgagees are reimbursed for
foreclosure costs.
FHA believes that these policies are reasonable and provide
mitigating features so that the FHA-approved mortgagees, large and
small, will not be adversely affected by these policies.
Accordingly, the undersigned certifies that this rule would not
have a significant economic impact on a substantial number of small
entities.
Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment has been made at the proposed rule state in accordance with
HUD regulations in 24 CFR part 50, which implemented section 102(2)(C)
of the National Environmental Policy Act of 1969 (42 U.S.C.
4332(2)(C)). The FONSI remains applicable to this final rule and is
available for public inspection during regular business hours in the
Regulations Division, Office of General Counsel, Department of Housing
and Urban Development, 451 7th Street SW., Room 10276, Washington, DC
20410-0500. Due to security measures at the HUD Headquarters building,
please schedule an appointment to review the FONSI by calling the
Regulations Division at (202) 708-3055 (this is not a toll-free
number). Individuals with speech or hearing impairments may access this
number via TTY by calling the Federal Relay Service at (800) 877-8339.
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits, to the
extent practicable and permitted by law, an agency from promulgating a
regulation that has federalism implications and either imposes
substantial direct compliance costs on state and local governments and
is not required by statute, or preempts state law, unless the relevant
requirements of section 6 of the executive order are met. This rule
does not have federalism implications and does not impose substantial
direct
[[Page 7117]]
compliance costs on state and local governments or preempt state law
within the meaning of the executive order.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance number for Home Equity
Conversion Mortgages is 14.183.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) (UMRA) establishes requirements for federal agencies to
assess the effects of their regulatory actions on state, local, and
tribal governments, and on the private sector. This rule would not
impose any federal mandates on any state, local, or tribal governments,
or on the private sector, within the meaning of the UMRA.
List of Subjects
24 CFR Part 30
Administrative practice and procedure, Grant programs--housing and
community development, Loan programs--housing and community
development, Mortgage insurance, Penalties.
24 CFR Part 206
Aged condominiums, Loan programs, Housing and community
development, Mortgage insurance, Reporting and recordkeeping
requirements.
Accordingly, for the reasons stated in the preamble, HUD amends 24
CFR parts 30 and 206 to read as follows:
PART 30--CIVIL MONEY PENALTIES: CERTAIN PROHIBITED CONDUCT
0
1. The authority citation for part 30 continues to read as follows:
Authority: 12 U.S.C. 1701q-1; 1703, 1723i, 1735f-14, and 1735f-
15; 15 U.S.C. 1717a; 28 U.S.C. 2461 note; 42 U.S.C. 1437z-1 and
3535(d).
0
2. Revise paragraphs (a)(8) and (a)(10) of Sec. 30.35 to read as
follows:
Sec. 30.35 Mortgagees and lenders.
(a) * * *
(8) Fails to timely submit documents that are complete and accurate
in connection with a conveyance of a property or a claim for insurance
benefits, in accordance with Sec. Sec. 203.365, 203.366, or 203.368,
or a claim for insurance benefits in accordance with Sec. 206.127 of
this title;
* * * * *
(10) Fails to service FHA insured mortgages, in accordance with the
requirements of 24 CFR parts 201, 203, 206, and 235;
* * * * *
0
3. Revise part 206 to read as follows:
PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE
Subpart A--General
Sec.
206.1 Purpose.
206.3 Definitions.
206.7 Effect of amendments.
206.8 Preemption.
Subpart B--Eligibility; Endorsement
206.9 Eligible mortgagees.
206.13 Disclosure of available HECM program options.
206.15 Insurance.
Eligible Mortgages
206.17 Eligible mortgages: general.
206.19 Payment options.
206.21 Interest rate.
206.23 Shared appreciation.
206.25 Calculation of disbursements.
206.26 Change in payment option.
206.27 Mortgage provisions.
206.31 Allowable charges and fees.
206.32 No outstanding unpaid obligations.
Eligible Borrowers
206.33 Age of borrower.
206.34 Limitation on number of mortgages.
206.35 Title of property which is security for HECM.
206.36 Seasoning requirements for existing non-HECM liens.
206.37 Credit standing.
206.39 Principal residence.
206.40 Disclosure, verification and certifications.
206.41 Counseling.
206.43 Information to borrower.
206.44 Monetary investment for HECM for Purchase program.
Eligible Properties
206.45 Eligible properties.
206.47 Property standards; repair work.
206.51 Eligibility of mortgages involving a dwelling unit in a
condominium.
206.52 Eligible sale of property--HECM for Purchase.
Refinancing of Existing Home Equity Conversion Mortgages
206.53 Refinancing a HECM loan.
Deferral of Due and Payable Status
206.55 Deferral of due and payable status for Eligible Non-Borrowing
Spouses.
206.57 Cure provision enabling reinstatement of Deferral Period.
206.59 Obligations of mortgagee.
206.61 HECM proceeds during a Deferral Period.
Subpart C--Contract Rights and Obligations
Sale, Assignment and Pledge
206.101 Sale, assignment and pledge of insured mortgages.
206.102 Insurance Funds.
Mortgage Insurance Premiums
206.103 Payment of MIP.
206.105 Amount of MIP.
206.107 Mortgagee election of assignment or shared premium option.
206.109 Amount of mortgagee share of premium.
206.111 Due date of MIP.
206.113 Late charge and interest.
206.115 Insurance of mortgage.
206.116 Refunds.
HUD Responsibility to Borrowers
206.117 General.
206.119 [Reserved]
206.121 Commissioner authorized to make payments.
Claim Procedure
206.123 Claim procedures in general.
206.125 Acquisition and sale of the property.
206.127 Application for insurance benefits.
206.129 Payment of claim.
Condominiums
206.131 Contract rights and obligations for mortgages on individual
dwelling units in a condominium.
Termination of Insurance Contract
206.133 Termination of insurance contract.
Additional Requirements
206.134 Partial release, addition or substitution of security.
206.135 Application for insurance benefits and fiscal data.
206.136 Conditions for assignment.
206.137 Effect of noncompliance with regulations.
206.138 Mortgagee's liability for certain expenditures.
206.140 Inspection and preservation of properties.
206.141 Property condition.
206.142 Adjustment for damage or neglect.
206.143 Certificate of property condition.
206.144 Final payment.
206.145 Items deducted from payment.
206.146 Debenture interest rate.
Subpart D--Servicing Responsibilities
206.201 Mortgage servicing generally; sanctions.
206.203 Providing information.
206.205 Property charges.
206.207 Allowable charges and fees after endorsement.
206.209 Prepayment.
206.211 Determination of principal residence and contact
information.
Subpart E--HECM Counselor Roster
206.300 General.
206.302 Establishment of the HECM Counselor Roster.
206.304 Eligibility for placement on the HECM Counselor Roster.
206.306 Removal from the HECM Counselor Roster. 206.308 Continuing
education requirements of counselors listed on the HECM Counselor
Roster.
Authority: Authority: 12 U.S.C. 1715b, 1715z-20; 42 U.S.C.
3535(d).
Subpart A--General
Sec. 206.1 Purpose.
The purposes of the Home Equity Conversion Mortgage (HECM)
Insurance
[[Page 7118]]
program are set out in section 255(a) of the National Housing Act,
Public Law 73-479, 48 Stat. 1246 (12 U.S.C. 1715z-20) (``NHA'').
Sec. 206.3 Definitions.
As used in this part, the following terms shall have the meaning
indicated.
Bona fide tenant means a tenant of the property who is not a
mortgagor, borrower, a spouse or child of a mortgagor or borrower, or
any other member of a mortgagor's or borrower's family.
Borrower means a mortgagor who is an original borrower under the
HECM Loan Agreement and Note. The term does not include successors or
assigns of a borrower.
Borrower's Advance means the funds advanced to the borrower at the
closing of a fixed interest rate HECM in accordance with Sec. 206.25.
CMT Index means the U.S. Constant Maturity Treasury Index.
Commissioner means the Federal Housing Commissioner or the
Commissioner's authorized representative.
Contract of insurance means the agreement evidenced by the issuance
of a Mortgage Insurance Certificate or by the endorsement of the
Commissioner upon the credit instrument given in connection with an
insured mortgage, incorporating by reference the regulations in subpart
C of this part and the applicable provisions of the National Housing
Act.
Day means calendar day, except where the term business day is used.
Deferral Period means the period of time following the death of the
last surviving borrower during which the due and payable status of a
HECM is deferred for an Eligible Non-Borrowing Spouse provided that the
Qualifying Attributes and all other FHA requirements continue to be
satisfied.
Eligible Non-Borrowing Spouse means a Non-Borrowing Spouse who
meets all Qualifying Attributes for a Deferral Period.
Estate planning service firm means an individual or entity that is
not a mortgagee approved under part 202 of this chapter or a
participating agency approved under subpart B of 24 CFR part 214 and
that charges a fee that is:
(1) Contingent on the prospective borrower obtaining a mortgage
loan under this part, except the origination fee authorized by Sec.
206.31 or a fee specifically authorized by the Commissioner; or
(2) For information that borrowers and Eligible and Ineligible Non-
Borrowing Spouses, if applicable, must receive under Sec. 206.41,
except a fee by:
(i) A participating agency approved under subpart B of 24 CFR part
214; or
(ii) An individual or company, such as an attorney or accountant,
in the bona fide business of generally providing tax or other legal or
financial advice; or
(3) For other services that the provider of the services represents
are, in whole or in part, for the purpose of improving a prospective
borrower's access to mortgages covered by this part, except where the
fee is for services specifically authorized by the Commissioner.
Expected average mortgage interest rate means the interest rate
used to calculate the principal limit established at closing. For fixed
interest rate HECMs, the expected average mortgage interest rate is the
same as the fixed mortgage (Note) interest rate and is set
simultaneously with the fixed interest rate. For adjustable interest
rate HECMs, it is either the sum of the mortgagee's margin plus the
weekly average yield for U.S. Treasury securities adjusted to a
constant maturity of 10 years, or it is the sum of the mortgagee's
margin plus the 10-year LIBOR swap rate, depending on which interest
rate index is chosen by the borrower. The margin is determined by the
mortgagee and is defined as the amount that is added to the index value
to compute the expected average mortgage interest rate. The index type
(CMT or LIBOR) used to calculate the expected average mortgage interest
rate must be the same index type used to calculate mortgage interest
rate adjustments--commingling of index types is not allowed. The
mortgagee's margin is the same margin used to determine the initial
interest rate and the periodic adjustments to the interest rate.
Mortgagees, with the agreement of the borrower, may simultaneously lock
in the expected average mortgage interest rate and the mortgagee's
margin prior to the date of loan closing or simultaneously establish
the expected average mortgage interest rate and the mortgagee's margin
on the date of loan closing.
First 12-Month Disbursement Period means the period beginning on
the day of loan closing and ending on the day before the loan closing
anniversary date. When the day before the anniversary date of loan
closing falls on a Federally-observed holiday, Saturday, or Sunday, the
end period will be on the next business day after the Federally-
observed holiday, Saturday or Sunday.
HECM means a Home Equity Conversion Mortgage.
HECM counselor means an independent third party who is currently
active on FHA's HECM Counselor Roster and who is not, either directly
or indirectly, associated with or compensated by, a party involved in
originating, servicing, or funding the HECM, or the sale of annuities,
investments, long-term care insurance, or any other type of financial
or insurance product who provides statutorily required counseling to
prospective borrowers who may be eligible for or interested in
obtaining an FHA-insured HECM. This counseling assists elderly
prospective borrowers who seek to convert equity in their homes into
income that can be used to pay for home improvements, medical costs,
living expenses, or other expenses.
Ineligible Non-Borrowing Spouse means a Non-Borrowing Spouse who
does not meet all Qualifying Attributes for a Deferral Period.
Initial Disbursement Limit means the maximum amount of funds that
can be advanced to a borrower of an adjustable interest rate HECM
allowed at loan closing and during the First 12-Month Disbursement
Period in accordance with Sec. 206.25.
Insured mortgage means a mortgage which has been insured as
evidenced by the issuance of a Mortgage Insurance Certificate.
LIBOR means the London Interbank Offered Rate.
Loan documents mean the credit instrument, or Note, secured by the
lien, and the loan agreement.
Mandatory Obligations are fees and charges incurred in connection
with the origination of the HECM that are requirements for loan
approval and which will be paid at closing or during the First 12-Month
Disbursement Period in accordance with Sec. 206.25.
Maximum claim amount means the lesser of the appraised value of the
property, as determined by the appraisal used in underwriting the loan;
the sales price of the property being purchased for the sole purpose of
being the principal residence; or the national mortgage limit for a
one-family residence under subsections 255(g) or (m) of the National
Housing Act (as adjusted where applicable under section 214 of the
National Housing Act) as of the date of loan closing. The initial
mortgage insurance premium must not be taken into account in the
calculation of the maximum claim amount. Closing costs must not be
taken into account in determining appraised value.
MIP means the mortgage insurance premium paid by the mortgagee to
the Commissioner in consideration of the contract of insurance.
Mortgage means a first lien on real estate under the laws of the
jurisdiction where the real estate is located. If the
[[Page 7119]]
dwelling unit is in a condominium, the term mortgage means a first lien
covering a fee interest or eligible leasehold interest in a one-family
unit in a condominium project, together with an undivided interest in
the common areas and facilities serving the project, and such
restricted common areas and facilities as may be designated. The term
refers to a security instrument creating a lien, whether called a
mortgage, deed of trust, security deed, or another term used in a
particular jurisdiction.
Mortgagee means original lender under a mortgage and its successors
and assigns, as are approved by the Commissioner.
Mortgagor means each original mortgagor under a HECM mortgage and
his heirs, executors, administrators, and assigns.
Non-Borrowing Spouse means the spouse, as defined by the law of the
state in which the spouse and borrower reside or the state of
celebration, of the HECM borrower at the time of closing and who is
also not a borrower.
Participating agency means all housing counseling and intermediary
organizations participating in HUD's Housing Counseling program,
including HUD-approved agencies, and affiliates and branches of HUD-
approved intermediaries, HUD-approved multi-state organizations (MSOs),
and state housing finance agencies.
Principal limit means the maximum amount calculated, taking into
account the age of the youngest borrower or Eligible Non-Borrowing
Spouse, the expected average mortgage interest rate, and the maximum
claim amount. The principal limit is calculated for the first month
that a mortgage could be outstanding using factors provided by the
Commissioner. It increases each month thereafter at a rate equal to
one-twelfth of the mortgage interest rate in effect at that time, plus
one-twelfth of the annual mortgage insurance rate. For an adjustable
interest rate HECM, the principal limit increase may be made available
to the borrower each month thereafter except that the availability
during the First 12-Month Disbursement Period may be restricted.
Although the principal limit of a fixed interest rate HECM will
continue to increase at the rate provided by the Commissioner, no
further funds may be made available for the borrower to draw against
after closing. The principal limit may decrease because of insurance or
condemnation proceeds applied to the outstanding loan balance under
Sec. 206.209(b).
Principal residence means the dwelling where the borrower and, if
applicable, Non-Borrowing Spouse, maintain their permanent place of
abode, and typically spend the majority of the calendar year. A person
may have only one principal residence at any one time. The property
shall be considered to be the principal residence of any borrower who
is temporarily in a health care institution provided the borrower's
residency in a health care institution does not exceed twelve
consecutive months. The property shall be considered to be the
principal residence of any Non-Borrowing Spouse, who is temporarily in
a health care institution, as long as the property is the principal
residence of his or her borrower spouse, who physically resides in the
property. During a Deferral Period, the property shall continue to be
considered to be the principal residence of any Non-Borrowing Spouse,
who is temporarily in a health care institution, provided he or she
qualified as an Eligible Non-Borrowing Spouse and physically occupied
the property immediately prior to entering the health care institution
and his or her residency in a health care institution does not exceed
twelve consecutive months.
Property charges means, unless otherwise specified, obligations of
the borrower that include property taxes, hazard insurance premiums,
any applicable flood insurance premiums, ground rents, condominium
fees, planned unit development fees, homeowners' association fees, and
any other special assessments that may be levied by municipalities or
state law.
Qualifying Attributes means the requirements which must be met by a
Non-Borrowing Spouse in order to be an Eligible Non-Borrowing Spouse.
Sec. 206.7 Effect of amendments.
The regulations in this part may be amended by the Commissioner at
any time and from time to time, in whole or in part, but amendments to
subparts B and C of this part will not adversely affect the interests
of a mortgagee on any mortgage to be insured for which either the
Direct Endorsement mortgagee or Lender Insurance mortgagee has approved
the borrower and all terms and conditions of the mortgage, or the
Commissioner has made a commitment to insure. Such amendments will not
adversely affect the interests of a borrower in the case of a default
by a mortgagee where the Commissioner makes payments to the borrower.
Sec. 206.8 Preemption.
(a) Lien priority. The full amount secured by the mortgage shall
have the same priority over any other liens on the property as if the
full amount had been disbursed on the date the initial disbursement was
made, regardless of the actual date of any disbursement. The amount
secured by the mortgage shall include all direct payments by the
mortgagee to the borrower and all other loan advances permitted by the
mortgage for any purpose, including loan advances for interest,
property charges, mortgage insurance premiums, required repairs,
servicing charges, counseling charges, and costs of collection,
regardless of when the payments or loan advances were made. The
priority provided by this section shall apply notwithstanding any State
constitution, law, or regulation.
(b) Second mortgage. If the Commissioner holds a second mortgage,
it shall have a priority subordinate only to the first mortgage (and
any senior liens permitted by paragraph (a) of this section).
Subpart B--Eligibility; Endorsement
Sec. 206.9 Eligible mortgagees.
(a) Statutory requirements. See sections (b)(2), (c), and 255(d)(1)
of the NHA.
(b) HUD approved mortgagees. Any mortgagee authorized under
paragraph (a) of this section and approved under part 202 of this
chapter, except an investing mortgagee approved under Sec. 202.9 of
this chapter, is eligible to apply for insurance. A mortgagee approved
under Sec. Sec. 202.6, 202.7, 202.9 or 202.10 of this chapter may
purchase, hold and sell mortgages insured under this part without
additional approval.
Sec. 206.13 Disclosure of available HECM program options.
At the time of initial contact, the mortgagee shall inform the
prospective HECM borrower, in a manner acceptable to the Commissioner,
of all products, features, and options of the HECM program that FHA
will insure under this part, including: fixed interest rate mortgages
with the Single Lump Sum payment option; adjustable interest rate
mortgages with tenure, term, and line of credit disbursement options,
or a combination of these; any other FHA insurable disbursement
options; and initial mortgage insurance premium options, and how those
affect the availability of other mortgage and disbursement options.
Sec. 206.15 Insurance.
Mortgages originated under this part must be endorsed through the
Direct Endorsement program under Sec. 203.5 of this chapter, except
that any references to Sec. 203.255 in Sec. 203.5 shall mean Sec.
206.115. The mortgagee shall submit the information as described in
Sec. 206.115(b) for the Direct Endorsement
[[Page 7120]]
program; the certificate of housing counseling as described in Sec.
206.41; a copy of the title insurance commitment satisfactory to the
Commissioner (or other acceptable title evidence if the Commissioner
has determined not to require title insurance under Sec. 206.45(a));
the mortgagee's election of either the assignment or shared premium
option under Sec. 206.107; and any other documentation required by the
Commissioner. If the mortgagee has complied with the requirements of
Sec. Sec. 203.3 and 203.5, except that any reference to Sec. 203.255
in these sections shall mean Sec. 206.115 for purposes of this
section, and other requirements of this part, and the mortgage is
determined to be eligible, the Commissioner will endorse the mortgage
for insurance by issuing a Mortgage Insurance Certificate.
Eligible Mortgages
Sec. 206.17 Eligible mortgages: general.
(a) [Reserved]
(b) Interest rate and payment options. A HECM shall provide for
either fixed or adjustable interest rates in accordance with Sec.
206.21.
(1) Fixed interest rate mortgages shall use the Single Lump Sum
payment option (Sec. 206.19(e)).
(2) Adjustable interest rate mortgages shall initially provide for
the term (Sec. 206.19(a)), the tenure (Sec. 206.19(b)), the line of
credit (Sec. 206.19(c)), or a modified term or modified tenure (Sec.
206.19(d)) payment option, subject to a later change in accordance with
Sec. 206.26.
(c) Shared appreciation. A mortgage may provide for shared
appreciation in accordance with Sec. 206.23.
Sec. 206.19 Payment options.
(a) Term payment option. Under the term payment option, equal
monthly payments are made by the mortgagee to the borrower for a fixed
term of months chosen by the borrower in accordance with this section
and Sec. 206.25(e), unless the mortgage is prepaid in full or becomes
due and payable earlier under Sec. 206.27(c).
(b) Tenure payment option. Under the tenure payment option, equal
monthly payments are made by the mortgagee to the borrower in
accordance with this section and with Sec. 206.25(f), unless the
mortgage is prepaid in full or becomes due and payable under Sec.
206.27(c).
(c) Line of credit payment option. Under the line of credit payment
option, payments are made by the mortgagee to the borrower at times and
in amounts determined by the borrower as long as the amounts do not
exceed the payment amounts permitted by Sec. 206.25.
(d) Modified term or modified tenure payment option. Under the
modified term or modified tenure payment options, equal monthly
payments are made by the mortgagee and the mortgagee shall set aside a
portion of the principal limit to be drawn down as a line of credit as
long as the amounts do not exceed the payment amounts permitted by
Sec. 206.25.
(e) Single Lump Sum payment option. Under the Single Lump Sum
payment option, the Borrower's Advance will be made by the mortgagee to
the borrower in an amount that does not exceed the payment amount
permitted in Sec. 206.25. The Single Lump Sum payment option will be
available only for fixed interest rate HECMs. Set asides requiring
disbursements after close may be offered in accordance with paragraphs
(f)(1) through (3) of this section.
(f) Principal limit set asides--(1) Repair Set Aside. When repairs
required by Sec. 206.47 will be completed after closing, the mortgagee
shall set aside a portion of the principal limit equal to 150 percent
of the Commissioner's estimated cost of repairs, plus the repair
administration fee.
