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The Reverse Guide

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Originators of federally insured reverse mortgages are subject to new disclosure, input and issuance requirements. Guidance issued by bank regulators that recently went live helps institutions minimize risks on reverse lending.

The federal banking regulatory agencies recently issued the final Guidance for Managing Compliance and Reputation Risks to assist the institutions they regulate in managing risks associated with reverse mortgages. Institutions are expected to follow the guidance, which was released in August and took effect Oct. 18, to ensure that their risk management and consumer protection practices adequately address the compliance and reputation risks raised by reverse mortgage lending, according to a recent issue of the Federal Register.

The guidance is a result of the expected increases in the U.S. elderly population and use of reverse mortgages. It was developed by the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision and National Credit Union Administration, in conjunction with the State Liaison Committee of the Federal Financial Institutions Examination Council.

Around the same time the federal banking authorities issued the guidance, the Federal Housing Administration was looking to modify its home-equity conversion mortgage to address the most frequently heard complaint among older homeowners who decided against a reverse loan: high upfront costs, the National Reverse Mortgage Lenders Association said in an announcement.

Starting Oct. 4, the FHA made available the HECM Saver, an option that lowered the upfront loan closing costs for homeowners who wish to borrow 10 to 18 percent less than the HECM Standard loan makes available. The new option has an upfront mortgage-insurance premium of 0.01 percent of the property’s value, compared to 2 percent under the HECM Standard option. Both loan options continue to charge the MIP monthly at an annual rate of 1.25 percent of the outstanding loan balance, the Department of Housing and Urban Development said in an announcement.

The same day the new option launched, HUD’s revised list HECM documents that are required for endorsements became effective on new case-binder submissions. The new outline incorporated changes referred to in Mortgagee Letters 2005-34, 2006-23, 2006-24 and 2009-11.

New reverse mortgage lending requirements took effect in Louisiana on Aug. 15, as the state amended its the Secure And Fair Enforcement for Mortgage Licensing Act to prohibit prepayment penalties throughout the reverse mortgage’s life cycle, according to a newsletter by Patton Boggs LLP. Among the many changes that took effect, FHA lenders must provide borrowers with term sheets or commitment letters at a minimum of seven days prior to closing that outlines the proposed terms of the loan and informs that the prospective borrow is not required to proceed with the loan transaction.

Yet another change that will take place in the reverse lending world is a requirement for lenders to enter into FHA Connection a list of HECM counseling agencies they are to provide to prospective HECM borrowers, HUD said in Mortgagee Letter 2010-37 issued in early November. The list needs to include at least nine HUD-approved agencies and should contain five agencies within the local area or state of the prospective borrower, of which one is to be located within a reasonable driving distance to facilitate face-to-face counseling, and the four national intermediaries: National Foundation for Credit Counseling, Money Management International, National Council on the Aging and CredAbility.

Lenders need to complete entering these referrals on the HECM Referral List Update screen in the FHA Connection within a day of requesting an FHA case number. While the screen has been available for use since last month, lenders will be required to complete the screen on all HECM case numbers that are issued starting Feb. 1, 2011.

On all HECMs assigned starting Dec. 1, mortgagees had to start using revised certification closing language in the HUD-1, Settlement Statement. The certification language was changed to include new statutory authority to impose penalties for false certifications or fraudulent activities; include revised language for sellers of HECM purchase transactions; and replace language found in 6-9(g) of HUD Handbook 4235.1, REV-1 for HECM traditional and refinance transactions, Mortgagee Letter stated.

Back in May, Ginnie Mae started prohibiting the inclusion of non-HECM-backed collateral in its HECM MBS REMIC transactions, according to a HUD-issued Multiclass Participants Memorandum.

In a July memorandum, HUD disclosed policy changes and clarifications to the certification requirements for the HECM Mortgage-Backed Security program. Certifications requirements were revised to clarify the signatory requirements when a living trust is the mortgagor; reflect that FHA has authorized lenders using the Lender Insurance procedures to execute the HECM loan agreement; and to discuss requirements for posting a lost instrument bond when the promissory note is missing. On the latter, HUD noted issuers should calculate the dollar amount of the bond, in the case of HECM loans, by using the loan’s Maximum Claim Amount, as opposed to the remaining principal balance plus 20 percent.

July also marked the month in which Ginnie Mae’s HMBS Reporting and Administration application was migrated from its e-Access into the Ginnie Mae Enterprise-Wide Portal. Moving the HMBS monthly accounting reporting tool was part of its ongoing effort to migrate its business applications into the GMEP, HUD said in a June memorandum to all Ginnie program participants.

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