On September 1, 2010, we notified you in a Compliance ALERT [FHA's "HECM Saver" - Uncorroborated (9/1/10)] about the uncorroborated reports concerning HUD-FHA's new HECM Saver program. At the time, there was no direct confirmation yet from HUD regarding the new HECM Saver: no Press Release from HUD, no statement from HUD in the Federal Register, and so forth - only, as of that writing, rumors and hints. However, we continued to monitor this matter closely and promised to provide the actual HUD-FHA issuance, including guidelines, when and if the new HECM Saver is offered.
We now have corroboration in the form of Mortgagee Letter 2010-34 (9/21/10) of this second option in HUD-FHA's Home Equity Conversion Mortgage (HECM) Program.
The new HECM Saver is a second initial mortgage insurance premium (MIP) option, for the purpose of lowering upfront loan closing costs, for mortgagors who want to borrow a smaller amount than what would be available with a "HECM Standard."
Effective: On or after October 4, 2010, mortgagors may select either HECM Saver or HECM Standard as an initial MIP.
Initial and Monthly Premiums
- For HECM Saver, the initial MIP will be 0.01 percent (0.01% or 0.0001) of the maximum claim amount (MCA), and is collected at time of loan closing. For HECM Standard, the amount of initial MIP will continue to be 2 percent (2% or 0.02) of the maximum claim amount, which also is collected at the time of loan closing.
- MIP for both HECM Saver and HECM Standard will be charged monthly at an annual rate of 1.25 percent (1.25%) of the outstanding loan balance.
Availability of HECM Saver and HECM Standard
HECM Saver and HECM Standard are available for:
- all HECM transaction types (traditional, purchase and refinance);
- all five payment plans (tenure, term, line of credit, modified tenure and modified term);
- all interest rate indices (Constant Maturity Rate and London Interbank Offered Rate);
- adjustable rate mortgages (monthly and annual); and
- fixed interest rate mortgages
Initial MIP Calculation for Refinance Transactions
For all refinance transactions, mortgagees and counselors must use the formula below to determine the amount of initial MIP due for both HECM Saver and HECM Standard.
1. New MCA multiplied by new initial MIP (%) = New MIP
2. Old MCA multiplied by old initial MIP (%) = Old MIP
3. Subtracting the result of (2) from the result of (1) yields the MIP amount owed to HUD
Other Areas Covered in Mortgagee Letter
- Principal Limit Factor Table
- FHA Connection Case Number Assignment Screen Changes
- Pipeline of HECMs
- Adaption of Legal Documents
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