Reverse Mortgage Guide

The House version of FHA reform, H.R. 3221: The Foreclosure Prevention Act of 2008, contains an important fee limitation for reverse mortgage borrowers, or at least those who obtain an FHA-backed HECM (home equity conversion mortgage).

Should the language remain intact, it would significantly reduce current lender fees from roughly 2 percent to a fee schedule equal to 1.5 percent of the maximum claim amount.

This is different than earlier versions of the bill which would have limited lender fees to $6,000 regardless of the loan amount.

Somehow, magically, the language changed radically from the Senate version of the bill to the later House version.

See for yourself:

Language approved by the Senate

(k) Limitation on Origination Fees- The Secretary shall establish limits on the origination fee that may be charged to a mortgagor under a mortgage insured under this section, which limitations shall–

(1) be equal to 2.0 percent of the maximum claim amount of the mortgage up to a maximum claim amount of $200,000 plus 1 percent of any portion of the maximum claim amount that is greater than $200,000, unless adjusted thereafter on the basis of an analysis of (A) costs to mortgagors, and (B) the impact on the reverse mortgage market;

(2) be subject to a minimum allowable amount;

(3) provide that the origination fee may be fully financed with the mortgage;

(4) include any fees paid to correspondent mortgagees approved by the Secretary or to mortgage brokers;

(5) apply beginning upon the date that the maximum dollar amount limitation on the benefits of insurance under this section is first increased pursuant to the amendments made by section 219(a)(3) of the Expanding American Homeownership Act of 2008; and

(6) be subject to a maximum origination fee of $6,000, except that such maximum limit shall be adjusted in accordance with the annual percentage increase in the Consumer Price Index of the Bureau of Labor Statistics of the Department of Labor in increments of $500 only when the percentage increase in such index, when applied to the maximum origination fee, produce dollar increases that exceed $500.

Language approved by the House

(r) Limitation on Origination Fees- The Secretary shall establish limits on the origination fee that may be charged to a mortgagor under a mortgage insured under this section, which limitations shall–

(1) equal 1.5 percent of the maximum claim amount of the mortgage unless adjusted thereafter on the basis of–

(A) the costs to the mortgagor; and

(B) the impact of such fees on the reverse mortgage market;

(2) be subject to a minimum allowable amount;

(3) provide that the origination fee may be fully financed with the mortgage;

(4) include any fees paid to correspondent mortgagees approved by the Secretary; and

(5) have the same effective date as subsection (m)(2) regarding the limitation on principal obligation.

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This entry was posted on Friday, July 25th, 2008 at 6:00 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.