(2) Property Charge Set Aside--(i) Life Expectancy Set Aside
(LESA). When required by Sec. 206.205(b)(1) or selected by the
borrower under Sec. 206.205(b)(2)(i)(B), the mortgagee shall set aside
a portion of the principal limit, consistent with the requirements of
Sec. 206.205, for payment of the following property charges: property
taxes including special assessments levied by municipalities or state
law, and flood and hazard insurance premiums.
(ii) Borrower elects to have mortgagee pay property charges--(A)
First year property charges. When required by Sec. 206.205(d), the
mortgagee shall set aside a portion of the principal limit for payment
of the following property charges that must be paid during the First
12-Month Disbursement Period: property taxes including special
assessments levied by municipalities or state law, and flood and hazard
insurance premiums. The mortgagee's estimate of withholding amount
shall be based on the best information available as to probable
payments which will be required to be made for property charges in the
coming year. The mortgagee may not require the withholding of amounts
in excess of the current estimated total annual requirement, unless
expressly requested by the borrower. Each month's withholding for
property charges shall equal one-twelfth of the annual amounts as
reasonably estimated by the mortgagee.
(B) Property charges for subsequent years. For subsequent year
property charges, the mortgagee's estimate of withholding amount shall
be based on the best information available as to probable payments
which will be required to be made for property charges in the coming
year. If actual disbursements during the preceding year are used as the
basis, the resulting estimate may deviate from those disbursements by
as much as ten percent. The mortgagee may not require the withholding
of amounts in excess of the current estimated total annual requirement,
unless expressly requested by the borrower. Each month's withholding
for property charges shall equal one-twelfth of the annual amounts as
reasonably estimated by the mortgagee.
(3) Servicing Fee Set Aside. When servicing charges will be made as
permitted by Sec. 206.207(b), the mortgagee shall set aside a portion
of the principal limit sufficient to cover charges through a period
equal to the payment term which would be used to calculate tenure
payments under Sec. 206.25(f).
(g) Interest accrual and repayment. The interest charged on the
outstanding loan balance shall begin to accrue from the funding date
and shall be added to the outstanding loan balance monthly as provided
in the mortgage. Under all payment options, repayment of the
outstanding loan balance is deferred until the mortgage becomes due and
payable under Sec. 206.27(c).
(h) Disbursement limits. (1) For all HECMs, no disbursements shall
be made under any of the payment options, notwithstanding anything to
the contrary in this section or in Sec. 206.25, in an amount which
shall cause the outstanding loan balance after the payment to exceed
any maximum mortgage amount stated in the security instruments or to
otherwise exceed the amount secured by a first lien.
(2) For adjustable interest rate HECMs:
(i) No disbursements shall be made under any of the payment options
during the First 12-Month Disbursement Period in excess of the Initial
Disbursement Limit.
(ii) If the borrower makes a partial prepayment of the outstanding
loan balance during the First 12-Month Disbursement Period, the
mortgagee shall apply the funds from the partial prepayment in
accordance with the Note.
(3) For fixed interest rate HECMs, if the borrower makes a partial
prepayment of the outstanding loan balance any time after loan closing
and before the contract of insurance is terminated, the mortgagee shall
apply the funds from the partial prepayment
[[Page 7121]]
in accordance with the Note. Any increase in the available principal
limit by the amount applied towards the outstanding loan balance shall
not be available for the borrower to draw against.
Sec. 206.21 Interest rate.
(a) Fixed interest rate. A fixed interest rate is agreed upon by
the borrower and mortgagee.
(b) Adjustable interest rate. An initial expected average mortgage
interest rate, which defines the mortgagee's margin, is agreed upon by
the borrower and mortgagee as of the date of loan closing, or as of the
date of rate lock-in, if the expected average mortgage interest rate
was locked in prior to closing. The interest rate shall be adjusted in
one of two ways depending on the option selected by the borrower, in
accordance with paragraphs (b)(1) and (b)(2) of this section. Whenever
an interest rate is adjusted, the new interest rate applies to the
entire loan balance. The difference between the initial interest rate
and the index figure applicable when the firm commitment is issued
shall equal the margin used to determine interest rate adjustments. If
the expected average mortgage interest rate is locked in prior to
closing, the difference between the expected average mortgage interest
rate and the value of the appropriate index at the time of rate lock-in
shall equal the margin used to determine interest rate adjustments.
(1) Annual adjustable interest rate HECMs. A mortgagee offering an
annual adjustable interest rate shall offer a mortgage with an interest
rate cap structure that limits the periodic interest rate increases and
decreases as follows:
(i) Types of mortgages insurable. The types of adjustable interest
rate mortgages that are insurable are those for which the interest rate
may be adjusted annually by the mortgagee, beginning after one year
from the date of the closing.
(ii) Interest rate index. Changes in the interest rate charged on
an adjustable interest rate mortgage must correspond either to changes
in the one-year LIBOR or to changes in the weekly average yield on U.S.
Treasury securities, adjusted to a constant maturity of one year.
Except as otherwise provided in this section, each change in the
mortgage interest rate must correspond to the upward and downward
change in the index.
(iii) Frequency of interest rate changes. (A) The interest rate
adjustments must occur annually, calculated from the date of the
closing, except that the first adjustment shall be no sooner than 12
months or later than 18 months.
(B) To set the new interest rate, the mortgagee will determine the
change between the initial (i.e., base) index figure and the current
index figure, or will add a specific margin to the current index
figure. The initial index figure shall be the most recent figure
available before the date of mortgage loan origination. The current
index figure shall be the most recent index figure available 30 days
before the date of each interest rate adjustment.
(iv) Magnitude of changes. The adjustable interest rate mortgage
initial contract interest rate shall be agreed upon by the mortgagee
and the borrower. The first adjustment to the contract interest rate
shall take place in accordance with the schedule set forth under
paragraph (b)(1)(iii) of this section. Thereafter, for all annual
adjustable interest rate mortgages, the adjustment shall be made
annually and shall occur on the anniversary date of the first
adjustment, subject to the following conditions and limitations:
(A) For all annual adjustable interest rate HECMs, no single
adjustment to the interest rate shall result in a change in either
direction of more than two percentage points from the interest rate in
effect for the period immediately preceding that adjustment. Index
changes in excess of two percentage points may not be carried over for
inclusion in an adjustment for a subsequent year. Adjustments in the
effective rate of interest over the entire term of the mortgage may not
result in a change in either direction of more than five percentage
points from the initial contract interest rate.
(B) At each adjustment date for annual adjustable interest rate
HECMs, changes in the index interest rate, whether increases or
decreases, must be translated into the adjusted mortgage interest rate,
except that the mortgage may provide for minimum interest rate change
limitations and for minimum increments of interest rate changes.
(2) Monthly adjustable interest rate HECMs. If a mortgage meeting
the requirements of paragraph (b)(1) of this section is offered, the
mortgagee may also offer a mortgage which provides for monthly
adjustments to the interest rate such that changes in the interest rate
charged on an adjustable interest rate mortgage correspond either to
changes in the one-year LIBOR or to changes in the weekly average yield
on U.S. Treasury securities, adjusted to a constant maturity of one
year (except as otherwise provided in this section, each change in the
mortgage interest rate must correspond to the upward and downward
change in the index), or to the one-month CMT index or one-month LIBOR
index, and which sets a maximum interest rate that can be charged.
(c) Pre-loan disclosure. (1) At the time the mortgagee provides the
borrower with a loan application, a mortgagee shall provide a borrower
with a written explanation of all adjustable interest rate features of
a mortgage. The explanation must include the following items:
(i) The circumstances under which the rate may increase;
(ii) Any limitations on the increase; and
(iii) The effect of an increase.
(2) Compliance with pre-loan disclosure provisions of 12 CFR part
1026 (Truth in Lending) shall constitute full compliance with paragraph
(c)(1) of this section.
(d) Post-loan disclosure. At least 25 days before any adjustment to
the interest rate may occur, the mortgagee must advise the borrower of
the following:
(1) The current index amount;
(2) The date of publication of the index; and
(3) The new interest rate.
Sec. 206.23 Shared appreciation.
(a) Additional interest based on net appreciated value. Any
mortgage for which the mortgagee has chosen the shared premium option
(Sec. 206.107) may provide for shared appreciation. At the time the
mortgage becomes due and payable or is paid in full, whichever occurs
first, the borrower shall pay an additional amount of interest equal to
a percentage of any net appreciated value of the property during the
life of the mortgage. The percentage of net appreciated value to be
paid to the mortgagee, referred to as the appreciation margin, shall be
no more than twenty-five percent, subject to an effective interest rate
cap of no more than twenty percent.
(b) Computation of mortgagee share. The mortgagee's share of net
appreciated value is computed as follows:
(1) If the outstanding loan balance at the time the mortgagee's
share of net appreciated value becomes payable is less than the
appraised value of the property at the time of loan origination, the
mortgagee's share is calculated by subtracting the appraised value at
the time of loan origination from the adjusted sales proceeds (i.e.,
sales proceeds less transfer costs and capital improvement costs
incurred by the borrower, but excluding any liens) and multiplying by
the appreciation margin.
[[Page 7122]]
(2) If the outstanding loan balance is greater than the appraised
value at the time of loan origination but less than the adjusted
proceeds, the mortgagee's share is calculated by subtracting the
outstanding loan balance from the adjusted sales proceeds and
multiplying by the appreciation margin.
(3) If the outstanding loan balance is greater than the adjusted
sales proceeds, the net appreciated value is zero.
(4) If there has been no sale or transfer involving satisfaction of
the mortgage at the time the mortgagee's share of net appreciated value
becomes payable, sales proceeds for purposes of this section shall be
the appraised value as determined in accordance with procedures
approved by the Commissioner.
(c) Effective interest rate. To determine the effective interest
rate, the amount of interest which accrued in the twelve months prior
to the sale of the property or the prepayment is added to the
mortgagee's share of the net appreciated value. The sum of the
mortgagee's share of the net appreciated value and the interest, when
divided by the sum of the outstanding loan balance at the beginning of
the twelve-month period prior to sale or prepayment plus the payments
to or on behalf of the borrower (but not including interest) in the
twelve months prior to the sale or prepayment, shall not exceed an
effective interest rate of twenty percent.
(d) Disclosure. At the time the mortgagee provides the borrower
with a loan application for a mortgage with shared appreciation, the
mortgagee shall disclose to the borrower the principal limit, payments
and interest rate which are applicable to a comparable mortgage offered
by the mortgagee without shared appreciation.
Sec. 206.25 Calculation of disbursements.
(a) Initial disbursements--(1) Initial Disbursement Limit--
Adjustable Interest Rate HECMs: for term, tenure, line of credit,
modified term, and modified tenure payment options:
(i) The mortgagee is responsible for determining the maximum
Initial Disbursement Limit.
(ii) The maximum disbursement allowed at closing and during the
First 12-Month Disbursement Period is the lesser of:
(A) The greater of an amount established by the Commissioner
through notice which shall not be less than 50 percent of the principal
limit; or the sum of Mandatory Obligations and a percentage of the
principal limit established by the Commissioner through notice which
shall not be less than 10 percent; or
(B) The principal limit less the sum of the funds in the LESA for
payment beyond the First 12-Month Disbursement Period and the Servicing
Fee Set Aside.
(iii) The amount in the First 12-Month Disbursement Period or at
any point in time may not exceed the principal limit.
(iv) Mortgagees shall monitor and track all disbursements that
occur at loan closing and during the First 12-Month Disbursement
Period; the total amount of disbursements shall not exceed the maximum
Initial Disbursement Limit.
(v) The borrower shall notify the mortgagee at loan closing of the
amount of the additional percentage of the principal limit beyond
Mandatory Obligations that the borrower will draw or that will remain
available to be drawn during the First 12-Month Disbursement Period.
The borrower may not increase or decrease this election after closing.
(2) Borrower's Advance--Fixed Interest Rate HECMs: for the Single
Lump Sum payment option:
(i) The mortgagee is responsible for determining the maximum
Borrower's Advance.
(ii) The disbursement shall only be taken at the time of closing
and the maximum disbursement shall not exceed the lesser of:
(A) The greater of an amount established by the Commissioner
through notice which shall not be less than 50 percent of the principal
limit; or the sum of Mandatory Obligations and a percentage of the
principal limit established by the Commissioner through notice which
shall not be less than 10 percent; or
(B) The principal limit less the sum of the funds in the LESA for
payment beyond the First 12-Month Disbursement Period and the Servicing
Fee Set Aside.
(iii) The borrower shall notify the mortgagee at loan closing of
the amount of the additional percentage of the principal limit beyond
Mandatory Obligations that the borrower will draw. The borrower may not
increase or decrease this election after closing.
(b) Mandatory Obligations for traditional and refinance
transactions include:
(1) Initial MIP under Sec. 206.105(a);
(2) Loan origination fee;
(3) HECM counseling fee;
(4) Reasonable and customary amounts, but not more than the amount
actually paid by the mortgagee for any of the following items:
(i) Recording fees and recording taxes, or other charges incident
to the recordation of the insured mortgage;
(ii) Credit report;
(iii) Survey, if required by the mortgagee or the borrower;
(iv) Title examination;
(v) Mortgagee's title insurance;
(vi) Fees paid to an appraiser for the initial appraisal of the
property; and
(vii) Flood certifications.
(5) Repair Set Asides;
(6) Repair administration fee;
(7) Delinquent Federal debt;
(8) Amounts required to discharge any existing liens on the
property;
(9) Customary fees and charges for warranties, inspections,
surveys, and engineer certifications;
(10) Funds to pay contractors who performed repairs as a condition
of closing, in accordance with standard FHA requirements for repairs
required by the appraiser;
(11) Property tax and flood and hazard insurance payments required
by the mortgagee to be paid at loan closing;
(12) Property charges not included in paragraph (b)(11) of this
section and which are scheduled for payment during the First 12-Month
Disbursement Period, as follows:
(i) Adjustable Interest Rate HECMs. (A) The total amount of
property charge payments scheduled for payment from the borrower
authorized option under Sec. 206.205(d) during the First 12-Month
Disbursement Period;
(B) The total amount of semi-annual disbursements scheduled to be
made during the First 12-Month Disbursement Period to the borrower from
a Partially-Funded LESA; or
(C) The total amount of property charges scheduled for payment
during the First 12-Month Disbursement Period from a Fully-Funded LESA.
(D) Mortgagees shall use the actual insurance premium and actual
tax amount; if a new tax bill has not been issued, the mortgagee must
use the prior year's amount multiplied by 1.04 or an amount set by the
Commissioner through notice.
(ii) Fixed Interest Rate HECMs. (A) The total amount of property
charges scheduled for payment during the First 12-Month Disbursement
Period from a Fully-Funded LESA.
(B) Mortgagees shall use the actual insurance premium and actual
tax amount; if a new tax bill has not been issued, the mortgagee must
use the prior year's amount multiplied by 1.04 or an amount set by the
Commissioner through notice;
(13) Required pay-off of debt not secured by the property, as
defined by the Commissioner through Federal Register notice; and
(14) Other charges as authorized by the Commissioner through
notice.
[[Page 7123]]
(c) Mandatory Obligations for HECM for Purchase transactions
include:
(1) Initial MIP under Sec. 206.105(a);
(2) Loan origination fee;
(3) HECM counseling fee:
(4) Reasonable and customary amounts, but not more than the amount
actually paid by the mortgagee for any of the following items:
(i) Recording fees and recording taxes, or other charges incident
to the recordation of the insured mortgage;
(ii) Credit report;
(iii) Survey, if required by the mortgagee or the borrower;
(iv) Title examination;
(v) Mortgagee's title insurance;
(vi) Fees paid to an appraiser for the initial appraisal of the
property; and
(vii) Flood certifications.
(5) Delinquent Federal debt;
(6) Fees and charges for real estate purchase contracts,
warranties, inspections, surveys, and engineer certifications;
(7) The amount of the principal that is advanced towards the
purchase price of the subject property;
(8) Property tax and flood and hazard insurance payments required
by the mortgagee to be paid at loan closing;
(9) Property charges not included in paragraph (c)(8) of this
section and which are scheduled for payment during the First 12-Month
Disbursement Period, as follows:
(i) Adjustable Interest Rate HECMs. (A) The total amount of
property charge payments scheduled for payment from the borrower
authorized option under Sec. 206.205(d) during the First 12-Month
Disbursement Period;
(B) The total amount of semi-annual disbursements scheduled to be
made during the First 12-Month Disbursement Period to the borrower from
a Partially-Funded LESA; or
(C) The total amount of property charges scheduled for payment
during the First 12-Month Disbursement Period from a Fully-Funded LESA.
(D) Mortgagees shall use the actual insurance premium and actual
tax amount; if a new tax bill has not been issued, the mortgagee must
use the prior year's amount multiplied by 1.04 or an amount set by the
Commissioner through notice.
(ii) Fixed Interest Rate HECMs. (A) The total amount of property
charges scheduled for payment during the First 12-Month Disbursement
Period from a Fully-Funded LESA.
(B) Mortgagees shall use the actual insurance premium and actual
tax amount; if a new tax bill has not been issued, the mortgagee must
use the prior year's amount multiplied by 1.04 or an amount set by the
Commissioner through notice;
(10) Required pay-off of debt not secured by the property, as
defined by the Commissioner through Federal Register notice; and
(11) Other charges as authorized by the Commissioner through
notice.
(d) Timing of disbursements. Mortgage proceeds may not be disbursed
until after the expiration of the 3-day rescission period under 12 CFR
part 1026, if applicable.
(e) Monthly disbursements--term option. (1) Using factors provided
by the Commissioner, the mortgagee shall calculate the monthly
disbursement so that the sum of paragraphs (e)(1)(i) or (e)(1)(ii) of
this section added to paragraphs (e)(1)(iii), (e)(1)(iv), and (e)(1)(v)
of this section shall be equal to the principal limit at the end of the
payment term.
(i) An initial disbursement under paragraph (a) of this section
plus any initial servicing charge set aside under Sec. 206.19(f)(3);
or
(ii) The outstanding loan balance at the time of a change in
payment option in accordance with Sec. 206.26, plus any remaining
servicing charge set aside under Sec. 206.19(f)(3); and
(iii) The amount of the principal limit set aside in accordance
with Sec. 206.19(f) which is not included in the amount set aside in
paragraphs (e)(1)(i) or (e)(1)(ii) of this section;
(iv) All MIP or monthly charges due to the Commissioner in lieu of
mortgage insurance premiums due through the payment term; and
(v) All interest through the remainder of the payment term. The
expected average mortgage interest rate shall be used for this purpose.
(2) The mortgagee shall make all monthly disbursements through the
payment term even if the outstanding loan balance exceeds the principal
limit because the actual average mortgage interest rate exceeds the
expected average mortgage interest rate unless the HECM becomes due and
payable under Sec. 206.27(c). In the event of a deferral of due and
payable status in accordance with Sec. 206.27(c)(3), disbursements
shall cease immediately upon the death of the borrower and no further
disbursements are permissible.
(3) Mortgagees shall ensure that term monthly disbursements made to
the borrower during the First 12-Month Disbursement Period do not
exceed the Initial Disbursement Limit. If the sum of disbursements made
during the First 12-Month Disbursement Period would exceed the Initial
Disbursement Limit for that time period, the mortgagee shall decrease
the monthly disbursements during the First 12-Month Disbursement Period
to conform with the Initial Disbursement Limit; upon conclusion of the
First 12-Month Disbursement Period, the borrower may request a payment
plan recalculation.
(4) If the borrower makes a partial prepayment of the outstanding
loan balance during the First 12-Month Disbursement Period, the
mortgagee shall apply the funds from the partial prepayment in
accordance with the Note.
(5) If the mortgagee receives repayment from insurance or
condemnation proceeds after restoration or repair of the damaged
property, the available principal limit and outstanding loan balance
shall be reduced by the amount of such payments.
(f) Monthly disbursements--tenure option. (1) Monthly disbursements
under the tenure payment option shall be calculated as if the number of
months in the payment term equals 100 minus the lesser of the age of
the youngest borrower or 95, multiplied by 12, but payments shall
continue until the mortgage becomes due and payable under Sec.
206.27(c), except that in the event that payments would exceed any
maximum mortgage amount stated in the security instrument or would
otherwise exceed the amount secured by the first lien, in accordance
with Sec. 206.19(h) payments will cease immediately; payments may be
reinstated only in the event a new Note and mortgage are executed in
accordance with Sec. 206.27(b)(10); and in the event of a deferral of
due and payable status in accordance with Sec. 206.27(c)(3) payments
will cease immediately upon the death of the borrower.
(2) Mortgagees shall ensure that tenure monthly disbursements made
to the borrower during the First 12-Month Disbursement Period do not
exceed the Initial Disbursement Limit. If the sum of disbursements made
during the First 12-Month Disbursement Period would exceed the Initial
Disbursement Limit for that time period, the mortgagee shall decrease
the monthly disbursements during the First 12-Month Disbursement Period
to conform with the maximum Initial Disbursement Limit; upon conclusion
of the First 12-Month Disbursement Period, the borrower may request a
payment plan recalculation.
(3) If the borrower makes a partial prepayment of the outstanding
loan balance during the First 12-Month Disbursement Period, the
mortgagee shall apply the funds from the partial prepayment in
accordance with the Note.
(4) If the mortgagee receives repayment from insurance or
[[Page 7124]]
condemnation proceeds after restoration or repair of the damaged
property, the available principal limit and outstanding loan balance
shall be reduced by the amount of such payments.
(g) Line of credit separately or with monthly disbursements. If the
borrower has a line of credit, separately or combined with the term or
tenure payment option, the principal limit is divided into an amount
set aside for servicing charges under Sec. 206.19(f)(3), an amount
equal to the line of credit (including any portion of the principal
limit set aside for repairs or property charges under Sec.
206.19(f)(1) or (2)), and the remaining amount of the principal limit
(if any). The line of credit amount increases at the same rate as the
total principal limit increases under Sec. 206.3. The sum of
disbursements made during the First 12-Month Disbursement Period shall
not exceed the Initial Disbursement Limit. If a requested disbursement
would exceed the Initial Disbursement Limit, the mortgagee may make a
partial disbursement to the borrower for the amount that will not
exceed the limit. Upon the conclusion of the First 12-Month
Disbursement Period, the borrower may request subsequent disbursements
up to the available principal limit.
