Reverse Mortgage Closing CostsInversion of the acquisition costs of the mortgage
Mortgage Letter for clarification of roles and remuneration of HECM consultants
HUD published on 16 May 2008, at the instigation of Arthur Axelson, a Reed Smith Washington D.C. affiliate, a long-awaited mortgage letter on the use and remuneration of "advisors" (third persons offering pedagogical origin creation service for HECM loans). While an FHA accredited lending agent or mortgage creditor may not act as an adviser, HUD pointed out that an FHA accredited lending institution or third person may offer advice and education to HECM beneficiaries in excess of the reverse mortgage advice provided by an FHA accredited residential property consultancy.
Those sevices may include informing potential lenders about the reverse mortgage credit procedure, providing advice to the counterparty on different kinds of available credit instruments, showing how closure costs and repayment methods may differ under each instrument, and keeping periodic contacts with the creditor to keep the counterparty informed of the credit request state.
Those firms cannot carry out origination ('brokerage') activity, which must be carried out by firms authorised by the FTA. 31 (a)(1) To be indemnified for such provision of remunerated mortgage lending and mortgaging fees, a non-FHA authorized institution or third person must be "engaged independent of the homeowner", there must be "no interest between the mortgage brokers and the mortgage creditor", and the fees charged for the provision of remunerated mortgage lending and mortgaging fees must be contained "as part of the creation fee" payable to the mortgage creditor or credit correspondence.
However, the mortgage lender's note makes it clear that a company not licensed by the FHA or a third person will only be indemnified if: Unauthorised undertaking or third person provides effective service and not only recommendation. They are useful and do not represent control, as described in the RESPA Directive 1999-1, or merely the supply of a higher interest bearing credit, as described in the RESPA Directive 2001-1.
Remuneration is payable by the Mortgagor directly from the Mortgagor's own available funds or from HECM borrowings. In the event that the amount is derived from the HECM revenue, the amount is added to the credit amount and transferred by the final representative to the intermediary. However, the amount must be deducted from the lending charge, which is limited to the higher of $2,000 or 2 per cent of the total exposure.
Not more than the appropriate value for such a service. If, for example, the amount is disproportionate to the fair value of the service provided, the surplus over the commercial interest may be used as proof of an indemnified transfer or an undeserved charge in breach of Section 8(a) or (b) RESPA and 24 CFR 3500.14.
HUD-1 Settlement includes the amount disbursed and the name of the consultant. In the FHA case file, the undersigned letter of intent between the Mortgagor and the unauthorized company or third parties specifying the consulting and education work to be done and the amount of remuneration for each job is made.
Mortgage Debtor Letter also confirms that only companies authorised by the FHA can be indemnified for providing normal lending related service, which includes but is not restricted to: Accept information from the Mortgagor and complete the Credit Request; analyze the suitability of the potential Mortgagor for a reverse mortgage; collect finance information, if any, and other related documentation that is part of the credit request procedure; initiate or order review of deposit or asset, if any;
Initiation/ordering of applications for mortgage and other credit checks; initiation/ordering of expert opinions; initiation/ordering of inspection or technical report; provision of disclosure (truth in granting of credit, good credit assessment, others) to the Mortgagor; assistance to the Mortgagor in comprehension and resolution of unfavourable real estate relationships; ordering of legislative documentation; participation in conclusion of the Credit Agreement. HUD has also indicated that it will introduce a regulatorial amendment to ban companies not authorised by the FHA from taking part in the granting of HECM credits (which would be in line with the FHA ban on the FHA forward credit market).
Up to this point, the consultants can still be used for HECM lending under the new mortgage deed.