HUD launches HECM Saver with almost no UFMIP

On September 21, 2010, HUD issued mortgagee letter 2010-34. The purpose for the letter is to make changes to the largest of it's reverse mortgage upfront costs -- the upfront mortgage insurance premium (UFMIP). The UFMIP on HUD's home equity conversion mortgage (HECM Standard) is 2% of the maximum claim amount (which is the lesser of the appraised value or national mortgage limit). As of October 4, 2010 there is a new offering called HECM Saver, which almost eliminates this cost.

HECM Saver's UFMIP will only be .01% of the maximum claim amount. Because the upfront costs of HECM Saver are significantly lower than those of HECM Standard, it makes reverse mortgages more attractive for homeowners who want to borrower only a small amount of money. Previously, paying 2% of the appraised value (if that was the lowest consideration) made small loan amounts cost prohibitive. For example, why pay 2% of $150,000, or $3000, to borrow $30,000? You would be paying 10% of your loan needs in UFMIP. With this new HECM Saver option, UFMIP costs $30. Homeowners who want to pay off credit cards or medical bills using a reverse mortgage can do so in a financially smarter way.

Sound like something you need? Contact a reverse mortgage lender.

In addition to the UFMIP, the homeowner also pays an annual premium of 1.25% of the loan balance on both the HECM Standard and HECM Saver. That is a large increase from the old 0.50% premium. The increase is necessary because the FHA has been hurt by the weak housing market.

You may be asking, "Why would a borrower choose the HECM Standard when the UFMIP is so much more and the annual premium is equal to the HECM Saver (which has almost no UFMIP)?" The answer is the maximum loan amount. HECM Saver is designed for small loan amounts. Generally, the Saver loans let homeowners cash out 10 to 18 percent less equity than the HECM Standard.

The HECM Saver and HECM Standard are available on the following reverse mortgage loan transactions.

• Purchase loans
• Refinance loans
• All five payment plans (tenure, modified tenure, term, modified term, and line of credit)
• Both of the usual interest rate indices (CMT or LIBOR)
• Monthly and annual adjustable rates
• Fixed interest rate

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