(h) Single Lump Sum payment option. (1) Under the Single Lump Sum
payment option, the Borrower's Advance shall be made by the mortgagee
to the borrower in an amount that does not exceed the maximum allowable
Borrower's Advance under paragraph (a)(2) of this section.
(2) If the borrower makes a partial prepayment of the outstanding
loan balance any time after loan closing and before the contract of
insurance is terminated, the mortgagee shall apply the funds from the
partial prepayment in accordance with the Note.
(i) Payment of MIP and interest. At the end of each month,
including the first month, interest accrued during that month shall be
added to the outstanding loan balance. Where the first month is a
partial month, a prorated amount of interest shall be added. Monthly
MIP, which will accrue from the closing date, shall be added to the
outstanding loan balance beginning with the first day of the second
month after closing when paid to the Commissioner.
(j) Mortgagee late charge. The mortgagee shall pay a late charge to
the borrower for any late disbursement. If the mortgagee does not mail
or electronically transfer a scheduled monthly disbursement to the
borrower on the first business day of the month or make a line of
credit disbursement within 5 business days of the date the mortgagee
received the request, the late charge shall be 10 percent of the entire
amount that should have been paid to the borrower for that month or as
a result of that request. In no event shall the total late charge
exceed five hundred dollars. For each additional day that the borrower
does not receive payment, the mortgagee shall pay interest at the
mortgage interest rate on the late payment. Any late charge and
interest shall be paid from the mortgagee's funds and shall not be
added to the outstanding loan balance.
(k) No minimum payments. A mortgagee shall not require, as a
condition of providing a loan secured by a mortgage insured under this
part, that the monthly payments under the term or tenure payment option
or draws under the line of credit payment option exceed a minimum
amount established by the mortgagee.
Sec. 206.26 Change in payment option.
(a) General. The payment option may be changed as provided in this
section.
(b) Borrower request for payment plan change--(1) Adjustable
Interest Rate HECMs. (i) During the First 12-Month Disbursement Period,
no payment plan change shall cause disbursements to exceed the Initial
Disbursement Limit.
(ii) After the First 12-Month Disbursement Period, as long as the
outstanding loan balance is less than the principal limit, a borrower
may request a recalculation of the current payment option, a change
from any payment option to another available payment option or a
disbursement of any amount (not to exceed the difference between the
principal limit and the sum of the outstanding loan balance and any set
asides for repairs, servicing charges or property charges). A mortgage
will continue to bear interest at an adjustable interest rate as agreed
between the mortgagee and the borrower at loan origination. The
mortgagee shall recalculate any future monthly payments in accordance
with Sec. 206.25.
(iii) Fee for change in payment. The mortgagee may charge a fee,
not to exceed an amount determined by the Commissioner, whenever there
is a payment plan change or whenever payments are recalculated.
(iv) Limitations. The Commissioner may, through notice, establish
limitations on the frequency of payment plan changes, a minimum notice
period that a borrower must provide in order to make a request under
paragraph (b)(1)(ii) of this section, or other limitations on payment
plan change requests by the borrower.
(2) Fixed Interest Rate HECMs. Borrowers may not request a change
in payment option.
(c) Change due to initial repairs. When initial repairs after
closing under Sec. 206.47 are required using a Repair Set Aside,
mortgagees shall comply with the following:
(1) Adjustable Interest Rate HECMs. (i) If repairs after closing
under Sec. 206.47 are completed without using all of the funds set
aside for repairs, the mortgagee shall transfer the remaining amount to
a line of credit, modified term, or modified tenure payment option and
inform the borrower of the sum available to be drawn.
(ii) If repairs after closing under Sec. 206.47 cannot be
completed with the funds set aside for repairs, the mortgagee may
advance additional funds to complete repairs from an existing line of
credit. If a line of credit is not sufficient to make the advance or if
no line of credit exists, future monthly disbursements shall be
recalculated for use as a line of credit in accordance with Sec.
206.25.
(iii) If repairs are not completed when required by the mortgage,
the mortgagee shall stop monthly payments and the mortgage shall
convert to the line of credit payment option. Until the repairs are
completed, the mortgagee shall make no line of credit disbursements
except as needed to pay for repairs required by the mortgage.
(2) Fixed Interest Rate HECMs. No unused set aside funds shall be
made available to the borrower, except that a borrower may be
reimbursed for the cost of repair materials (not including labor), in
accordance with Sec. 206.47, under conditions established by the
Commissioner.
Sec. 206.27 Mortgage provisions.
(a) Form. The mortgage shall be in a form meeting the requirements
of the Commissioner.
(b) Provisions. The terms of the mortgage shall contain an
explanation of how payments will be made to the borrower, how interest
will be charged, and when the mortgage will be due and payable. The
mortgage shall include a provision deferring the due and payable status
that occurs because of the death of the last surviving borrower for an
Eligible Non-Borrowing Spouse. It shall also contain provisions
designed to ensure compliance with this part and provisions on the
following additional matters:
(1) Disbursements by the mortgagee under the term or tenure payment
options shall be mailed to the borrower or electronically transferred
to an account of the borrower on the first
[[Page 7125]]
business day of each month beginning with the first month after
closing. Disbursements under the line of credit payment option shall be
mailed to the borrower or electronically transferred to an account of
the borrower within five business days after the mortgagee has received
a written request for disbursement by the borrower. In accordance with
Sec. 206.55, in no event may disbursements continue during a Deferral
Period.
(2) The borrower shall insure all improvements on the property that
serves as collateral for the HECM whether in existence at the time of
origination or subsequently erected, against any hazards, casualties,
and contingencies, including but not limited to fire and flood, for
which the mortgagee requires insurance. Such insurance shall be
maintained in the amount and for the period of time that is necessary
to protect the mortgagee's investment. Whether or not the mortgagee
imposes a flood insurance requirement, the borrower shall at a minimum
insure all improvements on the property, whether in existence at the
time of origination or subsequently erected, against loss by floods to
the extent required by the Commissioner. If the mortgagee imposes
insurance requirements, all insurance shall be carried with companies
acceptable to the mortgagee, and the insurance policies and any
renewals shall be held by the mortgagee and shall include loss payable
clauses in favor of and in a form acceptable to the mortgagee.
(3) The borrower shall not participate in a real estate tax
deferral program or permit any liens to be recorded against the
property, unless such liens are subordinate to the insured mortgage
and, if applicable, any second mortgage held by the Commissioner.
(4) A mortgage may be prepaid in full or in part in accordance with
Sec. 206.209.
(5) The borrower must keep the property in good repair.
(6) The borrower must provide for the payment of property charges
in accordance with Sec. 206.205.
(7) The payment of monthly MIP may be added to the outstanding
principal balance.
(8) The borrower shall have no personal liability for payment of
the outstanding loan balance. The mortgagee shall enforce the debt only
through sale of the property. The mortgagee shall not be permitted to
obtain a deficiency judgment against the borrower if the mortgage is
foreclosed.
(9) If the mortgage is assigned to the Commissioner under Sec.
206.121(b), the borrower shall not be liable for any difference between
the insurance benefits paid to the mortgagee and the outstanding loan
balance including accrued interest, owed by the borrower at the time of
the assignment.
(10) If State law limits the first lien status of the mortgage as
originally executed and recorded to a maximum amount of debt or a
maximum number of years, the borrower shall agree to execute any
additional documents required by the mortgagee and approved by the
Commissioner to extend the first lien status to an additional amount of
debt and an additional number of years and to cause any other liens to
be removed or subordinated.
(c) Date the mortgage comes due and payable. (1) The mortgage shall
state that the outstanding loan balance will be due and payable in full
if a borrower dies and the property is not the principal residence of
at least one surviving borrower, except that the due and payable status
shall be deferred in accordance with paragraph (c)(3) of this section
if the requirements of the Deferral Period are met; or if a borrower
conveys all of his or her title in the property and no other borrower
retains title to the property. For purposes of the preceding sentence,
a borrower retains title in the property if the borrower continues to
hold title to any part of the property in fee simple, as a leasehold
interest as set forth in Sec. 206.45(a), or as a life estate.
(2) The mortgage shall state that the outstanding loan balance
shall be due and payable in full, upon approval of the Commissioner, if
any of the following occur:
(i) The property ceases to be the principal residence of a borrower
for reasons other than death and the property is not the principal
residence of at least one other borrower;
(ii) For a period of longer than 12 consecutive months, a borrower
fails to occupy the property because of physical or mental illness and
the property is not the principal residence of at least one other
borrower;
(iii) The borrower does not provide for the payment of property
charges in accordance with Sec. 206.205; or
(iv) An obligation of the borrower under the mortgage is not
performed.
(3) Deferral of due and payable status. The mortgage documents
shall contain a provision deferring due and payable status, called the
Deferral Period, for an Eligible Non-Borrowing Spouse until the death
of the last Eligible Non-Borrowing Spouse or the requirements of the
Deferral Period in Sec. 206.55 cease to be met and have not been cured
as provided for in Sec. 206.57.
(d) Second mortgage to Commissioner. Unless otherwise provided by
the Commissioner, a second mortgage to secure any payments by the
Commissioner as provided in Sec. 206.121(c) must be given to the
Commissioner before a Mortgage Insurance Certificate is issued for the
mortgage. If the Commissioner does not require a second mortgage to be
given to the Commissioner prior to the issuance of a Mortgage Insurance
Certificate, the Commissioner may require a second mortgage to be given
to the Commissioner at a later day in order to secure payments by the
Commissioner as provided in Sec. 206.121(c).
Sec. 206.31 Allowable charges and fees.
(a) Fees at closing. The mortgagee may collect, either in cash at
the time of closing or through an initial payment under the mortgage,
the following charges and fees incurred in connection with the
origination, processing, and closing of the mortgage loan:
(1) Loan Origination Fee. Mortgagees may charge a loan origination
fee and may use such fee to pay for services performed by a sponsored
third-party originator. The loan origination fee limit shall be the
greater of $2,500 or two percent of the maximum claim amount of
$200,000, plus one percent of any portion of the maximum claim amount
that is greater than $200,000. Mortgagees may accept a lower
origination fee. Mortgagees may pay fees for services performed by a
sponsored third-party originator and these fees may be included as part
of the loan origination fee. The total amount of the loan origination
fee may not exceed $6,000, except that the Commissioner may through
notice adjust the maximum limit in accordance with the annual
percentage increase in the Consumer Price Index of the Bureau of Labor
Statistics of the Department of Labor in increments of $500 only when
the percentage increase in such index, when applied to the maximum
origination fee, produces dollar increases that exceed $500. The loan
origination fee may be fully financed with the mortgage.
(2) Reasonable and customary amounts. Reasonable and customary
amounts, but not more than the amount actually paid by the mortgagee,
for any of the following items:
(i) Recording fees and recording taxes, or other charges incident
to the recordation of the insured mortgage;
(ii) Credit report;
(iii) Survey, if required by the mortgagee or the borrower;
(iv) Title examination;
(v) Mortgagee's title insurance;
(vi) Fees paid to an appraiser for the initial appraisal of the
property;
(vii) Flood certifications; and
[[Page 7126]]
(viii) Such other charges as may be authorized by the Commissioner.
(b) Repair administration fee. If the property requires repairs
after closing in order to meet FHA requirements, the mortgagee may
collect a fee for each occurrence as compensation for administrative
duties relating to repair work pursuant to Sec. 206.47(c) and (d), not
to exceed the greater of one and one-half percent of the amount
advanced for the repairs or fifty dollars. The mortgagee shall collect
the repair fee by adding it to the outstanding loan balance.
Sec. 206.32 No outstanding unpaid obligations.
In order for a mortgage to be eligible under this part, a borrower
must establish to the satisfaction of the mortgagee that after the
initial payment of loan proceeds under Sec. 206.25(a), there will be
no outstanding or unpaid obligations incurred by the borrower in
connection with the mortgage transaction, except for mortgage servicing
charges permitted under Sec. 206.207(b) and any future Repair Set
Aside established pursuant to Sec. 206.19(f)(1); and the initial
disbursement will not be used for any payment to or on behalf of an
estate planning service firm.
Eligible Borrowers
Sec. 206.33 Age of borrower.
The youngest borrower shall be 62 years of age or older at the time
of loan closing.
Sec. 206.34 Limitation on number of mortgages.
(a) Once a borrower has obtained an insured mortgage under this
part, the borrower is eligible to obtain future insured HECM loan
financing if the existing HECM is satisfied prior to or at the closing
of the new HECM, or the borrower provides legal documentation, in a
manner acceptable to the Commissioner, evidencing release of the
borrower's financial obligation to satisfy the existing HECM.
(b) Current HECM borrowers that plan to sell their existing
residence and use the HECM for Purchase program to obtain a new
principal residence must pay off the existing FHA-insured mortgage
before the HECM for Purchase mortgage can be insured.
Sec. 206.35 Title of property which is security for HECM.
(a) A mortgagor is not required to be a borrower; however, any
borrower is required to be on title to the property which serves as
collateral for the HECM, and is therefore, by definition, also a
mortgagor.
(b) The mortgagor shall hold title to the entire property which is
the security for the mortgage. If there are multiple mortgagors, all
the mortgagors must collectively hold title to the entire property
which is the security for the mortgage. If one or more mortgagors hold
a life estate in the property, for purposes of this section only, the
term ``mortgagor'' shall include each holder of a future interest in
the property (remainder or reversion) who has executed the mortgage.
(c) If Non-Borrowing Spouses and non-borrowing owners of the
property will continue to hold title to the property which serves as
collateral for the HECM, such Non-Borrowing Spouses and non-borrowing
owners must sign the mortgage as mortgagors, evidencing their
commitment of the property as security for the mortgage.
(d) All Non-Borrowing Spouses and non-borrowing owners shall sign a
certification that:
(1) Consents to their spouse or other borrowing owner obtaining the
HECM;
(2) Acknowledges the terms and conditions of the mortgage; and
(3) Acknowledges that the property will serve as collateral for the
HECM as evidenced by mortgage lien(s).
Sec. 206.36 Seasoning requirements for existing non-HECM liens.
(a) The Commissioner may establish, through notice, seasoning
requirements for existing non-HECM liens. Such seasoning requirements
shall not prohibit the payoff of existing non-HECM liens using HECM
proceeds if the liens have been in place for longer than 12 months
prior to the HECM closing or if the liens have resulted in cash to the
borrower in an amount of $500 or less, whether at closing or through
cumulative draws prior to the date of the HECM closing.
(b) Mortgagees must provide documentation satisfactory to the
Commissioner as established by notice that the seasoning requirement
was met.
(c) Home Equity Lines of Credit. The borrower may pay off, at
closing, a Home Equity Line of Credit (HELOC) that does not meet
seasoning requirements from borrower funds, the HECM funds, or a
combination of HECM funds and borrower funds, as long as the draw from
HECM funds does not exceed the percentage approved by the Commissioner
under the authority of Sec. 206.25(a).
Sec. 206.37 Credit standing.
(a) Each borrower shall have a general credit standing satisfactory
to the Commissioner.
(b) Required Financial Assessment--(1) Requirement for Financial
Assessment prior to loan approval. Prior to loan approval, the
mortgagee shall assess the financial capacity of the borrower to comply
with the terms of the mortgage and evaluate whether the HECM is a
sustainable solution for the borrower, in accordance with instructions
established by the Commissioner through notice. The Financial
Assessment shall consider the borrower's credit history, cash flow and
residual income, extenuating circumstances, and compensating factors.
(i) Credit history. In accordance with FHA guidelines in existence
at the time of FHA Case Number assignment, mortgagees shall conduct an
in-depth credit history analysis to determine if the borrower has
demonstrated the willingness to meet his or her financial obligations.
(ii) Cash flow and residual income analysis. In accordance with FHA
guidelines in existence at the time of FHA Case Number assignment,
mortgagees shall conduct a cash flow and residual income analysis to
determine the capacity of the borrower to meet his or her documented
financial obligations with his or her documented income.
(iii) Extenuating circumstances. Where the borrower's credit
history does not meet the criteria set by the mortgagee based on FHA
guidelines in existence at the time of FHA Case Number assignment,
mortgagees shall consider and document, as part of the Financial
Assessment, extenuating circumstances that led to the credit issues.
(iv) Compensating factors. The mortgagee shall document and
identify in the Financial Assessment any considered compensating
factors.
(2) Completion and approval of Financial Assessment. The Financial
Assessment shall be completed and approved by a DE Underwriter
registered in HUD's system of record by the underwriting mortgagee.
(3) Nondiscrimination. (i) The Financial Assessment shall be
conducted in a uniform manner that shall not discriminate because of
race, color, religion, sex, national origin, familial status,
disability, marital status, actual or perceived sexual orientation,
gender identity, source of income of the borrower, location of the
property, or because the applicant has in good faith exercised any
right under the Consumer Credit Protection Act (15 U.S.C. 1601 et
seq.).
(ii) The Financial Assessment shall be conducted in compliance with
all
[[Page 7127]]
applicable laws and regulations, including but not limited to, the
following:
(A) Fair Housing Act (42 U.S.C. 3601 et seq.);
(B) Fair Credit Reporting Act (15 U.S.C. 1681 et seq.);
(C) Equal Credit Opportunity Act (15 U.S.C. 1691 et seq.); and
(D) Regulation B (12 CFR part 1002).
Sec. 206.39 Principal residence.
(a) The property must be the principal residence of each borrower,
and if applicable, Eligible Non-Borrowing Spouse, at closing.
(b) HECM for Purchase. For HECM for Purchase transactions, each
borrower, and if applicable, Eligible Non-Borrowing Spouse, must occupy
the property within 60 days from the date of closing.
Sec. 206.40 Disclosure, verification and certifications.
(a) Disclosure and certification of Social Security and Employer
Identification Numbers--(1) Borrower. The borrower must meet the
requirements for the disclosure and verification of Social Security and
Employer Identification Numbers, as provided by part 200, subpart U, of
this chapter.
(2) Eligible Non-Borrowing Spouse. The Eligible Non-Borrowing
Spouse shall comply with the requirements for disclosure and
verification of Social Security and Employer Identification Numbers by
borrowers in paragraph (a)(1) of this section.
(b) Certifications. Each borrower and each Non-Borrowing Spouse
shall provide all required certifications to HUD and the mortgagee, as
required by the Commissioner.
(c) Designation of alternate individual. At the time of
origination, the mortgagee shall request that the borrower designate an
alternate individual for the purpose of communicating with the
mortgagee if the mortgagee has not been able to reach the borrower. The
designation of the alternate individual is at the discretion of the
borrower. If the mortgagee is unable to make contact or communicate
with the borrower for any reason, including death or incapacitation,
the mortgagee shall communicate with the alternate individual, if one
has been designated by the borrower.
Sec. 206.41 Counseling.
(a) List provided. At the time of the initial contact with the
prospective borrower, the mortgagee shall give the borrower a list of
the names, addresses, and telephone numbers of HECM counselors and
their employing agencies, which have been approved by the Commissioner,
in accordance with subpart E of this part, as qualified and able to
provide the information described in paragraph (b) of this section. The
borrower, any Eligible or Ineligible Non-Borrowing Spouse, and any non-
borrowing owner must receive counseling.
(b) Information to be provided. (1) A HECM counselor must discuss
with the borrower:
(i) The information required by section 255(f) of the NHA;
(ii) Whether the borrower has signed a contract or agreement with
an estate planning service firm that requires, or purports to require,
the borrower to pay a fee on or after closing that may exceed amounts
permitted by the Commissioner or this part;
(iii) If such a contract has been signed under paragraph (b)(1)(ii)
of this section, the extent to which services under the contract may
not be needed or may be available at nominal or no cost from other
sources, including the mortgagee; and
(iv) Any other requirements determined by the Commissioner.
(2) If the HECM borrower has an Eligible Non-Borrowing Spouse, in
addition to meeting the requirements of paragraph (b)(1) of this
section, a HECM counselor shall discuss with the borrower and Eligible
Non-Borrowing Spouse:
(i) The requirement that the Eligible Non-Borrowing Spouse must
obtain ownership of the property or other legal right to remain in the
property for life, upon the death of the last surviving borrower;
(ii) A failure to obtain ownership or other legal right to remain
in the property for life will result in the HECM becoming due and
payable and the Eligible Non-Borrowing Spouse will not receive the
benefit of the Deferral Period;
(iii) The requirement that the property must be the principal
residence of the Eligible Non-Borrowing Spouse prior to and after the
death of the borrowing spouse;
(iv) The requirement that the Eligible Non-Borrowing Spouse
fulfills all obligations of the mortgage, including the payment of
property charges and upkeep of the property; and
(v) Any other requirements determined by the Commissioner.
(3) If the HECM borrower has an Ineligible Non-Borrowing Spouse, in
addition to meeting the requirements of paragraph (b)(1) of this
section, a HECM counselor shall discuss with the borrower and
Ineligible Non-Borrowing Spouse:
(i) The Deferral Period will not be applicable;
(ii) The HECM will become due and payable upon the death of the
last surviving borrower; and
(iii) Any other requirements determined by the Commissioner.
(c) Certificate. The HECM counselor will provide the borrower with
a certificate stating that the borrower, Non-Borrowing Spouse, and non-
borrowing owner, as applicable, has received counseling. The borrower
shall provide the mortgagee with a physical copy of the certificate.
Sec. 206.43 Information to borrower.
(a) Disclosure of costs of obtaining mortgage. The mortgagee shall
ensure that the borrower has received full disclosure of all costs of
obtaining the mortgage. The mortgagee shall ask the borrower about any
costs or other obligations that the borrower has incurred to obtain the
mortgage, as defined by the Commissioner, in addition to providing any
disclosures required by law. The mortgagee shall clearly state to the
borrower which charges are required to obtain the mortgage and which
are not required to obtain the mortgage.
(b) Lump sum disbursement. (1) If the borrower requests that at
least 25 percent of the principal limit amount (after deducting amounts
excluded in the following sentence) be disbursed at closing to the
borrower (or as otherwise permitted by Sec. 206.25), the mortgagee
must make sufficient inquiry at closing to confirm that the borrower
will not use any part of the amount disbursed for payments to or on
behalf of an estate planning service firm, with an explanation of Sec.
206.32 as necessary or appropriate.
