HUD's HECM HERMIT

The new HECM HERMIT system is on schedule to launch today, October 9, 2012. The Home Equity Conversion Mortgage (HECM) now has a fully enabled web-based system, called Home Equity Reverse Mortgage Information Technology, or HERMIT.

Until now, HUD has managed the HECM portfolio by collecting Mortgage Insurance Premiums (MIP) through its Insurance Accounting Collection System (IACS); servicing HECM loans assigned to HUD through its Single Family Mortgage Asset Recovery Technology (SMART) system; processing and tracking HECM insured servicing requests through SMART and Extensions and Variances Automated Requests System (EVARS); and, manually processing Mortgagee’s insurance claims.

The new HERMIT system is now meant to provide one common HECM platform to consolidate legacy systems.

The new platform, HERMIT, will be used also to monitor and track HUD's HECM loan portfolio in real-time and automate the payment of insurance claims while increasing efficiency and mitigating risks to its Insurance Funds.

Detailed information is provided in Mortgagee Letter 2012-17, issued on September 11, 2012.

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IN THIS ARTICLE

HERMIT System

HERMIT Material

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HERMIT System

The IACS will be phased out IACS and HERMIT will replace it as the system of record for:

1. Collecting MIP;
2. Managing all servicing activities; and
3. Paying insurance claims.

Additionally, through HERMIT mortgagees will be able to:

1. Interact with an integrated HUD HECM system;
2. Interact with HUD’s National Servicing Center (NSC) through a new, automated workflow process; and
3. Replace manual claims filing processes with an online, automated claims filing procedure.

Other features include the mortgagees ability to access HERMIT to notify HUD of the:

1. Borrower’s date of death; and
2. Initiation of foreclosure.

HERMIT Material

Mortgagees may access and download the following documents HUD's webpage, FHA Reverse Mortgage for Lenders (HECM).

* HERMIT User Guide
* Business to Government (B2G)
* Guide Instructions on HERMIT registration process, including User Access forms
* Phone number(s) and other contact information for the HERMIT Help Desk

HUD also provides a webpage devoted to the HERMIT System & Resources.

Library

Home Equity Reverse Mortgage Information Technology (HERMIT)
System for the Home Equity Conversion Mortgage (HECM)
ML 2012-17
(9/11/12)

CFPB: Next Up, Reverse Mortgages!

In a June 28, 2012 Report to Congress, the Consumer Financial Protection Bureau (the CFPB or the Bureau) published its study of reverse mortgage transactions. This study was required by Section 1076 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

The Report surmised that reverse mortgages are not being used as Congress originally intended, because, rather than provide income for borrowers during retirement, reverse mortgages are being provided to consumers at younger ages, thereby increasing the risk that these borrowers will go broke later in life. The study found that almost half of reverse mortgage borrowers in fiscal year 2011 were younger than 70 years of age.

Furthermore, the Report concluded that 70% of reverse mortgage borrowers withdrew all the available funds at once in lump-sum payments, which the CFPB claims can be squandered quickly, leaving borrowers with the potential to face foreclosure due to the reduced ability to pay property taxes. According to the study, nearly 10% of reverse mortgagors (as of February 2012) were at risk of foreclosure.

In its 231 page Report, the CFPB stated the following "emerging concerns":

1. Reverse mortgages are complex products and difficult for consumers to understand.

2. Reverse mortgage borrowers are using the loans in different ways than in the past, which increase risks to consumers.

3. Product features, market dynamics, and industry practices also create risks for consumers.

4. Counseling, while designed to help consumers understand the risks associated with reverse mortgages, needs improvement in order to be able to meet these challenges.

5. Some risks to consumers appear to have been adequately addressed by regulation, but remain a matter for supervision and enforcement, while other risks still require regulatory attention.

The study identified four major topics "where additional research would help determine if additional consumer education or regulatory action is needed."

Those topics are:

(a) Factors influencing consumer decisions;
(b) consumer use of reverse mortgage proceeds;
(c) the longer-term outcomes of reverse mortgages; and
(d) the differences in market dynamics and business practices among the broker, correspondent, and retail channels.

On July 2, 2012, the CFPB began the process of investigating the consumer use of reverse mortgages. This procedure begins with a Notice and Request for Information. In effect, that CFPB now seeks comment and information from the public on the aforementioned topics.

In this review of reverse mortgages, the CFPB will undertake, among other things, to identify any practice as unfair, deceptive, or abusive, and may provide for an integrated disclosure standard and model disclosures. Additionally, it will seek detailed information from the public on the factors that influence reverse mortgage consumers' decision-making, consumers' use of reverse mortgage loan proceeds, longer-term consumer outcomes of a decision to obtain a reverse mortgage, and differences in market dynamics and business practices among the broker, correspondent, and retail channels for reverse mortgages.

