Reverse Mortgage Guide

The FHA Reform measure passed by the Congress last summer established new origination fee limits for reverse mortgages insured by HUD.

As HUD explains, for all HECMs where the FHA case number is assigned on or after October 31, 2008, “the loan origination fee limit will be the greater of $2,500 or two percent of the maximum claim amount of the mortgage, up to a maximum claim amount (MCA) of $200,000, plus one percent of any portion of the maximum claim amount that is greater than $200,000. Lenders may accept a lower origination fee when appropriate. The total amount of the loan origination fee may not exceed $6,000.”

Right. So what does this mean in plain language?

Here are some examples from HUD:

___Example 1: If the maximum claim amount is $100,000 then the origination fee is limited to $2,500.

___Example 2: If the maximum claim amount is $300,000 then the origination fee is limited to $5,000.

___Example 3: If the maximum claim amount is 417,000 then the origination fee is limited to $6,000.

Here’s how to calculate the origination fee for each example:

Example 1:

2% of $100,000 = $2,000

Origination Fee = the greater of

$2,000 or $2,500

Example 2:

2% of $200,000 = $4,000

1% of $100,000 = $1,000

Total $5,000

Example 3:

2% of $200,000 = $4,000

1% of $217,000 = $2,170

Total $6,170

In no case can the origination fee exceed $6,000.

HUD also makes this statement:

“Consistent with existing policy, the loan origination fee, which may be fully financed with HECM proceeds, includes fees paid to FHA-approved loan correspondents and covers the full array of origination services, including: educating the client;analyzing the prospective borrower’s eligibility for a reverse mortgage;taking information from the borrower and filling out the loan application;collecting financial information, if applicable, and other related documents that are part of the application process;initiating/ordering verification of deposits or assets, if applicable;initiating/ordering request for mortgage and other loan verifications;initiating/ordering appraisals; initiating/ordering inspections or engineering reports;providing disclosures (truth in lending, good faith estimate and others) to the borrower(s); maintaining regular contact with the borrower, real estate professional, and lender between loan application and closing to apprise them of the status of the application and gather any additional information needed; assisting the borrower with understanding and resolving adverse property conditions; ordering legal documents; determining whether the property is in a flood zone or ordering such service; processing the loan; and participating in the loan closing.

“Lenders may not charge the borrower any fees in addition to the origination fee to pay FHA-approved loan correspondents.”

For the full policy, press here.

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This entry was posted on Monday, November 10th, 2008 at 4:27 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.