(2) This paragraph does not apply to any part of the principal
limit used for the following:
(i) Initial MIP under Sec. 206.105(a) or fees and charges allowed
under Sec. 206.31(a) paid by the mortgagee from mortgage proceeds
instead of by the borrower in cash; and
(ii) Amounts set aside in accordance with Sec. 206.19(f) for
repairs under Sec. 206.47, for property charges under Sec. 206.205,
or for servicing charges under Sec. 206.207(b).
Sec. 206.44 Monetary investment for HECM for Purchase program.
(a) Monetary investment. At closing, HECM for Purchase borrowers
shall provide a monetary investment that will be applied to satisfy the
difference between the principal limit and the sale
[[Page 7128]]
price for the property, plus any HECM loan-related fees that are not
financed into the loan, minus the amount of the earnest deposit.
(b) Funding sources. To satisfy the required monetary investment,
borrowers may use:
(1) Cash on hand;
(2) Cash from the sale or liquidation of the borrower's assets;
(3) HECM mortgage proceeds; or
(4) Other approved funding sources as determined by the
Commissioner through notice.
(c) Interested party contributions. (1) The following interested
party contributions are permissible:
(i) Fees required to be paid by a seller under state or local law;
(ii) Fees customarily paid by a seller in the subject property
locality; and
(iii) The purchase of the Home Warranty policy by the seller.
(2) The Commissioner may define additional permissible interested
party contributions and impose requirements for permissible interested
party contributions through a notice in the Federal Register.
Eligible Properties
Sec. 206.45 Eligible properties.
(a) Title. A mortgage must be on real estate held in fee simple; or
on a leasehold that is under a lease with a duration lasting until the
later of: 99 years, if such lease is renewable; or the actuarial life
expectancy of the mortgagor plus a number of years specified by the
Commissioner, which shall not be more than 99 years. The mortgagee
shall obtain a title insurance policy satisfactory to the Commissioner.
If the Commissioner determines that title insurance for reverse
mortgages is not available for reasonable rates in a state, then the
Commissioner may specify other acceptable forms of title evidence in
lieu of title insurance.
(b) Type of property. The property shall include a dwelling
designed principally as a residence for one family or such additional
families as the Commissioner shall determine. A condominium unit
designed for one-family occupancy shall also be an eligible property.
(c) Borrower and mortgagee requirement for maintaining flood
insurance coverage. (1) During such time as the mortgage is insured,
the borrower and mortgagee shall be obligated, by a special condition
to be included in the mortgage commitment, to obtain and to maintain
National Flood Insurance Program (NFIP) flood insurance coverage on the
property improvements (dwelling and related structures/equipment
essential to the value of the property and subject to flood damage) if
NFIP flood insurance is available with respect to the property
improvements that:
(i) Are located in an area designated by the Federal Emergency
Management Agency (FEMA) as a floodplain area having special flood
hazards; or
(ii) Are otherwise determined by the Commissioner to be subject to
a flood hazard.
(2) No mortgage may be insured that covers property improvements
located in an area that has been identified by FEMA as an area having
special flood hazards, unless the community in which the area is
situated is participating in the NFIP and such insurance is obtained by
the borrower. Such requirement for flood insurance shall be effective
one year after the date of notification by FEMA to the chief executive
officer of a flood prone community that such community has been
identified as having special flood hazards.
(3) The flood insurance must be maintained during such time as the
mortgage is insured in an amount at least equal to the lowest of the
following:
(i) 100 percent replacement cost of the insurable value of the
improvements, which consists of the development or project cost less
estimated land cost; or
(ii) The maximum amount of the NFIP insurance available with
respect to the particular type of the property; or
(iii) The outstanding principal balance of the loan.
(d) Lead-based paint poisoning prevention. If the appraiser of a
dwelling constructed prior to 1978 finds defective paint surfaces, 24
CFR 200.810(d) shall apply unless the borrower certifies that no child
who is less than six years of age resides or is expected to reside in
the dwelling, except that any reference to ``mortgagor'' in 24 CFR
200.810(d) shall mean ``borrower'' for purposes of this paragraph.
(e) Restrictions on conveyance. The property must be freely
marketable. Conveyance of the property may only be restricted as
permitted under 24 CFR 203.41 or 24 CFR 234.66 and this part, except
that a right of first refusal to purchase a unit in a condominium
project is permitted if the right is held by the condominium
association for the project.
(f) Location of property. The mortgaged property shall be located
within the United States, Puerto Rico, Guam, the Virgin Islands, the
Commonwealth of the Northern Mariana Islands, and American Samoa. The
mortgaged property, if otherwise acceptable to the Commissioner, may be
located in any location where the housing standards meet the
requirements of the Commissioner.
(g) HECM for Purchase. (1) A HECM for Purchase transaction is where
title to the property is transferred to the HECM borrower and, at the
time of closing, the HECM first and second liens, if applicable, will
be the only liens against the property.
(2) Properties are eligible for FHA insurance under the HECM for
Purchase program when construction is completed and the property is
habitable, as evidenced by the issuance of a Certificate of Occupancy
or its equivalent, by the local jurisdiction.
Sec. 206.47 Property standards; repair work.
(a) Need for repairs. Properties must meet the applicable property
requirements of the Commissioner in order to be eligible. Properties
that do not meet the property requirements must be repaired in order to
ensure that the repaired property will serve as adequate security for
the insured mortgage.
(b) Assurance that repairs are made. The mortgage may be closed
before the repair work is completed if the Commissioner estimates that
the cost of the remaining repair work will not exceed 15 percent of the
maximum claim amount and the mortgage contains provisions approved by
the Commissioner concerning payment for the repairs.
(c) Reimbursement to contractor. When repair work is completed
after closing by a contractor, the mortgagee shall cause one or more
inspections of the property to be made by an inspector or other
qualified individual acceptable to the Commissioner in order to ensure
that the repair work is satisfactory, and prior to the release of funds
from the Repair Set Aside. The mortgagee shall hold back a portion of
the contract price attributable to the work done before each interim
release of funds, and the total of the hold backs will be released
after the final inspection and approval of the release by the
mortgagee. The mortgagee shall ensure that all mechanics' and
materialmen's liens are released of record.
(d) Reimbursement to borrower. The mortgagee shall not reimburse
the borrower for any labor the borrower performed. The mortgagee may
reimburse the borrower for the actual cost of repair materials from the
Repair Set Aside, provided that the mortgagee causes one or more
inspections of the property by an inspector or other qualified
individual acceptable to the
[[Page 7129]]
Commissioner and meets all reimbursement requirements established by
the Commissioner.
(e) HECM for Purchase. For HECM for Purchase transactions, where
major property deficiencies threaten the health and safety of the
homeowner or jeopardize the soundness and security of the property, all
repairs must be completed by the seller prior to closing. Appraisers
shall complete the appraisal report as ``Subject To'' the completion of
the repairs.
Sec. 206.51 Eligibility of mortgages involving a dwelling unit in a
condominium.
If the mortgage involves a dwelling unit in a condominium, the
project in which the unit is located shall have been committed to a
plan of condominium ownership by deed, or other recorded instrument,
that is acceptable to the Commissioner.
Sec. 206.52 Eligible sale of property-HECM for Purchase.
(a) Sale by owner of record--(1) Owner of record requirement. To be
eligible for a mortgage insured by FHA, the property must be purchased
from the owner of record and the transaction may not involve any sale
or assignment of the sales contract.
(2) Supporting documentation. The mortgagee shall obtain
documentation verifying that the seller is the owner of record and must
submit this documentation to FHA as part of the application for
mortgage insurance, in accordance with Sec. Sec. 206.15 and
206.115(b)(9).
(b) Time restrictions on re-sales--(1) General. The eligibility of
a property for a mortgage insured by FHA is dependent on the time that
has elapsed between the date the seller acquired the property (based
upon the date of settlement) and the date of execution of the sales
contract that will result in the FHA mortgage insurance (the re-sale
date). The mortgagee shall obtain documentation verifying compliance
with the time restrictions described in this paragraph and must submit
this documentation to FHA as part of the application for mortgage
insurance, in accordance with Sec. 206.115(b).
(2) Re-sales occurring 90 days or less following acquisition. If
the re-sale date is 90 days or less following the date of acquisition
by the seller, the property is not eligible for a mortgage to be
insured by FHA.
(3) Re-sales occurring between 91 days and 180 days following
acquisition. (i) If the re-sale date is between 91 days and 180 days
following acquisition by the seller, the property is generally eligible
for a mortgage insured by FHA.
(ii) However, FHA will require that the mortgagee obtain additional
documentation if the re-sale price is 100 percent over the purchase
price. Such documentation must include an appraisal from another
appraiser. The mortgagee may also document its loan file to support the
increased value by establishing that the increased value results from
the rehabilitation of the property.
(iii) FHA may revise the level at which additional documentation is
required under paragraph (b)(3) of this section at 50 to 150 percent
over the original purchase price. FHA will revise this level by Federal
Register notice with a 30 day delayed effective date.
(4) Authority to address property flipping for re-sales occurring
between 91 days and 12 months following acquisition. (i) If the re-sale
date is more than 90 days after the date of acquisition by the seller,
but before the end of the twelfth month after the date of acquisition,
the property is eligible for a mortgage to be insured by FHA.
(ii) However, FHA may require that the mortgagee provide additional
documentation to support the re-sale value of the property if the re-
sale price is 5 percent or greater than the lowest sales price of the
property during the preceding 12 months (as evidenced by the contract
of sale). At FHA's discretion, such documentation must include, but is
not limited to, an appraisal from another appraiser. FHA may exclude
re-sales of less than a specific dollar amount from the additional
value documentation requirements.
(iii) If the additional value documentation supports a value of the
property that is more than 5 percent lower than the value supported by
the first appraisal, the lower value will be used to calculate the
maximum claim amount. Otherwise, the value supported by the first
appraisal will be used to calculate the maximum claim amount.
(iv) FHA will announce its determination to require additional
value documentation through issuance of a Federal Register notice. The
requirement for additional value documentation may be established
either on a nationwide or regional basis. Further, the Federal Register
notice will specify the percentage increase in the re-sale price that
will trigger the need for additional documentation, and will specify
the acceptable types of documentation. The Federal Register notice may
also exclude re-sales of less than a specific dollar amount from the
additional value documentation requirements. Any such Federal Register
notice, and any subsequent revisions, will be issued at least thirty
days before taking effect.
(v) The level at which additional documentation is required under
paragraph (b)(4) of this section shall supersede that under paragraph
(b)(3) of this section.
(5) Re-sales occurring more than 12 months following acquisition.
If the re-sale date is more than 12 months following the date of
acquisition by the seller, the property is eligible for a mortgage
insured by FHA.
(c) Exceptions to the time restrictions on sales. The time
restrictions on sales described in paragraph (b) of this section do not
apply to:
(1) Sales by HUD of Real Estate-Owned (REO) properties under 24 CFR
part 291 and of single family assets in revitalization areas pursuant
to section 204 of the NHA (12 U.S.C. 1710);
(2) Sales by another agency of the United States Government of REO
single family properties pursuant to programs operated by these
agencies;
(3) Sales of properties by nonprofit organizations approved to
purchase HUD REO single family properties at a discount with resale
restrictions;
(4) Sales of properties that were acquired by the sellers by
inheritance;
(5) Sales of properties purchased by an employer or relocation
agency in connection with the relocation of an employee;
(6) Sales of properties by state- and federally-chartered financial
institutions and government-sponsored enterprises (GSEs);
(7) Sales of properties by local and state government agencies; and
(8) Only upon announcement by FHA through issuance of a notice,
sales of properties located in areas designated by the President as
federal disaster areas. The notice will specify how long the exception
will be in effect.
(d) Sanctions and indemnification. Failure of a mortgagee to comply
with the requirements of this section may result in HUD requesting
indemnification of the mortgage loan, or seeking other appropriate
remedies under 24 CFR part 25.
Refinancing of Existing Home Equity Conversion Mortgages
Sec. 206.53 Refinancing a HECM loan.
(a) General. Except as otherwise provided in this section, all
requirements applicable to the insurance of HECMs under this part apply
to the insurance of refinanced HECMs. FHA may, upon application by a
mortgagee, insure any mortgage given
[[Page 7130]]
to refinance an existing HECM insured under this part, including loans
assigned to the Commissioner as described in Sec. 206.107(a)(1) and
Sec. 206.121(b).
(b) Definition of ``total cost of the refinancing''. For purposes
of paragraphs (d) and (e) of this section, the term ``total cost of the
refinancing'' means the sum of the allowable charges and fees permitted
under Sec. 206.31 and the initial MIP described in Sec. 206.105(a)
and paragraph (c) of this section.
(c) Initial MIP limit. (1) The initial MIP paid by the mortgagee
pursuant to Sec. 206.105(a) shall not exceed the difference between:
three percent of the increase in the maximum claim amount for the new
HECM, minus the amount of the initial MIP already charged and paid by
the borrower for the existing HECM that is being refinanced. No refunds
will be given if the initial MIP paid on the existing HECM exceeds the
initial MIP due on the new HECM.
(2) The HECM refinance authority is only applicable when the
property that serves as collateral for the FHA-insured mortgage remains
the same.
(3) Existing HECM borrowers refinancing an existing HECM are
eligible for a MIP reduction under the conditions of this section, but
existing HECM borrowers who participate in a HECM for Purchase
transaction are ineligible for a reduction in the initial MIP.
(d) Anti-churning disclosure--(1) Contents of anti-churning
disclosure. In addition to providing the required disclosures under
Sec. 206.43, the mortgagee shall provide to the borrower its best
estimate of:
(i) The total cost of the refinancing to the borrower; and
(ii) The increase in the borrower's principal limit as measured by
the estimated initial principal limit on the mortgage to be insured
less the current principal limit on the HECM that is being refinanced
under this section.
(2) Timing of anti-churning disclosure. The mortgagee shall provide
the anti-churning disclosure concurrently with the disclosures required
under Sec. 206.43.
(e) Waiver of counseling requirement. The borrower and any Non-
Borrowing Spouse may elect not to receive counseling under Sec.
206.41, but only if:
(1) The original HECM was assigned a Case Number on or after August
4, 2014, and the borrower and Non-Borrowing Spouse, if applicable,
received counseling required under Sec. 206.41; or where the original
HECM was assigned a Case Number prior to August 4, 2014, and there is
no applicable Non-Borrowing Spouse.
(2) The borrower has received the anti-churning disclosure required
under paragraph (d) of this section.
(3) The increase in the borrower's principal limit (as provided in
the anti-churning disclosure) exceeds the total cost of the refinancing
by an amount established by the Commissioner through Federal Register
notice. FHA may periodically update this amount through publication of
a notice in the Federal Register. Publication of any such revised
amount will occur at least 30 days before the revision becomes
effective.
(4) The time between the date of the closing on the original HECM
and the date of the application for refinancing under this section does
not exceed five years (even if less than five years have passed since a
previous refinancing under this section).
Deferral of Due and Payable Status
Sec. 206.55 Deferral of due and payable status for Eligible Non-
Borrowing Spouses.
(a) Deferral Period. If the last surviving borrower predeceases an
Eligible Non-Borrowing Spouse, and if the requirements of paragraph (d)
of this section are satisfied, the due and payable status will be
deferred for as long as the Eligible Non-Borrowing Spouse continues to
meet the Qualifying Attributes in paragraph (c) of this section and the
requirements of paragraphs (d) and (e) of this section.
(b) End of Deferral Period. (1) If a Deferral Period ceases or
becomes unavailable because a Non-Borrowing Spouse no longer satisfies
the Qualifying Attributes and has become an Ineligible Non-Borrowing
Spouse, a mortgagee may not provide an opportunity to cure the default,
and the HECM will become immediately due and payable as a result of the
death of the last surviving borrower.
(2) If a Deferral Period ceases but the Eligible Non-Borrowing
Spouse continues to meet the Qualifying Attributes, the mortgagee must
provide an Eligible Non-Borrowing Spouse with 30 days to cure the
default, in accordance with Sec. 206.57.
(c) Qualifying Attributes. (1) In order to qualify as an Eligible
Non-Borrowing Spouse, the Non-Borrowing Spouse must:
(i) Have been the spouse of a HECM borrower at the time of loan
closing and remained the spouse of such HECM borrower for the duration
of the HECM borrower's lifetime;
(ii) Have been properly disclosed to the mortgagee at origination
and specifically named as an Eligible Non-Borrowing Spouse in the HECM
mortgage and loan documents;
(iii) Have occupied, and continue to occupy, the property securing
the HECM as his or her principal residence; and
(iv) Meet any other requirements as the Commissioner may prescribe
by Federal Register notice for comment.
(2) A Non-Borrowing Spouse who meets the Qualifying Attributes in
paragraph (c)(1) of this section at origination is an Eligible Non-
Borrowing Spouse and may not elect to be ineligible for the Deferral
Period. A Non-Borrowing Spouse that is ineligible for the Deferral
Period at the time of loan origination because he or she failed to
satisfy the Qualifying Attributes requirements in paragraph (c)(1) of
this section is not subsequently eligible for a Deferral Period when
the borrowing spouse dies or moves out of the home.
(3) An Eligible Non-Borrowing Spouse shall become an Ineligible
Non-Borrowing Spouse should any of the Qualifying Attributes
requirements in paragraph (c)(1) of this section cease to be met.
(d) Additional requirements for Deferral Period. An Eligible Non-
Borrowing Spouse must satisfy and continue to satisfy the following
requirements:
(1) Within 90 days from the death of the last surviving HECM
borrower, establish legal ownership or other ongoing legal right to
remain for life in the property securing the HECM;
(2) After the death of the last surviving borrower, ensure all
other obligations of the HECM borrower(s) contained in the loan
documents continue to be satisfied; and
(3) After the death of the last surviving borrower, ensure that the
HECM does not become eligible to be called due and payable for any
other reason.
(e) Unaffected terms of HECM. All applicable terms and conditions
of the mortgage and loan documents, and all FHA requirements, continue
to apply and must be satisfied.
(f) Nothing in this section may be construed as interrupting or
interfering with the ability of the borrower's estate or heir(s) to
dispose of the property if they are otherwise legally entitled to do
so.
Sec. 206.57 Cure provision enabling reinstatement of Deferral
Period.
(a) When the mortgagee is required by Sec. 206.55(b)(2) to provide
an Eligible Non-Borrowing Spouse with 30 days to cure the default, this
section shall apply.
(b) If the default is cured within the 30-day timeframe, the
Deferral Period shall be reinstated, unless:
[[Page 7131]]
(1) The mortgagee has reinstated the Deferral Period within the
past two years immediately preceding the current notification to the
Eligible Non-Borrowing Spouse that the mortgage is due and payable;
(2) The reinstatement of the Deferral Period will preclude
foreclosure if the mortgage becomes due and payable at a later date; or
(3) The reinstatement of the Deferral Period will adversely affect
the priority of the mortgage lien.
(c) If the default is not cured within the 30-day timeframe, the
mortgagee shall proceed in accordance with the established timeframes
to initiate foreclosure and reasonable diligence in prosecuting
foreclosure.
(d) Even after a foreclosure proceeding has been initiated, the
mortgagee shall permit an Eligible Non-Borrowing Spouse to cure the
condition which resulted in the Deferral Period ceasing, consistent
with Sec. 206.55(b)(2), and to reinstate the mortgage and Deferral
Period, and the mortgage insurance shall continue in effect. The
mortgagee may require the Eligible Non-Borrowing Spouse to pay any
costs that the mortgagee incurred to reinstate the mortgage, including
foreclosure costs and reasonable attorney's fees. Such costs may not be
added to the outstanding loan balance and shall be paid from some other
source of funds. The mortgagee shall reinstate the Deferral Period
unless:
(1) The mortgagee has reinstated the Deferral Period within the
past two years immediately preceding the latest notification to the
Eligible Non-Borrowing Spouse that the mortgage is due and payable;
(2) The reinstatement of the Deferral Period will preclude
foreclosure if the mortgage becomes due and payable at a later date; or
(3) The reinstatement of the Deferral Period will adversely affect
the priority of the mortgage lien.
Sec. 206.59 Obligations of mortgagee.
(a) Certifications and disclosures at closing. At closing, the
mortgagee shall obtain the appropriate certification from each borrower
identified as married as well as from each identified Non-Borrowing
Spouse. When a HECM borrower has identified an Ineligible Non-Borrowing
Spouse, the mortgagee shall also disclose the amount of mortgage
proceeds that would have been available under the HECM if he or she
were an Eligible Non-Borrowing Spouse.
(b) Divorce. In the event of a divorce between the HECM borrower
and Eligible Non-Borrowing Spouse, a mortgagee shall obtain a copy of
the final divorce decree and shall not require the now Ineligible Non-
Borrowing Spouse to fulfill any further requirements.
(c) Death of borrower. Within 30 days of being notified of the
death of the borrower, the mortgagee shall:
(1) Obtain all certifications, as required by the Commissioner,
from the Eligible Non-Borrowing Spouse, and continue to obtain the
required certifications no less than annually thereafter for the
duration of the Deferral Period; and
(2) Notify any Eligible Non-Borrowing Spouse that the due and
payable status of the loan is in a Deferral Period only for the amount
of time that such Eligible Non-Borrowing Spouse continues to meet all
requirements established by the Commissioner.
(d) Non-compliance with requirements. If the Eligible Non-Borrowing
Spouse ceases to meet any requirements established by the Commissioner,
the mortgagee shall notify the Eligible Non-Borrowing Spouse within 30
days that the Deferral Period has ended and the HECM is immediately due
and payable, unless the Deferral Period is reinstated in accordance
with Sec. 206.57. The mortgagee shall obtain documentation validating
the reason for the cessation of the Deferral Period and, if applicable,
the reason for reinstatement of the Deferral Period.
Sec. 206.61 HECM proceeds during a Deferral Period.
(a) The HECM is not assumable. HECM proceeds may not be disbursed
to any party during a Deferral Period, except as determined by the
Commissioner through notice.
(b) If a Repair Set Aside was established as a condition of the
HECM, funds may be disbursed from the Repair Set Aside during a
Deferral Period for the sole purpose of paying the cost of those
repairs that were specifically identified prior to origination as
necessary to the insurance of the HECM. Repairs under this paragraph
shall only be paid for using funds from the Repair Set Aside if the
repairs are satisfactorily completed during the time period established
in the Repair Rider or such additional time as provided by the
Commissioner. Unused funds remaining beyond the established time period
shall not be disbursed.
