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FHA protects seniors from unscrupulous lenders

March 19th, 2009 11:07 AM

Effective October 1, 2008 HUD has made changes to rules regarding who can originate or receive compensation for HECM (reverse mortgages) through FHA. Effective with that date, no reverse mortgage loan may be closed with a payment to a third party that is not an FHA approved lender.

A HECM mortgage originator or any other party that participates in the origination of a FHA insured HECM mortgage shall (1) not participate in, or be associated with, or employ any party that participates in or is associated with, any other financial or insurance activity; or (2) demonstrate to the Secretary of HUD that the mortgagee or other party maintains, or will maintain, firewalls and other safeguards designed to ensure that (i) individuals participating in the origination of a HECM mortgage have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product; and (ii) the mortgagor shall not be required, directly or indirectly, as a condition of obtaining a mortgage under this section, to purchase any other financial or insurance product.

FHA advises that mortgagees must not condition a HECM mortgage on the purchase of any other financial or insurance product, and should strive to establish, consistent with the new law, firewalls and other safeguards to ensure there is no undue pressure or appearance of pressure for a mortgagor to purchase another product of the mortgage originator or mortgage originator’s company.

Loan origination must be performed by FHA approved entities including: (1) a FHA-approved loan correspondent and sponsor; (2) a FHA approved mortgagee through its retail channel; or (3) a FHA-approved mortgagee working with another FHA-approved mortgagee.

MORTGAGEE LETTER 2008-14, WHICH PROVIDED GUIDANCE REGARDING THE WAYS IN WHICH A NON-APPROVED ENTITY OR THIRD PARTY MAY PARTICIPATE AND BE COMPENSATED, IS RESCINDED, EFFECTIVE ON OCTOBER 1, 2008. Beginning with case number assignments made on or after that date, only FHA-approved mortgagees, as described above, may participate and be compensated for the origination of HECMs to be insured by FHA.

Posted by Phillis Jackson on March 19th, 2009 11:07 AMPost a Comment (0)