Reverse Mortgage Refinance Guidelines

Due to an anticipated increase in reverse mortgage borrowers who will soon be refinancing, the Department of Housing and Urban Development has offered a clarification of the current guidelines for the product. HUD has published Mortgagee Letter 2009-21 in response to the remaining time in which the new $625,000 loan limit will still be in effect. The Mortgagee Letter addresses numerous requirements for reverse mortgaging lenders, such as counseling requirements, HECM for purchase, assigned loans, the anti-churning disclosure and servicing. It also officially establishes a rule that was first published last year allowing refinancing and qualification for reduced mortgage insurance premiums. This is for borrowers whose loan balance reached 98% of the maximum claim amount and were thus assigned to HUD. The new policy will only be applied to loans refinanced after October 6, 2008.

So that lenders can give their clients a more accurate perception of the full cost of refinancing, the changes to the anti-churning disclosure indicate that the lender must offer the borrower an accurate estimate of the refinancing total. The FHA case binder must include a copy of the anti-churning disclosure. This also helps to determine whether the counseling requirement can be waived.

The only way that counseling can be waived is if the borrower has received the anti-churning disclosure, the increase in principal limit equals five times the entire cost of refinancing the loan and the period from the closing of the existing HECM and the borrower’s application to refinance does not exceed five years.
The Mortgagee Letter assures that the appropriate disclosures are given to the borrower by the lender. It does so by requiring lenders to determine if a refinanced loan is an open-end or closed-end line of credit.

The lender must contact the loan servicer and acquire the maximum claim amount as well as the current principal limit and the payoff amount. In the event that the loan has not been assigned to FHA, the lender must contact the FHA Connection to obtain that information. It is important that servicers resolve existing HECMs by recording outstanding advances before payoff, and for the total amount of the loan to be paid before the first and second mortgages are released.

In addition to the changes mentioned above, the letter stipulates that reductions in Mortgage Insurance Premiums apply only when property that is in effect serving as collateral for the reverse mortgage loan remains the same. This means that if an HECM is terminated by the borrower, and a new property is purchased through the purchase program, the new loan will not qualify for a reduced Mortgage Insurance Premium.

A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has helped over 3000 Americans find financial security with a reverse mortgage. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of "62 Senior Moments." If you would like more information, please call (866) 683-3690 or complete our online Reverse Mortgage Calculator.