Pricing Policy for Reverse Mortgage Refinance changed by Fannie Mae
Fannie Mae has announced a modification to their HECM Pricing Policy. This change is effective immediately. The change is that all HECM to HECM refinances can earn a premium. But the lenders are still obliged to comply with all the HUD regulations applicable to HECM refinances.
Most reverse mortgages were not paying any premiums for HECM to HECM refinances that did not pass the mandatory 5:1 Anti-churning policy made clear by the HUD. HUD requires that reverse mortgage lenders provide borrowers with an anti-churning disclosure.
“Churning” is said to be a lending practice wherein lenders engage in multiple re-financing so they can make additional profit from loan charges and fees. The churned mortgages are generally not in the best interest of the borrower and there is no financial benefit to the borrower from lenders’ churning practices.
Section 255 of the National Housing Act says that, reverse mortgage lenders must provide senior home owners seeking to refinance a HECM (Home Equity Conversion Mortgage) with all the information about the total cost of the new mortgage, based on the total projected future loan balance. The lender also needs to disclose all charges and fees associated with HECM refinance, and provide the senior borrower with the new maximum mortgage limit, and estimate the amount of new funding available to the borrower.
Because of this rule, lenders cannot encourage HECM borrowers to refinance their existing HECM mortgages if the borrowers do not stand to benefit from the refinancing. The FHA (Federal Housing Administration) requires that reverse mortgage lenders provide the borrowers with a best estimate of:
1. the total cost of refinance
2. the increase in the principal limit (that is the estimated initial principal limit on the mortgage to be insured minus the current principal limit on the HECM that is now being refinanced.
The HUD has an online form which can be downloaded and used for free by the borrower to make sure his or her interests are protected from unscrupulous reverse mortgage lenders. This PDF form is available at this web location:
http://www.hud.gov/offices/adm/hudclips/forms/files/92901.pdf
The underwriters at Fannie Mae will continue to ask for detailed information from borrowers and originators if the anti churning ratio of 5:1 is not met.
It sounds like, Fannie Mae wants HUD to handle the task of making reverse mortgage lenders accountable with anti-churning ratios in place.
It is not only Fannie Mae that has made this announcement. This same announcement was made earlier this week by Financial Freedom.