Subpart C--Contract Rights and Obligations
Sale, Assignment and Pledge
Sec. 206.101 Sale, assignment and pledge of insured mortgages.
(a) Sale of interests in insured mortgages. No mortgagee may sell
or otherwise dispose of any mortgage insured under this part, or group
of mortgages insured under this part, or any partial interest in such
mortgage or mortgages by means of any agreement, arrangement or device
except pursuant to this subpart.
(b) Sale of insured mortgage to approved mortgagee. A mortgage
insured under this part may be sold to another approved mortgagee. The
seller shall notify the Commissioner of the sale within 15 calendar
days, on a form prescribed by the Commissioner and acknowledged by the
buyer.
(c) Effect of sale of insured mortgage. When a mortgage insured
under this part is sold to another approved mortgagee, the buyer shall
thereupon succeed to all the rights and become bound by all the
obligations of the seller under the contract of insurance and the
seller shall be released from its obligations under the contract,
provided that the seller shall not be relieved of its obligation to pay
mortgage insurance premiums until the notice required by Sec.
206.101(b) is received by the Commissioner.
(d) Assignments, pledges and transfers by approved mortgagee. (1)
An assignment, pledge, or transfer of a mortgage or group of mortgages
insured under this part, not constituting a final sale, may be made by
an approved mortgagee to another approved mortgagee provided the
following requirements are met:
(i) The assignor, pledgor or transferor shall remain the mortgagee
of record.
(ii) The Commissioner shall have no obligation to recognize or deal
with any party other than the mortgagee of record with respect to the
rights, benefits and obligations of the mortgagee under the contract of
insurance.
(2) An assignment or transfer of an insured mortgage or group of
insured mortgages may be made by an approved mortgagee to other than an
approved mortgagee provided the requirements under paragraphs (d)(1)(i)
and (d)(1)(ii) of this section are met and the following additional
requirements are met:
(i) The assignee or transferee shall be a corporation, trust or
organization (including but not limited to any pension trust or profit-
sharing plan) which certifies to the approved mortgagee that:
[[Page 7132]]
(A) It has assets of $100,000 or more; and
(B) It has lawful authority to hold an insured mortgage or group of
insured mortgages.
(ii) The assignment or transfer shall be made pursuant to an
agreement under which the transferor or assignor is obligated to take
one of the following alternate courses of action within 1 year from the
date of the assignment or within such additional period of time as may
be approved by the Commissioner:
(A) The transferor or assignor shall repurchase and accept a
reassignment of such mortgage or group of mortgages.
(B) The transferor or assignor shall obtain a sale and transfer of
such mortgage or group of mortgages to an approved mortgagee.
(3) Notice to or approval of the Commissioner is not required in
connection with assignments, pledges or transfers pursuant to this
section.
(e) Declaration of trust. A sale of a beneficial interest in a
group of mortgages insured under this part, where the interest to be
acquired is related to all of the mortgages as an entirety, rather than
an interest in a specific mortgage, shall be made only pursuant to a
declaration of trust, which has been approved by the Commissioner prior
to any such sale.
(f) Transfers of partial interests. A partial interest in a
mortgage insured under this part may be transferred under a
participation agreement without obtaining the approval of the
Commissioner, if the following conditions are met:
(1) Principal mortgagee. The insured mortgage shall be held by an
approved mortgagee which, for the purposes of this section, shall be
referred to as the principal mortgagee.
(2) Interest of principal mortgagee. The principal mortgagee shall
retain and hold for its own account a financial interest in the insured
mortgage.
(3) Qualification for holding partial interest. A partial interest
in an insured mortgage shall be issued to and held only by:
(i) A mortgagee approved by the Commissioner; or
(ii) A corporation, trust or organization (including, but not
limited to any pension fund, pension trust, or profit-sharing plan)
which certifies to the principal mortgagee that:
(A) It has assets of $100,000 or more; and
(B) It has lawful authority to acquire a partial interest in an
insured mortgage.
(4) Participation agreement provisions. The participation agreement
shall include provisions that:
(i) The principal mortgagee shall retain title to the mortgage and
remain the mortgagee of record under the contract of mortgage
insurance.
(ii) The Commissioner shall have no obligation to recognize or deal
with anyone other than the principal mortgagee with respect to the
rights, benefits and obligations of the mortgagee under the contract of
insurance.
(iii) The mortgage and loan documents shall remain in the custody
of the principal mortgagee.
(iv) The responsibility for servicing the insured mortgages shall
remain with the principal mortgagee.
Sec. 206.102 Insurance Funds.
Loans endorsed for insurance under this part, prior to October 1,
2008, shall be obligations of the General Insurance Fund. Loans
endorsed for insurance under this part, on or after October 1, 2008,
shall be obligations of the MMIF.
Mortgage Insurance Premiums
Sec. 206.103 Payment of MIP.
(a) The payment of any MIP due under this subpart shall be made to
the Commissioner by the mortgagee in cash until an event described in
paragraph (b) or (c) of this section occurs.
(b) Payment of the mortgage. The MIP shall no longer be remitted if
the mortgage is paid in full.
(c) Acquisition of title. (1) If the mortgagee or a party other
than the mortgagee acquires title at a foreclosure sale, or the
mortgagee acquires title by a deed in lieu of foreclosure, and the
mortgagee notifies the Commissioner that a claim for the payment of the
insurance benefits will not be presented, the MIP shall no longer be
remitted.
(2) If the mortgagee or a party other than the mortgagee acquires
title at a foreclosure sale or the mortgagee acquires title by a deed
in lieu of foreclosure, or where the property is sold in accordance
with Sec. 206.125(c), and a claim for the payment of the insurance
benefits will be presented, the MIP shall no longer be remitted as of
the date of the foreclosure sale, the date the deed in lieu of
foreclosure is recorded, or the date in which the sale in accordance
with Sec. 206.125(c) is completed, as applicable.
Sec. 206.105 Amount of MIP.
(a) Initial MIP. The mortgagee shall pay to the Commissioner an
initial MIP that does not exceed three percent of the maximum claim
amount.
(b) Monthly MIP. The Commissioner may establish and collect a
monthly MIP, which will accrue daily from the closing date, at a rate
not to exceed 1.50 percent of the remaining insured principal balance,
or up to 1.55 percent for any mortgage involving an original principal
obligation that is greater than 95 percent of appraised value of the
property. A mortgagee may only add the monthly MIP to the loan balance
when paid to the Commissioner.
(c) Calculation of the initial MIP. The mortgagee shall calculate
the initial MIP based on the amount of funds the borrower has elected
to be made available during the First 12-Month Disbursement Period,
except that the calculation shall not include any funds set aside in
the Servicing Fee Set Aside, if applicable. The initial MIP calculation
shall be determined based on the sum of the following amounts:
(1) For adjustable interest rate HECMs, the amount of Mandatory
Obligations, the amount disbursed to the borrower at loan closing, and
the amount of the available Initial Disbursement Limit not taken by the
borrower at loan closing that the borrower selects to remain available
during the First 12-Month Disbursement Period.
(2) For fixed interest rate HECMs, the amount of Mandatory
Obligations and the amount disbursed to the borrower at loan closing.
(d) Adjustments to initial or monthly MIP. The Commissioner may
adjust the amount of any initial or monthly MIP through notice. Such
notice shall establish the effective date of any premium adjustment
therein.
Sec. 206.107 Mortgagee election of assignment or shared premium
option.
(a) Election of option. Before the mortgage is submitted for
insurance endorsement, the mortgagee shall elect either the assignment
option or the shared premium option.
(1) Under the assignment option, the mortgagee shall have the
option of assigning the mortgage to the Commissioner if the outstanding
loan balance is equal to or greater than 98 percent of the maximum
claim amount, regardless of the deferral status, or the borrower has
requested a payment which exceeds the difference between the maximum
claim amount and the outstanding loan balance and:
(i) The mortgagee is current in making the required payments under
the mortgage to the borrower;
(ii) The mortgagee is current in its payment of the MIP (and late
charges and interest on the MIP, if any) to the Commissioner;
(iii) The mortgage is not due and payable under Sec. 206.27(c)(1),
or, if due and payable under Sec. 206.27(c)(1), its due and payable
status has been deferred pursuant to a Deferral Period;
[[Page 7133]]
(iv) An event described in Sec. 206.27(c)(2) has not occurred, or
the Commissioner has been so informed but has denied approval for the
mortgage to be due and payable. At the mortgagee's option, the
mortgagee may forgo assignment of the mortgage and file a claim under
any of the circumstances described in Sec. 206.123(a)(3)-(5); and
(v) The mortgage is a first lien of record and title to the
property securing the mortgage is good and marketable. The provisions
of Sec. 206.136 pertaining to mortgagee certifications also apply.
(2) Under the shared premium option, the mortgagee may not assign a
mortgage to the Commissioner unless the mortgagee fails to make
payments and the Commissioner demands assignment (Sec. 206.123(a)(2)),
but the mortgagee shall only be required to remit a reduced monthly MIP
to the Commissioner. The mortgagee shall collect from the borrower the
full amount of the monthly MIP provided in Sec. 206.105(b) but shall
retain a portion of the monthly MIP paid by the borrower as
compensation for the default risk assumed by the mortgagee. The portion
of the MIP to be retained by a mortgagee shall be determined by the
Commissioner as calculated in Sec. 206.109. For a particular mortgage,
the applicable portion shall be determined as of the date of the
commitment. The mortgagee retains the right to file a claim under any
of the circumstances described in Sec. 206.123(a)(2)-(5).
(b) No election for shared appreciation. Shared appreciation
mortgages shall be insured by the Commissioner only under the shared
premium option.
Sec. 206.109 Amount of mortgagee share of premium.
Using the factors provided by the Commissioner, the amount of the
mortgagee share of the premium shall be determined for each mortgage
based upon the age of the youngest borrower or Eligible Non-Borrowing
Spouse and the expected average mortgage interest rate.
Sec. 206.111 Due date of MIP.
(a) Initial MIP. The mortgagee shall pay the initial MIP to the
Commissioner within fifteen days of closing and as a condition to the
endorsement of the mortgage for insurance.
(b) Monthly MIP. Each monthly MIP shall be due to the Commissioner
on the first business day of each month except the month in which the
mortgage is closed.
Sec. 206.113 Late charge and interest.
(a) Late charge. Initial MIP remitted to the Commissioner more than
5 days after the payment date in Sec. 206.111(a) and monthly MIP
remitted to the Commissioner more than 5 days after the payment date in
Sec. 206.111(b) shall include a late charge of four percent of the
amount owed.
(b) Interest. In addition to any late charge provided in paragraph
(a) of this section, the mortgagee shall pay interest on any initial
MIP remitted to the Commissioner more than 20 days after closing, and
interest on any monthly MIP remitted to the Commissioner more than 5
days after the payment date prescribed in Sec. 206.111(b). Such
interest rate shall be paid at a rate set in conformity with the
Treasury Financial Manual.
(c) Paid by mortgagee. Any late charge and interest owed may not be
added to the outstanding loan balance and must be paid by the
mortgagee.
Sec. 206.115 Insurance of mortgage.
(a) Mortgages with firm commitments. For applications for insurance
involving mortgages not eligible to be originated under the Direct
Endorsement program under Sec. 203.5 (any reference to Sec. 203.255
in Sec. 203.5 shall mean Sec. 206.115 for purposes of this section),
the Commissioner will endorse the mortgage for insurance by issuing a
Mortgage Insurance Certificate.
(b) Endorsement with Direct Endorsement processing. For
applications for insurance involving mortgages originated under the
Direct Endorsement program under Sec. 203.5 (any reference to Sec.
203.255 in Sec. 203.5 shall mean Sec. 206.115 for purposes of this
section), the mortgagee shall submit to the Commissioner, within 60
days after the date of closing of the loan or such additional time as
permitted by the Commissioner, properly completed documentation and
certifications as listed in this paragraph (b):
(1) Property appraisal upon a form meeting the requirements of the
Commissioner (including, if required, any additional documentation
supporting the appraised value of the property under Sec. 206.52), and
a HUD conditional commitment, or a Lender's Notice of Value issued by
the Lender Appraisal Processing Program (LAPP) approved lender when the
appraisal was originally completed for use in a VA application, but
only if the appraiser was also on the FHA roster as of the effective
date of the appraisal, and all accompanying documents required by the
Commissioner;
(2) An application for insurance of the mortgage in a form
prescribed by the Commissioner;
(3) A certified copy of the mortgage and loan documents executed
upon forms which meet the requirements of the Commissioner;
(4) An underwriter certification, on a form prescribed by the
Commissioner, stating that the underwriter has personally reviewed the
appraisal report and credit application (including the analysis
performed on the worksheets) and that the proposed mortgage complies
with FHA underwriting requirements, and incorporates each of the
underwriter certification items that apply to the mortgage submitted
for endorsement, as set forth in the applicable handbook or similar
publication that is distributed to all Direct Endorsement mortgagees,
except that if FHA makes the TOTAL Mortgage Scorecard available to HECM
mortgagees by setting out requirements applicable for the use of the
TOTAL Mortgage Scorecard in a Federal Register notice for comment,
mortgagees may follow such procedures and meet such requirements in
lieu of providing the underwriter certification;
(5) Where applicable, a certificate under oath and contract
regarding use of the dwelling for transient or hotel purposes;
(6) Where an individual water or sewer system is being used, an
approval letter from the local health authority indicating approval of
the system in accordance with Sec. 200.926d(f);
(7) A mortgage certification on a form prescribed by the
Commissioner, stating that the authorized representative of the
mortgagee who is making the certification has personally reviewed the
mortgage documents and the application for insurance endorsement, and
certifying that the mortgage complies with the requirements of
paragraph (b) of this section. The certification shall incorporate each
of the mortgagee certification items that apply to the mortgage loan
submitted for endorsement, as set forth in the applicable handbook or
similar publication that is distributed to all Direct Endorsement
mortgagees;
(8) Documents required by Sec. 206.15;
(9) Documentation providing that the seller is the owner of record
in accordance with Sec. 206.52(a) and the time restriction
requirements of Sec. 206.52(b) are met;
(10) For HECM for Purchase transactions, a Certificate of
Occupancy, or its equivalent, if required for new construction; and
(11) Such other documents as the Commissioner may require.
(c) Pre-endorsement review for Direct Endorsement. (1) Upon
submission by an approved mortgagee of the documents required by
paragraph (b) of this section, the Commissioner will
[[Page 7134]]
review the documents and determine that:
(i) The mortgage is executed on a form which meets the requirements
of the Commissioner;
(ii) The mortgage maturity meets the requirements of the applicable
program;
(iii) The stated mortgage amount does not exceed 150 percent of the
maximum claim amount;
(iv) All documents required by paragraph (b) of this section are
submitted;
(v) All necessary certifications are made in accordance with
paragraph (b) of this section;
(vi) There is no mortgage insurance premium, late charge or
interest due to the Commissioner; and
(vii) The mortgage was not in default when submitted for insurance
or, if submitted for insurance more than 60 days after closing, the
mortgagee certifies that the borrower is current in paying all property
charges or is otherwise in compliance with all the terms and conditions
of the mortgage documents.
(2) The Commissioner is authorized to determine if there is any
information indicating that any certification or required document is
false, misleading, or constitutes fraud or misrepresentation on the
part of any party, or that the mortgage fails to meet a statutory or
regulatory requirement. If, following this review, the mortgage is
determined to be eligible, the Commissioner will endorse the mortgage
for insurance by issuance of a Mortgage Insurance Certificate. If the
mortgage is determined to be ineligible, the Commissioner will inform
the mortgagee in writing of this determination, and include the reasons
for the determination and any corrective actions that may be taken.
(d) Submission by mortgagee other than originating mortgagee. If
the originating mortgagee assigns the mortgage to another approved
mortgagee before pre-endorsement review under paragraph (c) of this
section, the assignee may submit the required documents for pre-
endorsement review in the name of the originating mortgagee. All
certifications must be executed by the originating mortgagee (or its
underwriter, if appropriate). The purchasing mortgagee may pay any
required mortgage insurance premium, late charge and interest.
(e) Post-Endorsement review for Direct Endorsement. Following
endorsement for insurance, the Commissioner may review all documents
required by paragraph (b) of this section. If, following this review,
the Commissioner determines that the mortgage does not satisfy the
requirements of the Direct Endorsement program, the Commissioner may
place the mortgagee on Direct Endorsement probation, or terminate the
authority of the mortgagee to participate in the Direct Endorsement
program pursuant to Sec. 206.15, or refer the matter to the Mortgagee
Review Board for action pursuant to part 25 of this title.
(f) Creation of the contract. The mortgage shall be an insured
mortgage from the date of the issuance of a Mortgage Insurance
Certificate, from the date of the endorsement of the credit instrument,
or from the date of FHA's electronic acknowledgement to the mortgagee
that the mortgage is insured, as applicable. The Commissioner and the
mortgagee are thereafter bound by the regulations in this subpart with
the same force and to the same extent as if a separate contract had
been executed relating to the insured mortgage, including the
provisions of the regulations in this subpart and of the National
Housing Act.
Sec. 206.116 Refunds.
No amount of the initial MIP shall be refundable except as
authorized by the Commissioner.
HUD Responsibility to Borrowers
Sec. 206.117 General.
The Commissioner is required by statute to take any action
necessary to provide a borrower with funds to which the borrower is
entitled under the mortgage and which the borrower does not receive
because of the default of the mortgagee. The Commissioner may hold a
second mortgage to secure repayment by the borrower under Sec.
206.27(d). Where the Commissioner does not hold a second mortgage, but
makes a payment to the borrower, and such payment is not reimbursed by
the mortgagee, the Commissioner shall accept assignment of the first
mortgage.
Sec. 206.119 [Reserved]
Sec. 206.121 Commissioner authorized to make payments.
(a) Investigation. The Commissioner will investigate all complaints
by a borrower concerning late payments. If the Commissioner determines
that the mortgagee is unable or unwilling to make all payments required
under the mortgage, including late charges, the Commissioner shall pay
such payments and late charges to the borrower.
(b) Reimbursement or assignment. The Commissioner may demand that
within 30 days from the demand, the mortgagee reimburse the
Commissioner, with interest from the date of payment by the
Commissioner, or assign the insured mortgage to the Commissioner.
Interest shall be paid at a rate set in conformity with the Treasury
Financial Manual. If the mortgagee complies with the reimbursement
demand, then the contract of insurance shall not be affected. If the
mortgagee complies by assigning the mortgage for record within 30 days
of the demand, then the Commissioner shall pay an insurance claim as
provided in Sec. 206.129(e)(3) and assume all responsibilities of the
mortgagee under the first mortgage. If the mortgagee fails to comply
with the demand within 30 days, the contract of insurance will
terminate as provided in Sec. 206.133(c).
(c) Second mortgage. If the contract of insurance is terminated as
provided in Sec. 206.133(c), all payments to the borrower by the
Commissioner will be secured by the second mortgage, unless otherwise
provided by the Commissioner. Payments will be due and payable in the
same manner as under the insured first mortgage. The liability of the
borrower under the first mortgage shall be limited to payments actually
made by the mortgagee to or on behalf of the borrower (including prior
recoupment of the MIP remitted by the mortgagee and billed to the
borrower), and shall exclude accrued interest, whether or not it has
been included in the outstanding loan balance, and shared appreciation,
if any. Interest will stop accruing on the first mortgage when the
Commissioner begins to make payments under the second mortgage. The
first mortgage will not be due and payable until the second mortgage is
due and payable.
Claim Procedure
Sec. 206.123 Claim procedures in general.
(a) Claims. Mortgagees may submit claims for the payment of the
mortgage insurance benefits if:
(1) The conditions of Sec. 206.107(a)(1) pertaining to the
optional assignment of the mortgage by the mortgagee have been met and
the mortgagee assigns the mortgage to the Commissioner;
(2) The mortgagee is unable or unwilling to make the payments under
the mortgage and assigns the mortgage to the Commissioner pursuant to
the Commissioner's demand, as provided in Sec. 206.121(b);
(3) The borrower or other permissible party sells the property for
less than the outstanding loan balance and the mortgagee releases the
mortgage of record to facilitate the sale, as provided in Sec.
206.125(c);
(4) The mortgagee acquires title to the property by foreclosure or
a deed in lieu
[[Page 7135]]
of foreclosure and sells the property as provided in Sec. 206.125(g)
for an amount which does not satisfy the outstanding loan balance or
fails to sell the property as provided in Sec. 206.127(a)(2); or
(5) The mortgagee forecloses and a bidder other than the mortgagee
purchases the property for an amount that is not sufficient to satisfy
the outstanding loan balance, as provided in Sec. 206.125(e).
(b) [Reserved]
Sec. 206.125 Acquisition and sale of the property.
(a) Initial action by the mortgagee. (1) The mortgagee shall notify
the Commissioner within 60 days of the mortgage becoming due and
payable when the conditions stated in the mortgage, as required by
Sec. 206.27(c)(1) have occurred or when the Deferral Period ends. The
mortgagee shall notify the Commissioner within 30 days when one of the
conditions stated in the mortgage, as required by Sec. 206.27(c)(2),
has occurred.
(2) After notifying and receiving approval of the Commissioner when
needed, the mortgagee shall notify the borrower, Eligible Non-Borrowing
Spouse, borrower's estate, and borrower's heir(s), as applicable,
within 30 days of the later of notifying the Commissioner or receiving
approval, if needed, that the mortgage is due and payable. The
mortgagee shall give the applicable party 30 days from the date of
notice to engage in the following actions:
(i) Pay the outstanding loan balance, including any accrued
interest, MIP, and mortgagee advances in full;
(ii) Sell the property for an amount not to be less than the amount
determined by the Commissioner through notice, which shall not exceed
95 percent of the appraised value as determined under Sec. 206.125(b),
with the net proceeds of the sale to be applied towards the outstanding
loan balance. Closing costs shall not exceed the greater of: 11 percent
of the sales price; or a fixed dollar amount as determined by the
Commissioner through Federal Register notice. For the purposes of this
section, sell includes the transfer of title by operation of law;
(iii) Provide the mortgagee with a deed in lieu of foreclosure;
(iv) Correct the condition which resulted in the mortgage coming
due and payable for reasons other than the death of the last surviving
borrower;
(v) For an Eligible Non-Borrowing Spouse, correct the condition
which resulted in an end to the Deferral Period in accordance with
Sec. 206.57; or
(vi) Such other actions as permitted by the Commissioner through
notice.