In this article, I will outline the scope of information that the CFPB is seeking from the public, including consumers, housing counselors, financial institutions, and others, regarding consumer use of reverse mortgages and consumer experiences during the reverse mortgage shopping process.*

Factors Influencing Consumer Decisions

The CFPB asks the following questions regarding the factors that influence consumer decisions:

1. What factors are most important to consumers in deciding whether to get a reverse mortgage?

2. What factors are most important to consumers in choosing among products? Among other things, comments could address the choice between fixed-rate, lump-sum reverse mortgages and adjustable-rate, line-of-credit or monthly disbursement reverse mortgages.

3. What factors are most important to consumers in choosing among potential lenders?

HECMs: February 1, 2011 Date Approaches

Counseling is a central feature of the Home Equity Conversion Mortgage (HECM) program. Without a counseling certificate from an FHA-approved provider, a lender may not originate a HECM. Counseling has always been part of the HECM program, going back to Handbook 4235.1 Rev-1, which outlines the basic program. Published in 1994, it has been continuously revised through Mortgagee Letters, HECM regulations, and, of course, amendments to the HECM statute. Handbook 7610.1 contains the HECM Counseling Protocol.

Recently, HUD issued Mortgagee Letter 2010-37, which seeks to clarify certain aspects of the required List of HECM Counseling Agencies (Counselors List), along with guidance about completing the FHA Connection case assignment screens for HECMs vis-à-vis the Counselors List, and the timing for completion of certain relevant screens.

The salient requirement: lenders are required to provide each client with a list of HECM counseling agencies and that list must include no fewer than nine HUD-approved counseling agencies, based on specific criteria.

Compliance Effective: February 1, 2011

HUD WEBINAR ON HECMS – REGISTRATION

January 19, 2011 - 9:00 AM to 11:30 AM

A free webinar is being offered by HUD, which will provide an overview and the latest updates to the HECM origination requirements.

Topics will include: HECM purchase transactions, refinances, and updates to the HECM process, HECM Standard and the new HECM Saver.

ALL TIMES MDT

HECM COUNSELOR LIST BACKGROUND

Mortgagees are required to provide each client with a list of HECM counseling agencies.

The Counselors List must include no fewer than nine (9) HUD-approved counseling agencies, based on specific criteria.

The Counselors List must include at least:

• five agencies within the local area and/or state of the prospective borrower
• one of the local agencies located within a reasonable driving distance for the purpose of face-to-face counseling, and
• the following four national intermediaries:

1. National Foundation for Credit Counseling (NFCC)
2. Money Management International (MMI)
3. National Council on the Aging (NCOA)
4. CredAbility

[Note: Earlier this month, the National Reverse Mortgage Lenders Association (NRMLA) sought guidance from FHA on the required actions lenders must take if they are unable to provide a full list of counselors to a potential applicant, when the client lives in an area that does not have five HUD-approved counseling agencies, as required by the selection criteria.]

FHA CONNECTION HECM REFERRAL LIST REQUIREMENTS

Within one (1) business day of requesting a FHA case number, a lender should complete the HECM Referral List Update in FHA Connection.

• The screen must be completed prior to a HECM loan being endorsed for insurance.
• This screen requires the lender to input the nine (9) agencies that the lender provided on the list given to the client.

WHEN A CLIENT IS NOT REFERRED

In the FHA Connection, the mortgagee must check the "Not Referred" box only if a client has already been counseled by a HUD-approved HECM counselor.

• The client must be able to confirm that s/he has received counseling by providing the lender a completed the Certificate of HECM Counseling (Form HUD 92902), which verifies where and when the client received HECM counseling, and that counseling was received from a HUD-approved HECM counselor.

Visit Library HUD-Approved Housing Counseling Agencies Mortgagee Letter 2010-37 November 8, 2010

FHA: WEBINAR - Sponsored Originations, HECM, FHA Connection

On September 28, 2010, the Federal Housing Administration (FHA) held a webinar, entitled Sponsored Originators, HECM Saver, and Other FHA Connection Changes, Effective October 4, 2010, subtitled "Sponsored Originators and Other Upcoming Modifications."

The webinar was well attended and topped out at over 650 participants. Indeed, the day before the webinar HUD-FHA notified the public that registrations could no longer be accepted due to space limitations.

The purpose of the webinar was to provide an overview of FHA Connection enhancements to support Sponsored Originations, including the Sponsored Originator Maintenance page, key case processing changes, and B2G & TOTAL Scorecard modifications. Also discussed were the HECM Saver, new ADP Codes, and the new Property Title Information section added to the Appraisal Logging screen of FHA Connection.

Because the webinar presentation was proscribed on a limited basis and would only be available for a short period of time to participants, we have downloaded it in order to make it available to you.

Highlights

Subjects Covered in the Webinar

• Mortgagee Letter 2010-20

• Mortgagee Letter 2010-33

• Sponsored Originators

• Sponsored Originator Maintenance Page
• Key case processing changes through FHA Connection
• B2G & TOTAL Scorecard Modifications
• New Data Collection on Form 92900-A

• New Appraisal Logging Data Fields
• HECM Saver

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Visit Library for Issuance

HUD-FHA Webinar: Sponsored Originators, HECM Saver, and Other FHA Connection Changes, Effective October 4, 2010
September 28, 2010

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LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

FHA: Announces HECM SAVER Program

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.

