By the Division of Banks
Industry Letter on Recent HUD Changes to Home Equity Conversion Mortgage (HECM)- Reverse Mortgage Mortgagee Letters 2013-27 and 2013-28
September 11, 2013
To the Chief Executive Officer of the Institution Addressed:
On September 3, 2013, the Department of Housing and Urban Development (HUD) announced changes to its Home Equity Conversion Mortgage (HECM) program requirements in Mortgagee Letters 2013-27 and 2013-28 (Mortgagee Letters). The changes will take effect on case numbers assigned on or after September 30, 2013 and January 13, 2014, respectively. Under Massachusetts law, reverse mortgage loans must be made in accordance with programs which have been reviewed and approved by the Division of Banks (Division) pursuant to the statutory requirements in G.L. c. 167E, §7 and 7A. In addition to Massachusetts state-chartered banks, these provisions also apply to all other mortgagees making reverse mortgage loans pursuant to G.L. c. 183, §67. Massachusetts state-chartered credit unions seeking to make reverse mortgage loans must request approval of a program meeting the requirements set forth in G. L. c. 171, §65C and 65C1/2. The purpose of this industry letter is to remind reverse mortgage lenders of the requirement to update their program by filing an amendment to their reverse mortgage loan program with the Division and to establish a deadline for said submission.
The changes announced in Mortgagee Letter 2013-27 to the HECM program requirements include but are not limited to, a limit on the initial principal limit amount which can be disbursed in the first 12 months after closing and the establishment of a new mortgage insurance premium structure. These changes will be in effect for case numbers assigned on or after September 30, 2013. Mortgagee Letter 2013-28 which becomes effective for case numbers assigned on or after January 13, 2014, requires lenders to conduct a financial assessment on all prospective HECM borrowers to evaluate the borrowers’ willingness and ability to meet their financial obligations and the requirements of the mortgage. Lenders will also be responsible for determining if a Lifetime Expectancy Set-Aside should be deducted from the HECM proceeds so that the mortgagee can pay property charges such as homeowners insurance and property taxes as they become due.
During this transitional period, lenders with an approved reverse mortgage program are permitted to originate HECM reverse mortgage loans on or after September 30, 2013, provided that the lender continues to maintain compliance with state law requirements (see: Industry Guidance on Reverse Mortgage Loans) and HUD’s revised program requirements. Lenders with an approved reverse mortgage program are required to submit amended loan documentation to the Division, along with any updated policies and procedures, via compact disk (CD) or flash drive, to demonstrate compliance with Mortgagee Letters 2013-27 and 2013-28, on or before December 15, 2013. Paper submissions will not be accepted. Amended documents should be sent to the following:
Massachusetts Division of Banks
Mortgage Examination Unit
1000 Washington Street, 10th floor
Boston, MA 02118
In addition, lenders with an approved reverse mortgage program should notify the Division if they are no longer originating reverse mortgage loans in the Commonwealth or if they intend to cease originations at a future date.
Failure to file an amended plan by the December 15, 2013 submission date may result in a rescission of a lender’s approval to offer reverse mortgages.
Lenders seeking to file a new reverse mortgage application with the Division for review and approval must demonstrate compliance with the Mortgagee Letters at the time of submission of their application.
If you have any questions, please contact Amy Hassey, Chief Director of Mortgage Examinations at (617) 956-1543. Thank you for your cooperation.
David J. Cotney
Commissioner of Banks