(3) For a borrower, even after a foreclosure proceeding is begun,
the mortgagee shall permit the borrower to correct the condition which
resulted in the mortgage coming due and payable and to reinstate the
mortgage, and the mortgage insurance shall continue in effect. The
mortgagee may require the borrower to pay any costs that the mortgagee
incurred to reinstate the borrower, including foreclosure costs and
reasonable attorney's fees. Such costs shall be paid by adding them to
the outstanding loan balance. The mortgagee may refuse reinstatement by
the borrower if:
(i) The mortgagee has accepted reinstatement of the mortgage within
the past two years immediately preceding the current notification to
the borrower that the mortgage is due and payable;
(ii) Reinstatement will preclude foreclosure if the mortgage
becomes due and payable at a later date; or
(iii) Reinstatement will adversely affect the priority of the
mortgage lien.
(4) For an Eligible Non-Borrowing Spouse, even after a foreclosure
proceeding is begun, the mortgagee shall permit the Eligible Non-
Borrowing Spouse to cure the condition which resulted in the Deferral
Period ceasing, in accordance with Sec. 206.57(d).
(b) Appraisal. The mortgagee shall have the property appraised by
an appraiser on the FHA roster, or other appraiser acceptable to, and
identified by, the Commissioner through Federal Register notice, no
later than 30 days after receipt of the request by an applicable party
in connection with a potential property sale. The property shall be
appraised before a foreclosure sale and have an effective appraisal
date that is no more than 30 days before such sale. The appraisal shall
be at the requesting party's expense unless the mortgage is due and
payable. If the mortgage is due and payable, the appraisal shall be at
the mortgagee's expense but the mortgagee shall have a right to be
reimbursed out of the proceeds of any sale by the borrower or other
permissible party. The Commissioner may, through Federal Register
notice, identify other acceptable types of valuation for establishing
the value of HECMs for the purpose of sale.
(c) Sale by borrower or other permissible party. Where the HECM is
not due and payable, the borrower or an authorized representative of
the borrower may sell the property for at least the lesser of the
outstanding loan balance or the appraised value. Where the HECM is due
and payable at the time the contract for sale is executed, the borrower
or other party with legal right to dispose of the property may sell the
property in accordance with the amount established by Sec.
206.125(a)(2)(ii). The mortgagee shall satisfy the mortgage of record
(and the Commissioner will satisfy any second mortgage required by the
Commissioner under Sec. 206.27(d) of record) in order to facilitate
the sale, provided that there are no junior liens (except the mortgage
to secure payments by the Commissioner if required under Sec.
206.27(d)) and all the net proceeds from the sale are paid to the
mortgagee.
(d) Initiation of foreclosure. (1) The mortgagee shall commence
foreclosure of the mortgage within six months of the due date defined
in Sec. 206.129(d)(1), or within such additional time as may be
approved by the Commissioner.
(2) If the laws of the State, city, or municipality or other
political subdivision in which the mortgaged property is located or if
Federal bankruptcy law does not permit the commencement of the
foreclosure in accordance with Sec. 206.125(d)(1), the mortgagee shall
commence foreclosure within six months after the expiration of the time
during which such foreclosure is prohibited by such laws.
(3) The mortgagee shall give written notice to the Commissioner
within 30 days after the initiation of foreclosure proceedings, and
shall exercise reasonable diligence in prosecuting the foreclosure
proceedings to completion and in acquiring title to and possession of
the property. A time frame that is determined by the Commissioner to
constitute ``reasonable diligence'' for each State is made available to
mortgagees.
(4) The mortgagee shall bid at the foreclosure sale an amount at
least equal to the lesser of the sum of the outstanding loan balance
and any and all other incurred expenses, or the current appraised value
of the property. Such a bid by any party other than the mortgagee, for
the full loan balance and all associated expenses, will result in a
full payoff of the loan and no claim for insurance benefits being
presented to FHA.
(e) Other bidders at foreclosure sale. If a party other than the
mortgagee is the successful bidder at the foreclosure sale, the net
proceeds of the sale shall be applied to the outstanding loan balance.
(f) Deed in lieu of foreclosure. (1)(i) In order to avoid delays
and additional expense as a result of instituting and completing a
foreclosure action, the mortgagee shall accept a deed in lieu of
foreclosure from the borrower or other party with legal right to
dispose of the
[[Page 7136]]
property provided it is filed for recording within 9 months of the due
date and the mortgagee is able to obtain good and marketable title.
(ii) Cash for Keys. The Commissioner may provide a financial
incentive, in an amount to be determined by the Commissioner, to be
paid by the mortgagee and reimbursed through any subsequent claim where
a borrower or other party with a legal right to do so deeds the
property within 6 months of the due date.
(2) In exchange for the executed and delivered deed, the mortgagee
shall cancel the credit instrument and deliver it to the borrower and
satisfy the mortgage of record. If applicable, the mortgagee shall
request that the Commissioner cancel the credit instrument and deliver
it to the borrower and satisfy the mortgage of record.
(g) Sale of the acquired property. (1) Upon acquisition of the
property by foreclosure or deed in lieu of foreclosure, the mortgagee
shall take possession of, preserve, and repair the property and shall
make diligent efforts to sell the property within six months from the
date the mortgagee acquired the property, or such additional time as
provided by the Commissioner. The mortgagee shall sell the property for
an amount not less than the appraised value (as provided under
paragraph (b) of this section) unless the mortgagee does not file an
application for insurance benefits or written permission is obtained
from the Commissioner authorizing a sale at a lower price.
(2) Repairs shall not exceed those required by local law, or the
requirements of the Commissioner or the Secretary of Veterans Affairs
if the sale of the property is financed with a mortgage insured by the
Commissioner or guaranteed, insured, or taken by the Secretary of
Veterans Affairs. No other repairs shall be made without the specific
advance approval of the Commissioner.
(3) The mortgagee shall not enter into a contract for the
preservation, repair, or sale of the property with any officer,
employee, or owner of ten percent or more interest in the mortgagee or
with any other person or organization having an identity of interest
with the mortgagee or with any relative of such officer, employee,
owner, or person.
(4) The Commissioner may provide financial incentive, in an amount
to be determined by the Commissioner, to be paid by the mortgagee and
reimbursed through a subsequent claim when a bona fide tenant vacates
the property prior to an eviction being initiated by the mortgagee.
Sec. 206.127 Application for insurance benefits.
(a) Mortgagee acquires title. (1) The mortgagee shall apply for the
payment of the insurance benefits within 30 days after the sale of the
property by the mortgagee or within such additional time as approved by
the Commissioner. Application shall be made by notifying the
Commissioner of the sale of the property, the sale price, and income
and expenses incurred in connection with the acquisition, repair, and
sale of the property.
(2) If the property will not be sold within six months from the
foreclosure sale date where the mortgagee is the successful bidder, the
mortgagee shall apply for the insurance benefit not later than 30 days
after the end of the six-month period, substituting the appraised
value, using a valid appraisal, for the sale price. The mortgagee may
add the cost of the appraisal to the claim amount.
(b) Party other than the mortgagee acquires title. The mortgagee
shall apply for the payment of the insurance benefits within 30 days
after a party other than the mortgagee acquires title to the property.
Application shall be made by notifying the Commissioner of the sale of
the property and the sale price. Transferring a portfolio that includes
REO properties to another entity does not constitute a ``sale'' under
this section.
(c) Mortgagee assigns the mortgage. The mortgagee shall file its
claim for the payment of insurance benefits within 15 days after the
date the assignment of the mortgage to the Commissioner is filed for
recording. The application for the payment of the insurance benefits
shall include the items listed in Sec. 206.135(a) and the
certification required under Sec. 206.136.
(d) Contract of insurance not terminated. Mortgagees may only file
an application for insurance benefits provided the contract of
insurance has not terminated.
Sec. 206.129 Payment of claim.
(a) General. If the claim for the payment of the insurance benefits
is acceptable to the Commissioner, payment shall be made in cash in the
amount determined under this section.
(b) Limit on claim amount. (1) For HECMs assigned Case Numbers
prior to September 19, 2017, in no case may the claim paid under this
subpart exceed the maximum claim amount. The interest allowance
provided in paragraphs (d)(3)(x), (e)(2), and (f)(2)(i) of this section
shall not be included in determining the limit on the claim amount.
(2) For HECMs assigned Case Numbers on or after September 19, 2017,
in no case may the claim paid under this subpart exceed the maximum
claim amount, as defined in Sec. 206.3. The interest allowance
provided in paragraphs (d)(3)(x), (e)(2) and (f)(2)(ii) of this section
shall be made in cash in the amount determined under this section and
shall be included in determining the limit on the claim amount.
(c) Shared appreciation mortgages. The terms loan balance and
accrued interest as used in this section do not include interest
attributable to the mortgagee's share of the appreciated value of the
property.
(d) Amount of payment--mortgagee acquires title or is unsuccessful
bidder. This paragraph describes the amount of payment if the mortgagee
acquires title by purchase, foreclosure, or deed in lieu of
foreclosure, or when a party other than the mortgagee is the successful
bidder at the foreclosure sale.
(1) Due and payable date means the date when the mortgagee notifies
or should have notified the Commissioner that the mortgage is due and
payable under the conditions stated in the mortgage, as required by
Sec. 206.27(c)(1) or the date that the Deferral Period, as provided
for in the mortgage by Sec. 206.27(c)(3), ends; or the date the
Commissioner approved a due and payable request as provided for in the
mortgage by Sec. 206.27(c)(2).
(2) The amount of the claim shall be computed by:
(i) Totaling the outstanding loan balance and any accrued interest
and servicing fees which have not been added to the outstanding loan
balance as of the due and payable date, and allowances for items set
forth in paragraph (d)(3) of this section; and
(ii) Subtracting from that total the amount for which the property
was sold (or the appraised value determined under Sec. 206.127(a)(2))
and the items set forth in paragraph (d)(4) of this section.
(3) The claim shall include items listed in paragraphs (d)(3)(i)
through (xiv) of this section. For HECMs with Case Numbers assigned on
or after September 19, 2017, the inclusion of items listed in
paragraphs (d)(3)(i), (ii), and (iii) of this section shall be limited
to two-thirds of advances made by the mortgagee on such expenses.
(i) Taxes, ground rents, water rates, and utility charges that are
liens prior to the mortgage;
(ii) Special assessments, which are noted on the application for
insurance or which become liens after the insurance of the mortgage;
[[Page 7137]]
(iii) Hazard and flood insurance premiums on the mortgaged property
not in excess of a reasonable rate;
(A) For purposes of this section, reasonable rate means a rate that
is not in excess of the rate or advisory rate set by the principal
State-licensed rating organization for essential property insurance in
the voluntary market, or if coverage is available under a FAIR Plan,
the FAIR Plan rate;
(B) If a State has neither a FAIR Plan nor a State-licensed rating
organization for essential property insurance in the voluntary market,
the mortgagee must provide to the Home Ownership Center (HOC) having
jurisdiction, information concerning the lowest rates available from an
insurer for the types of coverage involved, with a request for a
determination of whether the rate is reasonable. FHA will determine the
rate to be reasonable if it approximates the rate assessed for
comparable insurance coverage applicable to similarly situated
properties in a State that offers a FAIR Plan or maintains a State-
licensed rating organization;
(iv) Taxes imposed upon any deeds or other instruments by which
said property was acquired by the mortgagee pursuant to Sec. 206.125;
(v) Reasonable payments made by the mortgagee, with the approval of
the Commissioner, for the purpose of protecting, operating, or
preserving the property, or removing debris from the property;
(vi) Reasonable costs for performing property inspections required
by Sec. 206.140 and to determine if the property is vacant or
abandoned are considered to be costs of protecting, operating or
preserving the property;
(vii) Charges for the administration, operation, maintenance, or
repair of community-owned property or the maintenance or repair of the
mortgaged property, paid by the mortgagee for the purpose of
discharging an obligation arising out of a covenant filed for record
prior to the issuance of the mortgage; and charges for the repair or
maintenance of the mortgaged property required by, and in an amount
approved by, the Commissioner under Sec. 206.142;
(viii) Reasonable costs of the title search ordered by the
mortgagee, in accordance with procedures prescribed by FHA, to
determine if the criteria for approval of the mortgagee's acceptance of
a deed in lieu of foreclosure or to determine clear title to complete a
pre-foreclosure sale;
(ix) Foreclosure costs or costs of acquiring the property in
accordance with such conditions as the Commissioner shall prescribe;
(x) An amount equal to the interest allowance which would have been
earned, from the due and payable date to the date when payment of the
claim is made, if the claim had been paid in debentures, except that
when the mortgagee fails to meet any one of the applicable requirements
of Sec. Sec. 206.125 and 206.127 of this subpart within the specified
time, and in a manner satisfactory to the Commissioner (or within such
further time as the Commissioner may approve in writing), the interest
allowance in such cash payment shall be computed only to the date on
which the particular required action should have been taken or to which
it was extended.
(A) Debenture interest rate. The debenture interest rate provided
for in Sec. 206.146 shall be used.
(B) Maturity of debentures. Debentures shall mature 20 years from
the date of issue.
(C) Registration of debentures. Debentures shall be registered as
to principal and interest.
(D) Form and amounts of debentures. Debentures issued under this
part shall be in such form and amounts; and shall be subject to such
terms and conditions; and shall include such provisions for redemption,
if any, as may be prescribed by the Commissioner, with the approval of
the Secretary of the Treasury; and may be in book entry or certificated
registered form, or such other form as the Commissioner by regulation
may prescribe.
(E) Redemption of debentures. Debentures shall, at the option of
the Commissioner and with the approval of the Secretary of the
Treasury, be redeemable at par plus accrued interest on any semiannual
interest payment date on three months' notice of redemption given in
such manner as the Commissioner shall prescribe. The debenture interest
on the debentures called for redemption shall cease on the semiannual
interest payment date designated in the call notice. The Commissioner
may include with the notice of redemption an offer to purchase the
debentures at par plus accrued interest at any time during the period
between the notice of redemption and the redemption date. If the
debentures are purchased by the Commissioner after such call and prior
to the named redemption date, the debenture interest shall cease on the
date of purchase.
(F) Issue date of debentures. The issue date of debentures is
determined by the due and payable date as defined in paragraph (d)(1)
of this section.
(G) Cash adjustment. Any difference of less than $50 between the
amount of debentures to be issued to the mortgagee and the total amount
of the mortgagee's claim, as approved by the Commissioner, may be
adjusted by the issuance of a check in payment thereof;
(xi) Any amount of incentive paid by the mortgagee in accordance
with Sec. 206.125(f)(1)(ii) or Sec. 206.125(g)(4);
(xii) Costs of any appraisal under Sec. Sec. 206.125 or 206.127,
provided that the property was appraised after the mortgage became due
and payable and that the mortgagee is not otherwise reimbursed for such
costs;
(xiii) Reasonable payments made by the mortgagee for:
(A) Preservation and maintenance of the property;
(B) Repairs necessary to meet the objectives of the property
standards required for mortgages insured by the Commissioner, those
required by local law, and such additional repairs as may be
specifically approved in advance by the Commissioner; and
(C) Expenses in connection with the sale of the property including
a sales commission at the rate customarily paid in the community and,
if the sale to the buyer involves a mortgage insured by the
Commissioner or guaranteed by the Secretary of Veterans Affairs, a
discount at a rate not to exceed the maximum allowable by the
Commissioner, as of the date of execution of the discounted loan.
Closing costs shall not exceed the greater of: 11 percent of the sales
price; or a fixed dollar amount as determined by the Commissioner
through Federal Register notice; and
(xiv) A certification that the property is undamaged in accordance
with Sec. 206.143.
(4) There shall be deducted from the amount computed in paragraph
(d)(2)(i) of this section:
(i) The items listed in Sec. 206.145; and
(ii) Any adjustment for damage or neglect to the property pursuant
to Sec. Sec. 206.140, 206.141, and 206.142.
(e) Amount of payment--assigned mortgages. This paragraph describes
the amount of payment if the mortgagee assigns a mortgage to the
Commissioner under Sec. 206.107(a)(1) or Sec. 206.121(b).
(1) When a mortgagee assigns a mortgage which is eligible for
assignment under Sec. 206.107(a)(1), the amount of payment shall be
computed by subtracting from the outstanding loan balance on the date
of assignment all cash retained by the mortgagee, including amounts
held or deposited for the account of the borrower or to which it is
entitled under the mortgage transaction that have not been applied in
reduction of the principal mortgage indebtedness, and any adjustments
for damage or neglect to the property
[[Page 7138]]
pursuant to Sec. Sec. 206.140, 206.141 and 206.142.
(2) The claim shall also include:
(i) Reimbursement for such costs and attorney's fees as the
Commissioner finds were properly incurred in connection with the
assignment of the mortgage to the Commissioner; and
(ii) An amount equivalent to the interest allowance which will have
been earned from the date the mortgage was assigned to the Commissioner
to the date the claim is paid, if the claim had been paid in
debentures, except that if the mortgagee fails to meet any of the
requirements of Sec. 206.127(c), or Sec. 206.131 if applicable,
within the specified time and in a manner satisfactory to the
Commissioner (or within such further time as the Commissioner may
approve in writing), the interest allowance in the payment of the claim
shall be computed only to the date on which the particular required
action should have been taken or to which it was extended. The
provisions of paragraphs (d)(3)(x)(A)-(G) of this section pertaining to
debentures are applicable except that the issue date of the debentures
shall be the date the mortgage was assigned to the Commissioner.
(3) When a mortgagee assigns a mortgage under Sec. 206.121(b)
after demand by the Commissioner, the mortgagee will not receive the
entire claim payment as contained in paragraphs (e)(1) and (2) of this
section. The amount of the claim shall be computed by totaling the
payments made by the mortgagee to the borrower or for the benefit of
the borrower, and subtracting from the total the cash retained by the
mortgagee, including amounts held or deposited for the account of the
borrower or to which it is entitled under the mortgage transaction that
have not been applied in reduction of the principal mortgage
indebtedness, and any adjustments for damage or neglect to the property
pursuant to Sec. Sec. 206.141 and 206.142. The claim shall also be
reduced by an amount determined by the Commissioner to reimburse the
Commissioner for administrative expenses incurred in assuming the
mortgagee's responsibility under the mortgage, which may include
expenses for staff time. If more than one mortgage is assigned to the
Commissioner, the administrative expenses incurred for all the
mortgages assigned shall be allocated among the mortgages as determined
by the Commissioner. The claim shall not include accrued interest
whether or not it has been included in the loan balance.
(f) Amount of payment-borrower sells the property. This paragraph
describes the amount of payment if the property is sold in accordance
with Sec. 206.125(c) to one other than the mortgagee for less than the
outstanding loan balance, and the mortgagee releases the mortgage to
facilitate the sale.
(1)(i) For HECMs assigned Case Numbers prior to September 19, 2017,
the amount of the claim shall be computed by totaling the outstanding
loan balance and any accrued interest and servicing fees which have not
been added to the outstanding loan balance on the date the deed is
recorded, and an allowance for items set forth in paragraphs
(d)(3)(i)--(vii) and (d)(3)(xii) of this section, and subtracting from
the total the amount for which the property was sold.
(ii) For HECMs assigned Case Numbers on or after September 19,
2017, the following provisions apply:
(A) When the loan is not in due and payable status. The amount of
the claim shall be computed by totaling the outstanding loan balance
and any accrued interest and servicing fees which have not been added
to the outstanding loan balance on the date the deed is recorded, and
an allowance for items set forth in paragraph (d)(3)(xiii)(C) of this
section, and subtracting from the total the amount for which the
property was sold.
(B) When the loan is in due and payable status. The amount of the
claim shall be computed by totaling the outstanding loan balance and
any accrued interest and servicing fees which have not been added to
the outstanding loan balance as of the due date, the items set forth in
paragraph (d)(3) of this section, and subtracting from the total the
amount for which the property was sold.
(2)(i) For HECMs assigned Case Numbers prior to September 19, 2017,
the claim shall also include an amount equivalent to the interest
allowance which would have been earned from the date the deed is
recorded to the date when payment of the claim is made, if the claim
had been paid in debentures, and in a manner satisfactory to the
Commissioner; the interest allowance in such cash payment shall be
computed only to the date on which the particular action should have
been taken or to which it was extended. The provisions of paragraphs
(d)(3)(x)(A)-(G) of this section pertaining to debentures apply except
that the issue date of the debentures is the date the deed is recorded
instead of the due date.
(ii) For HECMs assigned Case Numbers on or after September 19,
2017, the following provisions apply:
(A) When the loan is not in due and payable status. The claim shall
also include an amount equivalent to the interest allowance which would
have been earned from the date the deed is recorded to the date when
payment of the claim is made, if the claim had been paid in debentures,
and in a manner satisfactory to the Commissioner; the interest
allowance in such cash payment shall be computed only to the date on
which the particular action should have been taken or to which it was
extended. The provisions of paragraphs (d)(3)(x)(A)-(G) of this section
pertaining to debentures apply except that the issue date of the
debentures shall be the date the deed is recorded.
(B) When the loan is in due and payable status. The claim shall
also include an amount equivalent to the interest allowance which would
have been earned from the due and payable date to the date when payment
of the claim is made, if the claim had been paid in debentures, except
that when the mortgagee fails to meet any of the applicable
requirements of Sec. Sec. 206.125 and 206.127 within the specified
time determined by the due and payable date, as defined in paragraph
(d)(1) of this section (or within such further time as the Commissioner
may approve in writing), and in a manner satisfactory to the
Commissioner; the interest allowance in such cash payment shall be
computed only to the date on which the particular action should have
been taken or to which it was extended. The provisions of paragraphs
(d)(3)(x)(A)-(G) of this section pertaining to debentures apply.
Condominiums
Sec. 206.131 Contract rights and obligations for mortgages on
individual dwelling units in a condominium.
(a) Additional requirements. The requirements of this subpart shall
be applicable to mortgages on individual dwelling units in a
condominium, except as modified by this section.
(b) References. The term property as used in this subpart shall be
construed to include the individual dwelling unit and the undivided
interest in the common areas and facilities as may be designated.
