A new option for federally insured reverse mortgages nearly eliminates the up-front mortgage insurance premium.
The new program is HECM Saver.
The offering is a modified version of the home-equity conversion mortgage product.
The Federal Housing Administration said in a news release that the new option helps lower up-front closing costs on smaller loans by nearly eliminating the up-front mortgage insurance premium.
Under the program, the initial M.I. premium is just 0.01 percent of the property value compared to 2.00 percent on the standard HECM option. But the annual M.I. premium paid on a monthly basis will be 1.25 percent on both the new and standard options.
The reduced up-front premium will be funded by reduced risk; the amount of cash available to HECM Saver borrowers will be reduced by between 10 to 18 percent compared to the standard option.
The new option is available for HECM case numbers assigned on or after Oct. 4.
“All loans that have not closed and the FHA case number was assigned as of Oct. 3 may be processed using an initial premium of 2 percent, a monthly premium of 0.50 percent and the fiscal year 2010 principal limit factor table,” Mortgagee Letter 2010-34 stated. “The lender need not change the principal limit calculation or re-disclose to the mortgagor since there is no change to the amount of the HECM loan proceeds the mortgagor will receive.”
FHA said it would permit loans that have not closed with case numbers assigned on or before Oct. 3 to convert to the new HECM Saver. Because the initial M.I. premium and principal limit amount will change in such cases, new disclosures will be required.
The mortgagee letter indicated that the standard and new options are available on a traditional, purchase or refinance basis with fixed or adjustable interest rates.
