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On June 19, the Federal Housing Administration (FHA) published Mortgagee Letter 2014-10 which outlines guidance which prohibits misleading or deceptive advertising and marketing for lenders that participate in its Home Equity Conversion Mortgage (HECM) program. The intention of this Mortgage Letter guidance is to protect HECM borrowers from misleading advertising and presentations that appear to limit their options rather than informing them of the complete range of HECM offerings.
“Senior borrowers deserve freedom of choice when considering whether a reverse mortgage is appropriate for them,” said FHA Commissioner Carol Galante. “This guidance is intended to make sure lenders know we’re keeping a watchful eye on their marketing and advertising practices that might steer borrowers toward reverse mortgage options that limit their available choices.”
Last August the Reverse Mortgage Stabilization Act made major changes to the HECM program. In addition to this law empowering the FHA to regulate its troubled HECM program with Mortgagee Letters; the FHA also set limits on the first draw a senior can take on a HECM loan and required property tax and homeowners insurance escrow accounts.
FHA approved lenders are required to explain all requirements and features of the HECM program and may not mislead or cause a senior borrower to believe that the HECM product has any features or limitations that are not consistent with FHA’s requirements.
Examples of what the mortgagee must explain:
- FHA insures fixed interest rate mortgages and annual and monthly adjustable interest rate mortgages
- The borrower can change the method of payment under the reverse mortgage Adjustable Rate Mortgage (ARM) products at any time if funds are available
- Fixed interest rate mortgages are limited to the Single Disbursement Lump Sum payment option where there is a one-time draw at loan closing and no future draws after the loan closes
- Adjustable interest rate mortgages allow five flexible payment options and future draws
- The amount of funds available to the mortgagor is currently determined by the youngest mortgagor’s age
- Disbursement of mortgage proceeds during the first 12-month disbursement period is subject to an initial disbursement limit as determined by requirements set by the Secretary
Failing to follow HUD/FHA requirements as outlined in the Mortgagee Letter could result in civil money penalties or administrative action against any person or company, including non-FHA approved institutions and individuals.
HUD.gov. “FHA Announces New Guidance Prohibiting Deceptive Marketing and Advertising Practices in Reverse Mortgage Program” 26 June 2014. http://portal.hud.gov/hudportal/HUD?src=/press/press_releases_media_advisories/2014/HUDNo_14-078
Mortgage Bankers Association. “FHA Guidance Bans ‘Deceptive Marketing, Advertising’ in HECM Program” 26 June 2014. http://www.mortgagebankers.org/tools/FullStory.aspx?ArticleId=49106