(c) Assignment of the mortgage. If the mortgagee assigns the
mortgage on the individual dwelling unit to the Commissioner, the
mortgagee shall certify:
(1) To any changes in the plan of apartment ownership including the
administration of the property;
(2) That as of the date the assignment is filed for record, the
family unit is
[[Page 7139]]
assessed and subject to assessment for taxes pertaining only to that
unit; and
(3) To the condition of the property as of the date the assignment
is filed for record. Section 234.275 of this chapter concerning the
certification of condition is incorporated by reference.
(d) Condition of the multifamily structure. The provisions of Sec.
234.270 (a) and (b) of this chapter concerning the condition of the
multifamily structure in which the property is located shall be
applicable to mortgages insured under this part which are assigned to
the Commissioner.
Termination of Insurance Contract
Sec. 206.133 Termination of insurance contract.
(a) Payment of the mortgage. The contract of insurance shall be
terminated if the mortgage is paid in full.
(b) Acquisition of title. (1) If the mortgagee or a party other
than the mortgagee acquires title at a foreclosure sale, or the
mortgagee acquires title by a deed in lieu of foreclosure, and the
mortgagee notifies the Commissioner that a claim for the payment of the
insurance benefits will not be presented, the contract of insurance
shall be terminated.
(2) For HECMs with Case Numbers assigned on or after September 19,
2017, if the mortgagee or a party other than the mortgagee acquires
title at a foreclosure sale or the mortgagee acquires title by a deed
in lieu of foreclosure and a claim for the payment of the insurance
benefits will be presented, the contract of insurance shall be
terminated as of claim payment.
(c) Mortgagee fails to make payments. If the mortgagee fails to
make the payments to the borrower as required under the mortgage, and
does not reimburse the Commissioner or assign the mortgage to the
Commissioner within 30 days from the demand by the Commissioner for
reimbursement or assignment, the contract of insurance shall
automatically terminate. The Commissioner may later reinstate the
contract of insurance, which shall continue in force as if no
termination had occurred, upon reimbursement with interest as provided
in Sec. 206.121. Upon reinstatement, the mortgagee shall be liable for
all MIP which would have been due if no termination had occurred,
including late charge and interest as provided in Sec. 206.113.
(d) Notice of termination. The mortgagee shall give written notice
to the Commissioner, or other notice acceptable to the Commissioner,
within 15 days of the occurrence of an event under paragraphs (a) and
(b) of this section. No contract of insurance shall be terminated under
paragraphs (a) or (b) of this section unless such notice is given.
(e) Voluntary termination. The mortgagor and the mortgagee may
jointly request the Commissioner to approve the voluntary termination
of the mortgage insurance contract. Prior to approval, the Commissioner
shall make certain that the borrower is aware of the consequences which
could arise out of the voluntary termination of the contract of
insurance. The mortgagee shall cancel the insurance endorsement on the
Mortgage Insurance Certificate or Note upon receipt of notice from the
Commissioner that the contract of insurance is terminated.
Notwithstanding any provision in a mortgage instrument, there shall be
no voluntary termination charge due the Commissioner on account of the
voluntary termination of any mortgage insurance contract where the
request for termination is received by the Commissioner.
(f) Effect of termination. When the insurance contract is
terminated, all rights of the mortgagee shall terminate, including the
right to file a claim for insurance benefits. All obligations of the
Commissioner shall also cease immediately.
Additional Requirements
Sec. 206.134 Partial release, addition or substitution of security.
(a) A mortgagee shall not release the security or any part thereof,
while the mortgage is insured, without the prior consent of the
Commissioner.
(b) A mortgagee may, with the prior consent of the Commissioner,
accept an addition to, or substitution of, security for the purpose of
removing the dwelling to a new lot or replacing the dwelling with a
similar or like kind on the existing lot under the following
conditions:
(1) The mortgagee obtains a good and valid first lien on the
property to which the dwelling is removed or the existing lot upon
which the dwelling is rebuilt;
(2) All damages to the structure are repaired or all rebuilding of
the structure is completed without cost to FHA; and
(3) The property to which the dwelling is removed or rebuilt is in
an area known to be reasonably free from natural hazards or, if in a
flood zone, the borrower will insure or reinsure under the National
Flood Insurance Program.
(c) A mortgagee may, without the prior consent of the Commissioner,
accept an addition to, or substitution of, security for the purpose of
removing the dwelling to a new lot under the following conditions:
(1) The dwelling has survived an earthquake or other disaster with
little damage, but continued location on the property might be
hazardous;
(2) The conditions stated in paragraph (b) of this section exist;
and
(3) Immediately following the emergency removal the mortgagee
notifies the Commissioner of the reasons for removal.
Sec. 206.135 Application for insurance benefits and fiscal data.
(a) On the date the application for assignment is filed, the
mortgagee shall submit to the Commissioner:
(1) Credit and security instrument. The original credit and
security instruments assigned without recourse or warranty, except that
no act or omission of the mortgagee shall have impaired the validity
and priority of the mortgage.
(2) Proposed assignment instrument. A copy of the proposed
assignment of mortgage.
(3) Hazard and flood insurance. All hazard and flood insurance (if
applicable) policies held in connection with the mortgaged property,
together with a copy of the mortgagee's notification to the carrier
authorizing the amendment of the loss payable clause substituting the
Commissioner as the mortgagee.
(4) Rights and interests. An assignment of all rights and interests
arising under the mortgage, and all claims of the mortgagee against the
borrower or others arising out of the mortgage transaction.
(5) Property. All property of the borrower held by the mortgagee or
to which it is entitled (other than the cash items which are to be
retained by the mortgagee).
(6) Records and accounts. All records, ledger cards, documents,
books, papers and accounts relating to the mortgage transaction.
(7) Additional information. Any additional information or data
which the Commissioner may require.
(8) Title evidence. All title evidence held by the mortgagee. It
need not be extended to include the recordation of the assignment. The
title insurance policy shall be endorsed from the mortgage insurance
company up to the point of assignment. At the point of assignment, the
Commissioner shall be named insured under such policy.
(b) All documents required in paragraph (a) of this section must be
submitted and approved before a claim for assignment may be submitted.
[[Page 7140]]
(c) Recorded assignment instrument. The original of the recorded
assignment of mortgage shall be forwarded to the Commissioner as soon
as received by the mortgagee, but in no case shall it be longer than 12
months after recordation. If the original of the assignment is not
available, a copy shall be furnished and the original forwarded as soon
as possible.
Sec. 206.136 Conditions for assignment.
(a) In order for a HECM to be eligible for assignment, the
following must be met:
(1) Priority of mortgage to liens. The mortgage is prior to all
mechanics' and materialmen's liens, regardless of when such liens
attach, and prior to all liens and encumbrances, or defects which may
arise based on any act or omission by the mortgagee except such liens
or other matters as may have been approved by the Commissioner.
(2) Amount due. The amount stated in the instrument of assignment
is actually due and owing under the mortgage.
(3) Offsets or counterclaims. There are no offsets or counterclaims
thereto and the mortgagee has a good right to assign.
(b) The mortgagee shall certify that the conditions of paragraph
(a) have been met.
Sec. 206.137 Effect of noncompliance with regulations.
If, for any reason, the mortgagee fails to comply with the
regulations in this subpart, the Commissioner may hold processing of
the application for insurance benefits in abeyance for a reasonable
time in order to permit the mortgagee to comply. In the alternative to
holding processing in abeyance, the Commissioner may reconvey title to
the property or reassign the mortgage to the mortgagee, in which event
the application for insurance benefits shall be considered as cancelled
and the mortgagee shall refund the insurance benefits to the
Commissioner as well as other funds required by Sec. 206.138. The
mortgagee may reapply for insurance benefits at a subsequent date;
provided, however, that the mortgagee may not be reimbursed for any
expenses incurred in connection with the property after it has been
reconveyed or the mortgage reassigned by the Commissioner, or paid any
debenture interest accrued after the date of initial conveyance,
whichever is earlier, and there will be deducted from the insurance
benefits any reduction in the Commissioner's estimate of the value of
the property occurring from the time of reconveyance or mortgage
reassignment to the time of reapplication.
Sec. 206.138 Mortgagee's liability for certain expenditures.
Where the Commissioner accepts an assignment, acquires a property
after accepting an assignment of a mortgage, or otherwise pays a claim
for insurance benefits and thereafter it becomes necessary for the
Commissioner to either reconvey the property or reassign the mortgage
to the mortgagee due to the mortgagee's noncompliance with these
regulations, the mortgagee shall reimburse the Commissioner for all
expenses incurred in connection with such acquisition and reconveyance
or reassignment. The reimbursement shall include interest on the amount
of insurance benefits refunded by the mortgagee from the date the
insurance benefits were paid to the date of refund at an interest rate
set in conformity with the Treasury Fiscal Requirements Manual, and the
Commissioner's cost of holding the property or servicing the mortgage,
accruing on a daily basis, from the date of assignment or claim payment
to the date of reconveyance or reassignment. These costs are based on
the Commissioner's estimate of the taxes, maintenance and operating
expenses of the property, and administrative expenses. Appropriate
adjustments shall be made by the Commissioner on account of any income
received from the property.
Sec. 206.140 Inspection and preservation of properties.
The mortgagee, upon learning that a property subject to a mortgage
insured under this part is vacant or abandoned, shall be responsible
for the inspection of such property at least monthly, if the loan is in
a due and payable status. When a mortgage is in due and payable status
and efforts to reach the borrower or applicable party by telephone
within that period have been unsuccessful, the mortgagee shall be
responsible for a visual inspection of the security property to
determine whether the property is vacant. The mortgagee shall take
reasonable action to protect and preserve such security property when
it is determined or should have been determined to be vacant or
abandoned until assigned to the Commissioner or an application for
insurance benefits is filed, if such action does not constitute an
illegal trespass. ``Reasonable action'' includes the commencement of
foreclosure within the time required by Sec. 206.125.
Sec. 206.141 Property condition.
(a) Condition at time of transfer. When the mortgage is assigned to
the Commissioner or the property is sold by the mortgagee, the property
shall be undamaged by fire, earthquake, flood, or tornado, except as
set forth in this subpart.
(b) Damage to property by waste. The mortgagee shall not be liable
for damage to the property by waste committed by the borrower, its
heirs, successors or assigns in connection with mortgage insurance
claims.
(c) Mortgagee responsibility. The mortgagee shall be responsible
for:
(1) Damage by fire, flood, earthquake, hurricane, or tornado; and
(2) Damage to or destruction of security properties on which the
loans are in default and which properties are vacant or abandoned, when
such damage or destruction is due to the mortgagee's failure to take
reasonable action to inspect, protect and preserve such properties as
required by Sec. 206.140.
(d) Limitation. The mortgagee's responsibility for property damage
shall not exceed the amount of its insurance claim as to a particular
property.
Sec. 206.142 Adjustment for damage or neglect.
(a) Except as provided for in paragraphs (a)(1) and (a)(2) of this
section: if the property has been damaged by fire, flood, earthquake,
hurricane, or tornado, the damage must be repaired before assignment of
the mortgage to the Commissioner; if the property has suffered damage
because of the mortgagee's failure to take action as required by Sec.
206.140, the damage must be repaired before the mortgagee sells the
property.
(1) If the prior approval of the Commissioner is obtained, there
will be deducted from the insurance benefits the Commissioner's
estimate of the cost of repairing the damage or any insurance recovery
received by the mortgagee, whichever is greater.
(2) If the property has been damaged by fire and was not covered by
fire insurance at the time of the damage, or the amount of insurance
coverage was inadequate to repair fully the damage, only the amount of
insurance recovery received by the mortgagee, if any, will be deducted
from the insurance benefits, provided the mortgagee certifies, at the
time that a claim is filed for insurance benefits, that:
(i) At the time the mortgage was insured, the property was covered
by fire insurance in an amount at least equal to the lesser of 100
percent of the insurable value of the improvements, or the principal
loan balance of the mortgage;
(ii) The insurer later cancelled this coverage or refused to renew
it for
[[Page 7141]]
reasons other than nonpayment of premium;
(iii) The mortgagee made diligent though unsuccessful efforts
within 30 days of any cancellation or non-renewal of hazard insurance,
and at least annually thereafter, to secure other coverage or coverage
under a FAIR Plan, in an amount described in paragraph (a)(2)(i) of
this section, or if coverage to such an extent was unavailable at a
reasonable rate, the greatest extent of coverage that was available at
a reasonable rate;
(iv) The extent of coverage obtained by the mortgagee in accordance
with paragraph (a)(2)(iii) of this section was the greatest available
at a reasonable rate, or if the mortgagee was unable to obtain
insurance, none was available at a reasonable rate; and
(v) The mortgagee took the actions required by Sec. 206.140.
(b) If the property has been damaged during the time of the
mortgagee's possession by events other than fire, flood, earthquake,
hurricane, or tornado, or if it was damaged notwithstanding reasonable
action by the mortgagee as required by Sec. 206.140, the mortgagee
must provide notice of such damage to the Commissioner and may not sell
the property until directed to do so by the Commissioner. The
Commissioner will either:
(1) Allow the mortgagee to sell the property damaged; or
(2) Require the mortgagee to repair the damage before sale, and the
Commissioner will reimburse the mortgagee for reasonable payments not
in excess of the Commissioner's estimate of the cost of repair, less
any insurance recovery.
Sec. 206.143 Certificate of property condition.
(a) The mortgagee shall certify that as of the date the mortgagee
sold the property in accordance with Sec. 206.125(g) or assignment of
the mortgage to the Commissioner, the property was:
(1) Undamaged by fire, flood, earthquake, hurricane or tornado; and
(2) Undamaged due to failure of the mortgagee to take action as
required by Sec. 206.140; and
(3) Undamaged while the property was in the possession of the
mortgagee.
(b) In the absence of evidence to the contrary, the mortgagee's
certificate or description of the damage shall be accepted by the
Commissioner as establishing the condition of the property, as of the
date of mortgagee sale or assignment of the mortgage to the
Commissioner.
Sec. 206.144 Final payment.
The mortgagee may not file any supplemental claims to its mortgage
insurance claim after six months from settlement by the Commissioner of
the claim payment except where the Commissioner determines it
appropriate and expressly authorizes an extension of time for
supplemental claim filings.
Sec. 206.145 Items deducted from payment.
(a) There shall be deducted from the total of the added items in
Sec. 206.129 the following cash items:
(1) All amounts received by the mortgagee on account of the
mortgage after the institution of foreclosure proceedings or the
acquisition of the property or otherwise after due and payable.
(2) All amounts received by the mortgagee from any source relating
to the property on account of rent or other income after deducting
reasonable expenses incurred in handling the property.
(3) All cash retained by the mortgagee including amounts held or
deposited for the account of the borrower or to which it is entitled
under the mortgage transaction that have not been applied in reduction
of the outstanding loan balance.
(4) With regard to claims filed pursuant to successful short sales,
all amounts received by the mortgagee relating to the sale of the
property.
(b) [Reserved]
Sec. 206.146 Debenture interest rate.
(a) Debentures shall bear interest from the date of issue, payable
semiannually on the first day of January and the first day of July of
each year at the rate in effect as of the day the commitment was
issued, or as of the date the mortgage was endorsed for insurance,
whichever rate is higher. For applications involving mortgages
originated under the single family Direct Endorsement program,
debentures shall bear interest from the date of issue, payable
semiannually on the first day of January and on the first day of July
of each year at the rate in effect as of the date the mortgage was
endorsed for insurance;
(b) For mortgages endorsed for insurance after January 23, 2004, if
an insurance claim is paid in cash, the debenture interest rate for
purposes of calculating such a claim shall be the monthly average
yield, for the month in which the default on the mortgage occurred, on
United States Treasury Securities adjusted to a constant maturity of 10
years.
Subpart D--Servicing Responsibilities
Sec. 206.201 Mortgage servicing generally; sanctions.
(a) General. This subpart identifies servicing practices that the
Commissioner considers acceptable mortgage servicing practices of
lending institutions servicing mortgages insured by the Commissioner.
Failure to comply with this subpart shall not be a basis for denial of
the insurance benefits, but a pattern of refusal or failure to comply
will be cause for withdrawal of FHA mortgagee approval.
(b) Importance of timely payments. The paramount servicing
responsibility is to make timely payments in full as required by the
mortgage. Any failure of a mortgagee to make all payments required by
the mortgage in a timely manner will be grounds for administrative
sanctions authorized by regulations, including 2 CFR part 2424
(Debarment, Suspension, and Limited Denial of Participation), and 24
CFR part 25 (Mortgagee Review Board).
(c) Responsibility for servicing. (1) Servicing of insured
mortgages must be performed by a mortgagee that is approved by FHA to
service insured mortgages. The servicer must fully discharge the
servicing responsibilities of the mortgagee as outlined in this part.
The mortgagee shall remain fully responsible to the Commissioner for
proper servicing, and the actions of its servicer shall be considered
to be the actions of the mortgagee. The servicer also shall be fully
responsible to the Commissioner for its actions as a servicer.
(2) Whenever servicing of any mortgage is transferred from one
mortgagee or servicer to another, notice of the transfer of service
shall be delivered:
(i) By the transferor mortgagee or servicer to the borrower. The
notification shall be delivered not less than 15 days before the
effective date of the transfer and shall contain the information
required in 12 CFR 1024.33(b)(4); and
(ii) By the transferee mortgagee or servicer:
(A) To the borrower. The notification shall be delivered not less
than 15 days before the effective date of the transfer and shall
contain the information required in 12 CFR 1024.33(b)(4); and
(B) To the Commissioner. This notification shall be delivered
within 15 days of the transfer, in a format prescribed by the
Commissioner.
Sec. 206.203 Providing information.
(a) Statements of account activity. The mortgagee shall provide to
the borrower
[[Page 7142]]
a monthly statement regarding the activity of the mortgage for each
month, as well as for the calendar year. The statement shall summarize
the total principal amount which has been paid to the borrower under
the mortgage during that calendar year, the MIP paid to the
Commissioner and charged to the borrower, the total amount of deferred
interest added to the outstanding loan balance, the total outstanding
loan balance, and the current principal limit. The mortgagee shall
include an accounting of all payments for property charges. The
statement shall be provided to the borrower monthly until the mortgage
is paid in full by the borrower. The mortgagee shall provide the
borrower with a new payment plan every time it recalculates monthly
payments or the payment option is changed. The statements shall be in a
format acceptable to the Commissioner.
(b) [Reserved]
(c) Servicing--Providing information. (1) Mortgagees shall provide
loan information to borrowers and arrange for individual loan
consultation on request. The mortgagee must establish written
procedures and controls to assure prompt responses to inquiries. One or
more of the following means of making information readily available to
borrowers is required:
(i) A servicing office staffed with competent personnel located
within 200 miles of the property, capable of providing timely responses
to requests for information. Complete records need not be maintained in
such an office if the staff is able to secure needed information and
pass it on to the borrower.
(ii) Toll-free telephone service at an office capable of providing
needed information.
(2)(i) All borrowers must be informed of and reminded annually of
the system available for obtaining answers to loan inquiries and the
office from which needed information may be obtained. Toll-free
telephone service need not be provided to a borrower other than at the
office designated to serve the borrower nor other than from the
immediate vicinity of the security property.
(ii) The mortgagee shall provide the borrower with the telephone
number where the borrower may speak to employee(s) specifically
designated by the mortgagee or its servicer to address inquiries
concerning mortgages insured under this part. Such information shall be
provided annually and whenever the servicer or the designated employee
(or employee group) changes.
(3) Mortgagees must respond to FHA requests for information
concerning individual accounts.
Sec. 206.205 Property charges.
(a) General. (1) The borrower shall be responsible for the payment
of the following property charges before or on the due date: ground
rents, condominium fees, planned unit development fees, and homeowners'
association fees.
(2) Payment of the following property charges are obligations of
the borrower and shall be made through the LESA, by the borrower, or by
the mortgagee, in accordance with paragraphs (b) through (e) of this
section on or before the due date: property taxes, including any
special assessments levied by local or State law, hazard insurance
premiums, and applicable flood insurance premiums.
(b) Method of property charge payment--(1) LESA required. For fixed
or adjustable interest rate HECMs, based on the results of the
Financial Assessment, the mortgagee may require the borrower to have a
Fully-Funded LESA for the payment of property charges identified in
paragraph (a)(2) of this section. For adjustable interest rate HECMs,
based on the results of the Financial Assessment, the mortgagee may
require the borrower to have a Partially-Funded LESA for the payment of
property charges identified in paragraph (a)(2) of this section.
(2) LESA not required. (i) If, based on the results of the
Financial Assessment, the mortgagee does not require the borrower to
have a LESA, the borrower shall elect one of the following at closing,
whereby an election of the option in paragraph (b)(2)(i)(B) or (C) of
this section cannot be cancelled by the borrower:
(A) Borrower is responsible for the independent payment of all
property charges;
(B) Borrower elects to have a Fully-Funded LESA for the payment of
property charges identified in paragraph (a)(2) of this section; or
(C) For adjustable interest rate HECMs only, borrower elects to
have the mortgagee pay property charges listed in paragraph (a)(2) of
this section which would have otherwise been required to be paid by the
borrower, in accordance with paragraph (d) of this section.
(ii) Through Federal Register notice, the Commissioner may
establish an incentive for voluntarily electing a LESA under paragraph
(b)(2)(i)(B) of this section.
(c) Life Expectancy Set Aside--(1) General. (i) For a Fully-Funded
LESA, the mortgagee shall:
(A) Make payments for property charges identified in paragraph
(a)(2) of this section before bills become delinquent and establish
controls to ensure that the information needed to pay such bills is
obtained on a timely basis;
(B) Make early payments to take advantage of a discount whenever it
is to the borrower's advantage;
(C) Not charge the borrower penalties for late payments for
property charges unless it can be shown that the penalty was the direct
result of the borrower's error or omission;
(D) Ensure that LESA funds are not held in an escrow account;
(E) Add payments for property charges to the outstanding loan
balance when the mortgagee disburses funds to the taxing authority or
insurance carrier; and
(F) Provide written notification to the borrower and FHA within 30
days of the mortgagee receiving notification that a property charge
payment is outstanding when there are no funds or insufficient funds
remaining in the LESA, and recommend that the borrower speak with a
HUD-Approved Housing Counselor.
