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NAMB announces its opposition to practice of artificially inflating credit scores

National Mortgage Professional
Aug 21, 2007

Ask QC-MACMortgagePress.comHUD, FHA, HECM, mortgage brokers Dear QC-MAC: I was reading an article in one of the trade magazines, which stated that non-approved mortgage brokers can now participate in the origination of U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration (FHA) Home Equity Conversion Mortgages (HECMs). There are many of us non-approved mortgage brokers in the business who would like to originate FHA loans. Is this article true? If so, when can we start? --Dino A. Dear Dino: This article that you are referring to has caused our phones to ring off the hook. The author of the article was correct when he said that non-FHA approved mortgage brokers can participate in the origination of HECMs (reverse mortgage). However, what the author failed to explain in the article was how non-approved FHA mortgage brokers can participate in the origination of HUD/FHA HECMs. The key phrase in that article was "can participate" in the origination of HUD/FHA HECMs; that is, to participate in the origination but not to originate the loans. In this context, the author was referring to the HUD/FHA HECM Advisor Program. The HECM mortgage program does allow a non-approved mortgage broker to participate in the origination of these loans by being an advisor to the borrower without being an approved HUD lender. The only mortgage brokers who can originate HUD/FHA HECMs are those mortgage brokers who have gone through HUD's lender approval process and have met all of the regulatory compliance requirements; including, but not limited to, the minimum net worth requirement to become an approved non-supervised loan correspondent lender; and HUD has assigned the lender a HUD lender identification number. When a non-approved HUD/FHA mortgage broker participates in the origination of an HECM with an approved HUD/FHA lender, the non-approved mortgage broker is expected to be an advisor to the prospective borrower and must obtain a written agreement with the prospective borrower to act as his HECM mortgage advisor. The agreement must clearly disclose the amount of the non-approved mortgage broker's fee, and that said fee should not be in addition to the lender's origination fee. In addition to the fee that the non-approved mortgage broker will receive, the non-approved mortgage broker must perform some of the HECM advisor's duties. The duties listed below are excerpts taken from Financial Freedom's HECM Advisor Certification, which is the best document we have seen that--in our opinion--describes the duties of an advisor for HECMs: 1. Educate the prospective borrower(s) regarding reverse mortgages generally and HECM mortgages in particular, including the increase in the loan balance, growth of the HECM line of credit, and the likely decrease in the prospective borrower's equity over time. In addition, inform the prospective borrower(s) regarding the different types of loan features available with an HECM mortgage (term versus tenure; lump sum, monthly payment or line of credit, etc.) and explain to the prospective borrower matters such as set-asides, closing costs (including, but not limited to, the maximum HUD permits a mortgagee to charge for specific loan costs, which costs are the same for every lender and which costs may vary from lender to lender) and the necessity of the prospective borrower making ongoing payments of taxes and collateral hazard (homeowner's) insurance after the loan's closing; 2. Educate the prospective borrower(s) regarding unique credit problems associated with HECM mortgages (for example, federal tax liens and/or prior issues with HUD/FHA); 3. Advise the prospective borrower(s) with respect to questions raised by the prospective borrower in completing an HECM reverse mortgage application and other forms to be submitted to one or more of such mortgage lenders; 4. Advise the prospective borrower(s) regarding how the condition of their home may require repairs as part of the HECM mortgage, and explain to the prospective borrower(s) the borrower's obligation to maintain the structural integrity and good repair, and condition of the home after the loan's closing; 5. Provide the prospective borrower(s) information on lenders that offer reverse mortgages in the prospective borrower(s) area, including information on reverse mortgages available from various lenders; 6. Provide the prospective borrower(s) with telephone numbers and Web sites for independent resources to obtain more information regarding reverse mortgages generally, including providing the address to the AARP Web site,, and toll-free phone number concerning reverse mortgages at (800) 209-8085, as well as the HUD HECM Web site, 7. Describe the potential financial implications of an HECM mortgage for the prospective borrower(s) and advise the prospective borrower(s) generally on the amount of the benefit for which he/she/they may qualify under an HECM and the factors affecting such qualification, including the age of the prospective borrower(s) and the value of the home, as well as benefits under Medicaid programs; 8. Assist the prospective borrower(s) in dealing with the lender as the lender considers, processes and underwrites the prospective borrower(s)' HECM loan application; 9. Maintain regular contact with the prospective borrower(s) through closing of the loan in order to assist the prospective borrower(s) with respect to any questions the prospective borrower(s) might have. 10. Affirm that you (the advisor) did not take the application from the prospective borrower(s) nor did you conduct any loan origination activities in connection with the prospective borrower(s) HECM loan application. To further confirm that the HECM borrower is not paying more than the allowed loan origination fee when an HECM advisor non-approved mortgage broker is involved in an HECM transaction, HUD issued the following guidance on this issue by means of HUD Mortgagee Letter 2000-10, which reads as follows: FHA permits a lender to charge a loan origination fee agreed upon by the borrower and lender. However, we are now capping the amount of the origination fee that can be charged to the borrower and also permitting the borrower to finance the entire amount of the fee. The origination fee amount will now be limited to the greater of $2,000 or two percent of the maximum claim amount on the reverse mortgage. The financed origination fee is now the full amount that the borrower can pay for the origination and underwriting of the mortgage, and must also include the full amount of any mortgage broker fee or loan correspondent fee. The borrower is not permitted to pay any additional origination fees of any kind to a mortgage broker or loan correspondent. Lenders are reminded that a mortgage broker fee can be included as part of the origination fee only if the mortgage broker is engaged independently by the homeowner and that a mortgage broker's fee is prohibited if there is any financial interest between the mortgage broker and lender. A copy of the agreement between the borrower and the mortgage broker to pay the broker fee must be submitted along with the loan application and other documents in the binder submitted to FHA. Consequently, the Home Equity Conversion Mortgage Loan Agreement section 2.2.1 is amended to: 2.2.1. Loan advances shall be used by lender to pay, or reimburse borrower for closing costs listed in the Schedule of Closing Costs (Exhibit 2) attached to and made a part of this loan agreement, provided that loan advances will only be used to pay origination fees in an amount not exceeding the greater of $2,000 or two percent of the maximum claim amount, nor shall the lender charge the Borrower an origination fee in excess of this amount. HUD/FHA issued a more current Mortgagee Letter, 2006-07, that restates the origination fee limitation on HECM mortgages and states as follows: "The HECM lender is not permitted to charge an HECM borrower any fees in addition to the origination fee to pay a mortgage broker or loan correspondent fee." Please be advised that the use of non-approved mortgage brokers to participate in the origination of HUD/FHA HECMs applies only to the origination of HUD/FHA HECMs and it does not apply to the origination of HUD/FHA forward mortgages. Nothing in this article constitutes legal advice or represents how HUD, RESPA, Fannie Mae, Freddie Mac or any state or federal regulatory body may actually answer your questions. The answers to these questions are based on QC-MAC's professional experience as one of the country's leading quality control companies. If you have a quality control and/or compliance question or service need, contact QC-MAC at (888) HUD-AUDIT or visit
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