Highlights

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.

Formula:

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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Visit Library for Issuance

Home Equity Conversion Mortgage Program -
Introducing HECM Saver
Mortgagee Letter 2010-34, September 21, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

FHA: HECM "Saver" - Uncorroborated

According to news reports circulated since August 27, 2010, the HECM Saver is on the way! Sources are alleging a conference call with Vicky Bott, HUD's Deputy Assistant Secretary, in which she supposedly announced plans to implement a new variant of the Home Equity Conversion Mortgage, referred to as the "HECM Saver," that will provide seniors with a reverse mortgage option that significantly lowers upfront costs by virtually eliminating the upfront Mortgage Insurance Premium that is required under the current HECM option.

Bott is also alleged to have said that there will be accompanying changes intended for the existing HECM product, now to be referred to as a "HECM Standard," and that the HECM Saver and changes to the HECM Standard are expected to be effective in early October 2010.

Apparently, this new report is said to have emanated originally from the National Reverse Mortgage Lenders Association (NRMLA), which has no such announcement on its website.

There is no direct confirmation yet from HUD regarding this new HECM Saver: no Press Release from HUD, no statement from HUD in the Federal Register, and so forth - only, as of this writing, rumors and hints.

We will monitor this matter closely and provide the actual HUD-FHA issuance, including guidelines, when and if the new HECM Saver is offered.

For questions about this matter or assistance with mortgage compliance, please contact Jonathan Foxx, Managing Director.

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Lenders Compliance Group is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Reverse Mortgages: Compliance & Reputation Risk

Overview

On August 16, 2010, the federal banking agencies and Federal Financial Institutions Examination Council (FFIEC) issued the attached final guidance (Guidance) reverse mortgages and complex loan products typically offered to elderly consumers.

Institutions are expected to use the Guidance to manage the risks associated with reverse mortgages, including consumer protection concerns, such as counseling requirements, conflicts of interest, related policies, procedures, internal controls, and third party risk management. In addition to legal considerations, the Guidance provides directives regarding:

Key Policy Issues Raised by the Reverse Mortgage Guidance

Consumer Information and Understanding
Existence and Effectiveness of Consumer Counseling
Conflicts of Interest and Abusive Practices
Third-Party Risk Management

If you have any questions about this matter or would like assistance with mortgage compliance, please contact Jonathan Foxx.

Highlights

Legal Considerations

Consumer protection laws and regulations applicable to both Home Equity Conversion Mortgages (HECM) and proprietary reverse mortgage products, including those required by the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices, the Truth in Lending Act, and other special provisions set forth in HUD regulations.

Key Policy Issues

Consumer Information and Understanding

Borrowers do not consistently understand the terms, features, fees, alternatives to and risks of their loans.

Remedy

• Provide consumers with clear and balanced information about the relative benefits and risks of reverse mortgage products, at a time that will help them make informed decisions.

• Review advertisements and other marketing materials to ensure that important information is disclosed clearly and prominently.

• Ensure that marketing materials do not provide misleading information about product features, loan terms, or product risks, or about the borrower's obligations with respect to taxes, insurance, and home maintenance.

• Develop promotional materials and other product descriptions that provide information about the costs, terms, features, and risks of reverse mortgage products.

Existence and Effectiveness of Consumer Counseling

While counseling is mandatory for HECM transactions, it may not be required for proprietary products. Counseling conducted over the telephone, in particular, may not be adequate in all cases.

Remedy

• Require that consumers obtain counseling from a qualified independent counselor.

• Adopt policies that prohibit steering a consumer to any one particular counseling agency and that prohibit contacting a counselor on the consumer's behalf.

• Strongly encourage the consumer to obtain counseling in person, whenever possible, and to attend counseling sessions with family members.

Conflicts of Interest and Abusive Practices

Potential for inappropriate sales tactics and other abusive practices in connection with reverse mortgages is greater where the lender or another party involved in the transaction has conflicts of interest or has an incentive to market other products and services.

Remedy

• Borrowers are not required to purchase any other financial or other product from the lender or broker in order to obtain the reverse mortgage.

• Originators do not have an inappropriate incentive to sell other products that may appear to be linked to the granting of a reverse mortgage.

• Compensation policies guard against other inappropriate incentives for loan officers and third parties, such as mortgage brokers and correspondents, to make a loan.

Third-Party Risk Management

When making, purchasing, or servicing reverse mortgages through a third party, such as a mortgage broker or correspondent, institutions should take steps to manage the compliance and reputation risks presented by such relationships.

Visit Library for Issuance

Reverse Mortgage Products
Guidance for Managing Compliance and Reputation Risks
FR, Vol. 75, No. 158, pp 50801-50812 (8/16/10)

Lenders Compliance Group is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.