(ii) For a Partially-Funded LESA, the mortgagee shall:
(A) Ensure that LESA funds are disbursed to the borrower semi-
annually;
(B) Establish controls to ensure the taxing authority, insurance
carrier, or both, received the borrower's payment;
(C) Ensure the LESA funds are not held in an escrow account;
(D) Add payments disbursed to the borrower for the payment of
property charges identified in paragraph (a)(2) to the outstanding loan
balance when the mortgagee disburses the funds; and
(E) Provide written notification to the borrower and FHA within 30
days of the mortgagee receiving notification that a property charge
payment is outstanding when there are no funds or insufficient funds
remaining in the LESA, and recommend that the borrower speak with a
HUD-Approved Housing Counselor.
(2) Calculation of property charges. (i) The projected cost of
property charges that will be required over the life expectancy of the
youngest borrower shall be calculated based on a formula established by
the Commissioner.
(ii) The mortgagee shall not require any LESA to be funded in
excess of the projected cost of property charges.
(iii) For a Fully-Funded LESA, the amount withheld from the
mortgage proceeds shall equal the projected cost of property charges.
(iv) For a Partially-Funded LESA, the amount withheld from the
mortgage proceeds is based on a calculation of the gap in residual
income and may not
[[Page 7143]]
exceed the projected cost of property charges.
(v) Mortgagees shall use the HECM Financial Assessment and Property
Charge Guide, or subsequent guide issued by the Commissioner, to
determine whether a LESA is required; view the formula for calculating
the projected costs of property charges; and view the formulas for
calculating the Fully- and Partially-Funded LESA amounts.
(3) Annual analysis of LESA. Mortgagees shall perform an annual
analysis of the LESA to determine whether the funds are sufficient to
make required distributions for the next year. If funds are exhausted
or there is an insufficient balance determination, the mortgagee shall
notify the borrower, in writing and within 15 calendar days of the
annual analysis of the determination, that LESA funds are exhausted or
insufficient and the borrower will be responsible for the payment of
property charges.
(4) Non-payment of property charges--(i) Fully-Funded LESA for an
adjustable interest rate HECM with no remaining funds. (A) If the LESA
is exhausted and the borrower fails to make property charge payments,
the mortgagee shall use any available principal limit to pay the
outstanding property charge amount in full and charge the borrower's
account.
(B) The mortgagee shall provide the borrower with a written
notification within 30 days of the mortgagee receiving notification
that a property charge payment is outstanding. The borrower shall have
30 days to respond to the mortgagee to explain the circumstances which
resulted in the non-payment. (C) If there is no available principal
limit from which the mortgagee can pay the property charge amount in
full, and the borrower fails to pay the property charges, the mortgage
will become due and payable under Sec. 206.27(c)(2).
(ii) Fully-Funded LESA for a fixed interest rate HECM with no
remaining funds. If the LESA is exhausted and the borrower fails to
make property charge payments, the mortgage will become due and payable
under Sec. 206.27(c)(2).--
(iii) Partially-Funded LESA with remaining funds. If funds remain
in the LESA and the borrower fails to make property charge payments,
the mortgagee shall:
(A) Immediately suspend future semi-annual payments to the borrower
from the Partially-Funded LESA, although scheduled and unscheduled
payments from the borrower's payment option may continue;
(B) Disburse funds from the Partially-Funded LESA to pay the full
amount owed for the past due property charge; and
(C) Provide written notification to the borrower, within 30 days of
the mortgagee receiving notification that a property charge payment is
outstanding, that funds were advanced from the Partially-Funded LESA to
pay the outstanding property charge. The borrower shall have 30 days to
respond to the mortgagee to explain the circumstances which resulted in
the non-payment.
(iv) Partially-Funded LESA with no remaining funds. (A) If the LESA
is exhausted and the borrower fails to make property charge payments
when due, the mortgagee shall use any funds available in the principal
limit to pay the outstanding property charge amount in full and charge
the borrower's account.
(B) The mortgagee shall provide written notification to the
borrower within 30 days of the mortgagee receiving notification that a
property charge payment is outstanding. The borrower shall have 30 days
to respond to the mortgagee to explain the circumstances which resulted
in the non-payment.
(C) If there is no available principal limit from which the
mortgagee can pay the property charge amount in full, and the borrower
fails to pay the property charges, the mortgage will become due and
payable under Sec. 206.27(c)(2).
(5) Unused LESA funds. During a Deferral Period or when one of the
events listed in Sec. 206.27(c)(1) or (c)(2) have occurred, no unused
funds from the LESA shall be disbursed.
(6) Assignment of mortgage to the Commissioner. If the insured
first mortgage is assigned to the Commissioner, or if payments are made
through the second mortgage under the Demand Assignment process, the
Commissioner is not required to assume the responsibility for property
charge payments, but may continue to administer payments for property
charges for a borrower with a Fully-Funded LESA or semi-annual
disbursements to a borrower with a Partially-Funded LESA to the extent
that there are any funds available in the LESA. For adjustable interest
rate HECMs, if the LESA has a positive remaining balance but funds are
insufficient to pay all property charges due or semi-annual
disbursements to the borrower, the Commissioner may provide the
remaining funds to the borrower as a line of credit.
(d) Borrower elects to have mortgagee pay property charges. If,
based on the results of the Financial Assessment, the mortgagee does
not require the borrower to have a LESA, for adjustable interest rate
HECMs, the borrower may elect at closing to require the mortgagee to
pay property charges identified in paragraph (a)(2) of this section by
withholding funds from monthly payments due to the borrower or by
charging such funds to a line of credit. This voluntary election to
have funds withheld by the mortgagee to pay property charges cannot be
canceled by the borrower at any time. If the sum of the outstanding
loan balance and any unused set aside for repairs and servicing charges
has reached the principal limit or the HECM proceeds are otherwise
insufficient to pay the property charges, the borrower shall pay such
property charges, even though the borrower elected payment to be made
by the mortgagee. Through Federal Register notice, the Commissioner may
expand the borrower's options for property charge payment by the
mortgagee.
(1) Assignment of mortgage to the Commissioner. If the insured
first mortgage is assigned to the Commissioner under Sec.
206.107(a)(1) or Sec. 206.121(b), or if payments are made through the
second mortgage under Sec. 206.121(c), the Commissioner is not
required to assume the mortgagee's responsibility under paragraph (d)
of this section, despite the election by the borrower.
(2) Mortgagee's responsibilities. (i) Funds withheld from payments
due to the borrower for property charges under paragraph (d) of this
section shall not be paid into an escrow account. When property charges
are actually paid, the mortgagee may add the amount paid to the
outstanding loan balance.
(ii) It is the mortgagee's responsibility to make disbursements for
property charges before bills become delinquent. Mortgagees shall
establish controls to ensure that the information needed to pay such
bills is obtained on a timely basis. Penalties for late payments for
property charges must not be charged to the borrower unless it can be
shown that the penalty was the direct result of the borrower's error or
omission. Early payment of a bill to take advantage of a discount
should be made whenever it is to the borrower's benefit.
(iii) Not later than the end of the second loan year the mortgagee
shall establish a system for the periodic analysis of the amounts
withheld from monthly payments. The analysis shall be performed at
least once a year thereafter. The amount shall be adjusted, after
analysis, to provide sufficient available funds to make anticipated
disbursements during the
[[Page 7144]]
ensuing year. The borrower shall be given at least ten days' notice of
adjustment in the amount of withholding and an adequate explanation of
the reasons for any change. When the amount withheld is analyzed in
accordance with this paragraph, any surplus shall be paid to the
borrower and added to the outstanding loan balance. Any shortage shall
be corrected through increasing the monthly withholding as provided in
paragraph (d)(2)(iv) of this section. If amounts withheld are
insufficient to pay a property charge before it is delinquent, and the
borrower could request a payment equal to the shortage under Sec.
206.26(b), then the mortgagee shall pay the full property charge and
treat payment of the shortage as a payment requested by the borrower
under Sec. 206.26(b).
(iv) The mortgagee's estimate of withholding amount shall be based
on the best information available as to probable payments which will be
required to be made for property charges in the coming year. If actual
disbursements during the preceding year are used as the basis, the
resulting estimate may deviate from those disbursements by as much as
ten percent. The mortgagee may not require withholding in excess of the
current estimated total annual requirement, unless expressly requested
by the borrower. Each monthly withholding for property charges shall
equal one-twelfth of the annual amounts as reasonably estimated by the
mortgagee.
(e) Borrower elects to pay property charges. (1) If, based on the
results of the Financial Assessment, the mortgagee does not require the
borrower to have a LESA, the borrower may elect to be responsible for
the independent payment of all property charges and shall pay all
property charges in a timely manner and shall provide evidence of
payment to the mortgagee as required in the mortgage.
(2) Failure to pay property charges. If the borrower fails to pay
the property charges in a timely manner, and has not elected to have
the mortgagee make the payments in accordance with paragraph (d) of
this section:
(i) The mortgagee may make the payment for the borrower and charge
the borrower's account if there are available funds from which the
mortgagee may make payment. If a pattern of missed payments occurs, the
mortgagee may establish procedures to pay the property charges from the
borrower's funds as if the borrower elected to have the mortgagee pay
the property charges under this section.
(ii) The mortgagee shall provide a written notification to the
borrower and notify the Commissioner that an obligation of the mortgage
has not been performed within 30 days of the mortgagee receiving
notification of a missed payment when there are no available HECM funds
from which the mortgagee may make payment. The borrower shall have 30
days to respond to the mortgagee to explain the circumstances which
resulted in the non-payment. The mortgagee may provide any permissible
loss mitigation made available by the Commissioner through notice. If
the borrower is unable or unwilling to repay the mortgagee for any
funds advanced by the mortgagee to pay property charges outside of a
LESA, the mortgagee shall submit a due and payable request under the
provisions of Sec. 206.27(c)(2).
Sec. 206.207 Allowable charges and fees after endorsement.
(a) Reasonable and customary charges. The mortgagee may collect
reasonable and customary charges and fees from the borrower after
insurance endorsement, only to the extent that the mortgagee is not
reimbursed for such fees by FHA, by adding them to the outstanding loan
balance, but only for: items listed in paragraph (a)(1) of this
section; items authorized by the Commissioner under paragraph (a)(2) of
this section, or as provided at Sec. 206.26(b)(1)(iii); or charges and
fees related to additional documents described in Sec. 206.27(b)(10)
and related title search costs.
(1)(i) Charges for substitution of a hazard insurance policy at
other than the expiration of term of the existing hazard insurance
policy;
(ii) Attorney's and trustee's fees and expenses actually incurred
(including the cost of appraisals and cost of advertising) when a case
has been referred for foreclosure in accordance with the provisions of
this part after a firm decision to foreclose if foreclosure is not
completed because of a reinstatement of the account (no attorney's fee
may be charged for the services of the mortgagee's or servicer's staff
attorney or for the services of a collection attorney other than the
attorney handling the foreclosure);
(iii) A trustee's fee if the security instrument in deed-of-trust
states provides for payment of such a fee for execution of a
satisfactory, release, or trustee's deed when the deed of trust is paid
in full;
(iv) Where permitted by the security instrument, attorney's fees
and expenses actually incurred in the defense of any suit or legal
proceeding wherein the mortgagee shall be made a party thereto by
reason of the mortgage (no attorney's fee may be charged for the
services of the mortgagee's or servicer's staff attorney); and
(v) Property preservation expenses incurred pursuant to Sec.
206.140.
(2) Such other reasonable and customary charges as may be
authorized by the Commissioner, but which shall not include:
(i) Charges for servicing activities of the mortgagee or servicer;
(ii) Fees charged by independent tax service organizations which
contract to furnish data and information necessary for the payment of
property taxes;
(iii) Satisfaction, termination, or reconveyance fees when a
mortgage is paid in full (other than as provided in paragraph
(a)(1)(iii) of this section); or
(iv) The fee for recordation of a satisfaction of the mortgage in
states where recordation is the responsibility of the mortgagee.
(b) Servicing charges. (1) If the following conditions are met, the
mortgagee may include a servicing charge in the mortgage Note rate,
starting with the month of loan closing and continuing through the life
of the loan, including any applicable Deferral Period:
(i) The charge is authorized by the Commissioner;
(ii) The charge is selected by the mortgagee;
(iii) The charge is within the range established by the
Commissioner, which shall be set, through notice, in an amount which
shall be between 36 and 150 basis points. The Commissioner may, through
a Federal Register notice for comment, extend the range of permissible
charges below 36 basis points and above 150 basis points; and
(iv) The charge is disclosed as required by Sec. 206.43 to the
borrower in a manner acceptable to the Commissioner at the time the
mortgagee provides the borrower with a loan application; or
(2) If the following conditions are met, the mortgagee may collect
a fixed monthly charge for servicing activities of the mortgagee or
servicer, starting with the month of loan closing and continuing
through the life of the loan, including any applicable Deferral Period.
(i) The charge is authorized by the Commissioner;
(ii) The charge is disclosed as required by Sec. 206.43 to the
borrower in a manner acceptable to the Commissioner at the time the
mortgagee provides the borrower with a loan application;
[[Page 7145]]
(iii) Amounts to pay the charge are set aside as a portion of the
principal limit in accordance with Sec. 206.19(f)(3); and
(iv) The charge is payable only from the Servicing Fee Set Aside.
Sec. 206.209 Prepayment.
(a) No charge or penalty. The borrower may repay a mortgage in full
or prepay a mortgage in part without charge or penalty at any time,
regardless of any limitations on repayment or prepayment stated in a
mortgage.
(b) Insurance and condemnation proceeds. If insurance or
condemnation proceeds are paid to the mortgagee, the principal limit
and the outstanding loan balance shall be reduced by the amount of the
proceeds not applied to restoration or repair of the damaged property.
(c) Funds received from a partial prepayment shall be applied in
accordance with the Note.
Sec. 206.211 Determination of principal residence and contact
information.
(a) Annual certification. At least once during each calendar year,
the mortgagee shall verify the contact information for the borrower(s)
and determine whether or not the property is the principal residence of
at least one borrower. The mortgagee shall require each borrower to
make an annual certification of his or her contact information and
principal residence. As part of the annual certification, the borrower
may designate an alternate individual as specified in Sec. 206.40 to
receive copies of the notifications from the mortgagee, and who the
mortgagee shall contact if the borrower is unwilling or unable to reply
to requests from the mortgagee. The mortgagee may rely on the
certification unless it has information indicating that the
certification may be false.
(b) Requirements when an Eligible Non-Borrowing Spouse exists.
Where an Eligible Non-Borrowing Spouse has been identified, the
mortgagee shall obtain an additional annual certification from the
borrower confirming the Eligible Non-Borrowing Spouse remains his or
her spouse and the Eligible Non-Borrowing Spouse continues to reside in
the property as his or her principal residence.
(1) Death of borrower with Eligible Non-Borrowing Spouse. If a
borrower with an Eligible Non-Borrowing Spouse has died, the mortgagee
shall obtain the annual certification in paragraph (a) of this section
from the Eligible Non-Borrowing Spouse. For purposes of this paragraph,
the term ``Eligible Non-Borrowing Spouse'' shall replace the term
``borrower'' in paragraph (a) of this section.
(2) Failure of previously Eligible Non-Borrowing Spouse to reside
in the property as his or her principal residence. If a Non-Borrowing
Spouse fails to reside in the property as his or her principal
residence, the Non-Borrowing Spouse becomes an Ineligible Non-Borrowing
Spouse and the deferral of due and payable status that would prevent
the displacement of an Eligible Non-Borrowing Spouse will no longer be
in effect. Once this occurs, the Eligible Non-Borrowing Spouse annual
certifications are no longer required to be obtained.
Subpart E--HECM Counselor Roster
Sec. 206.300 General.
This subpart provides for the establishment of the HECM Counselor
Roster (Roster) and sets forth the requirements for the operation of
the HECM Counselor Roster.
Sec. 206.302 Establishment of the HECM Counselor Roster.
(a) HECM Counselor Roster. FHA maintains a Roster of HECM
counselors. Only counselors listed on the Roster and employed by a
participating agency are approved to provide HECM counseling. A
prospective borrower applying for a HECM loan to be insured by FHA must
receive the required HECM counseling from one of the counselors on the
Roster.
(b) Disclaimer. The inclusion of a HECM counselor on the Roster
does not create or imply a warranty or endorsement by FHA of the listed
counselor to a prospective HECM borrower or to any other organization
or individual, nor does it represent a warranty of any counseling
provided by the listed HECM counselor. The inclusion of a counselor on
the Roster means that a listed counselor has met the FHA-prescribed
qualifications and conditions for inclusion on the Roster and that the
counselor is approved to provide HECM counseling by telephone or face-
to-face.
Sec. 206.304 Eligibility for placement on the HECM Counselor Roster.
(a) Application. To be considered for placement on the Roster, a
housing counselor must apply to FHA in a form and in a manner
prescribed by the Commissioner.
(b) Eligibility. FHA will approve an application for placement on
the Roster if the application demonstrates that the housing counselor:
(1) Is employed by a HUD-approved housing counseling agency or an
affiliate of a HUD-approved intermediary or State housing finance
agency;
(2) Successfully passed a standardized HECM counseling exam
administered by FHA, or a party selected by FHA, within the last 3
years. In order to maintain eligibility, a HECM counselor must
successfully pass a standardized HECM counseling exam every 3 years;
(3) Received training and education related to HECMs within the
prior 2 years;
(4) Has access to and is supported by technology that enables FHA
to track the results of the counseling offered to each loan applicant,
e.g., what action(s), if any, did the client take after receiving the
HECM counseling; and
(5) Is not listed on:
(i) The General Services Administration's Suspension and Debarment
List;
(ii) HUD's Limited Denial of Participation List; or
(iii) HUD's Credit Alert Interactive Response System.
Sec. 206.306 Removal from the HECM Counselor Roster.
(a) General. FHA reserves the right to remove a HECM counselor from
the Roster, in accordance with this section.
(b) Cause for removal. Cause for removal of a HECM counselor from
the Roster includes, but is not limited to:
(1) Failure to comply with the education and training requirements
of Sec. 206.308;
(2) Failure to respond within a reasonable time to HUD inquiries or
requests for documentation;
(3) Misrepresentation or fraudulent statements;
(4) Promotion, representation, or recommendation of any specific
mortgagee;
(5) Failure to comply with applicable fair housing and civil rights
requirements;
(6) Failure to comply with applicable statutes and regulations;
(7) Failure to comply with applicable statutory counseling
requirements found at section 255(f) of the National Housing Act, which
include, but are not limited to, providing information about: options
other than a HECM, the financial implications of entering into a HECM,
the tax consequences of a HECM, and any other information that HUD or
the applicant may request;
(8) Failure to maintain any registration, license, or certification
requirements of a State or local authority;
(9) Unsatisfactory performance in providing counseling to HECM loan
applicants. FHA may determine that a HECM counselor's performance is
[[Page 7146]]
unsatisfactory based on a review of counseling files or other
monitoring activities, or if the counselor fails to employ the minimum
competencies, as measured by the FHA-administered HECM counseling exam;
or
(10) For any other reason HUD determines to be so serious as to
justify an administrative sanction.
(c) Automatic removal from HECM Counselor Roster for failure to
maintain required State or local licensure. A HECM counselor who is
required to maintain a State or local registration, license, or
certification and whose registration or certification is revoked,
suspended, or surrendered will be automatically suspended from the
Roster until FHA receives evidence demonstrating that the local- or
State-imposed sanction has been lifted.
(d) Removal procedure. Except as provided in paragraph (c) of this
section, the following procedures apply to removal of a HECM counselor
from the Roster.
(1) FHA will give the HECM counselor written notice of the proposed
removal. The notice will state the reasons for and the duration of the
proposed removal.
(2) The HECM counselor will have 30 days from the date of receipt
of the notice (or such time as described in the notice, but in no event
less than a period of 30 days) to submit a written appeal of the
proposed removal, along with a written request for a conference.
(3) An FHA official will review the appeal and render a response
affirming, modifying, or canceling the removal. The FHA official will
not be a person who was involved in FHA's initial removal decision. FHA
will respond with a decision within 30 days after the date of receiving
the appeal or, if the HECM counselor has requested a conference, within
30 days after the conference was held. FHA may extend the 30-day period
by providing written notice to the counselor.
(4) If the HECM counselor does not submit a timely written
response, the removal will be effective 31 days after the date of FHA's
initial removal notice (or after the period provided in the notice, if
longer than 30 days). If a written response is submitted, and the
removal decision is affirmed or modified, the removal will be effective
on the date of FHA's notice affirming or modifying the initial removal
decision.
(e) Maximum time period of removal. The maximum time period for
removal from the Roster is 12 months from the effective date of removal
for all removed counselors. A counselor who has been removed must apply
for reinstatement on the Roster.
(f) Placement on the Roster after removal. A counselor who has been
removed from the Roster must apply for reinstatement on the Roster (in
accordance with Sec. 206.304) after the period of the counselor's
removal from the Roster has expired. FHA may require the counselor to
retake and pass the HECM exam for reinstatement when the reason for
removal from the Roster was particularly egregious. Typically, the
counselor will not be required to take and pass the HECM exam; however,
FHA must be ensured by the counselor that the HECM counseling
requirements are understood and will be followed. An application from a
counselor for reinstatement on the Roster will be rejected if the
period of the counselor's removal from the Roster has not expired.
(g) Voluntary removal. A HECM counselor will be removed from the
Roster upon FHA's receipt of a written request from the counselor.
(h) Other action. Nothing in this section prohibits HUD from taking
such other action against a HECM counselor or from seeking any other
remedy against a counselor available to HUD by statute or other
authority.
Sec. 206.308 Continuing education requirements of counselors listed
on the HECM Counselor Roster.
A HECM counselor listed on the Roster must receive, on a continuing
basis, training, education, and technical assistance related to HECMs.
The HECM counselor must maintain evidence of the successful completion
of such continuing education, and such evidence must be made available
to FHA upon request. FHA will consider a HECM counselor's successful
completion of a HECM course no less than once every 2 years as
satisfying the requirements of this section.
Dated: January 12, 2017.
Nani A. Coloretti,
Deputy Secretary.
[FR Doc. 2017-01044 Filed 1-18-17; 8:45 am]
BILLING CODE 4210-67-P