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, www.aarp.org/revmort/list,
and toll-free phone number concerning reverse mortgages at (800)
209-8085, as well as the HUD HECM Web site, www.hud.gov/offices/hsg/sfh/hecm/hecmhome.cfm.
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 www.qcmac.com.
