Home Equity Conversion Mortgage (HECM) Program; Insurance for Mortgages To Refinance Existing HECMs

Note: EPA no longer updates this information, but it may be useful as a reference or resource.

[Federal Register: June 5, 2001 (Volume 66, Number 108)]
[Proposed Rules]
[Page 30277-30281]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05jn01-34]

-----------------------------------------------------------------------

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 206
[Docket No. FR-4667-P-01]
RIN 2502-AH63

Home Equity Conversion Mortgage (HECM) Program; Insurance for
Mortgages To Refinance Existing HECMs

AGENCY: Office of Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: This proposed rule would amend HUD's regulations for the Home
Equity Conversion Mortgage (HECM) Program to implement the recent
amendments made by section 201(a) of the American Homeownership and
Economic Opportunity Act of 2000. The HECM Program enables older
homeowners to withdraw some of the equity in their home in the form of
payments for life, a fixed term, or at intervals through a line of
credit. Section 201(a) authorizes HUD to offer mortgage insurance for
refinancing of existing HECMs, and provides consumer safeguards for
such refinancings.

DATES: Comments Due Date: July 5, 2001.

ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Rules Docket Clerk, Office of General
Counsel, Room 10276, Department of Housing and Urban Development, 451
Seventh Street, SW, Washington, DC 20410-0500. Communications should
refer to the above docket number and title. Facsimile (FAX) comments
are not acceptable. A copy of each communication submitted will be
available for public inspection and copying between 7:30 a.m. and 5:30
p.m. weekdays at the above address.

FOR FURTHER INFORMATION CONTACT: Vance T. Morris, Director, Office of
Single Family Program Development, Office of Insured Single Family
Housing, Room 9266, U.S. Department of Housing and Urban Development,
451 Seventh Street, SW, Washington, DC 20410-8000; telephone (202) 708-
2121 (this is not a toll-free number). Hearing-or speech-impaired
individuals may access this number via TTY by calling the toll-free
Federal Information Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

The Home Equity Conversion Mortgage (HECM) Program helps homeowners
62 years of age or older, who have paid off their mortgages or have
small mortgage balances, to stay in their homes while using some of
their equity. The program enables these homeowners to get financing
with a Federal Housing Administration (FHA) insured reverse mortgage--a
mortgage that converts equity into income. The FHA insures HECM loans
to protect lenders against loss. Such a loss could occur if amounts
withdrawn exceed equity when the property is sold. The statutory
authority for the HECM Program is section 255 of the National Housing
Act (12 U.S.C. 1715z-20) (the NHA). HUD's implementing regulations are
located at 24 CFR part 206 (entitled ``Home Equity Conversion Mortgage
Insurance''). More information on the HECM Program can be found at
HUD's website at www.hud.gov/buying/reverse.cfm.
Section 201 of the American Homeownership and Economic Opportunity
Act of 2000 (Pub. L. 106-569, 114 Stat. 2944, 2948, approved December
27, 2000) makes several changes to the HECM Program. Among other
amendments, section 201(a) adds a new section 255(k) to the NHA (the
existing subsection (k), concerning funding for counseling and consumer
education, was redesignated as subsection (m)). New section 255(k)
authorizes FHA to offer mortgage insurance for refinancing existing
HECMs, and establishes several requirements concerning such
refinancings for the protection of homeowners and to expedite the
refinancing process. For example, the statute establishes an ``anti-
churning'' disclosure requirement for HECM refinancings, and authorizes
the waiver of the HECM counseling requirements under certain
circumstances. Expedited procedures for refinancing will enable elderly
homeowners to quickly take advantage of declining interest rates and
increasing home prices in particular areas.
In addition to the statutory changes concerning HECM refinancings,
section 201 also made amendments to the HECM Program regarding housing
cooperatives (section 201(b)) and the waiver of up-front premiums for
mortgages to fund long-term care insurance (section 201(c)). These
statutory changes are not implemented by this proposed rule, but may be
the subject of future HUD rulemaking.

II. This Proposed Rule

A. General

This proposed rule would implement new section 255(k) of the NHA.
Specifically, the proposed rule would create a new Sec. 206.53, which
contains the requirements applicable for a refinanced HECM to be
eligible for mortgage insurance. Section 206.53 would provide that HUD
may, upon application by a mortgagee, insure any mortgage (that meets
the HECM Program requirements) given to refinance an existing HECM.
Except as otherwise provided in Sec. 206.53, all of the requirements in
24 CFR part 206 would apply to HECM refinancings.

B. Anti-Churning Disclosure

New section 255(k)(2) of the NHA establishes an ``anti-churning''
disclosure requirement, which is designed to ensure that homeowners are
made aware of the costs associated with a HECM refinancing. The anti-
churning disclosure must be provided to borrowers in addition to the
disclosures already required under Sec. 206.43 of the existing HECM
regulations.
The proposed rule would implement the anti-churning disclosure
requirement in paragraph (c) of Sec. 206.53. New Sec. 206.53(c) would
require that the mortgagee provide to the mortgagor, in addition to the
other required disclosures for the HECM Program, a good faith estimate
of:
1. The total cost of the refinancing to the mortgagor (the proposed
rule defines the term ``total cost of the refinancing'' to mean the sum
of the allowable charges and fees permitted under Sec. 206.31 and the
initial mortgage insurance premium (MIP) described in Sec. 206.105(a));
and
2. The increase in the mortgagor's principal limit as measured by
the estimated initial principal limit on the mortgage to be insured
less the current principal limit on the HECM that is being refinanced.
(The term ``principal limit'' is defined at Sec. 206.3 of the existing
HECM regulations and is not being changed by this proposed rule.)
New section 255(k)(2) of the NHA requires that HUD, through
regulation, establish ``an appropriate time period'' for submission of
the anti-churning disclosure. The proposed rule would implement this
statutory directive by adopting the timing requirements applicable to
the Good Faith Estimate required under the Real Estate Settlement
Procedures Act (RESPA). The RESPA Good Faith Estimate is a required
disclosure under the HECM Program (see Sec. 206.43(a)). By conforming
the timing of the new anti-churning disclosure to the existing RESPA
disclosure, the proposed rule will minimize the administrative burden
imposed on lenders, and help to

[[Page 30279]]

ensure that borrowers are provided with all required disclosures at a
single time.

C. Waiver of Counseling Requirement

1. General. Because HECM borrowers can be vulnerable to fraudulent
or predatory lending abuses, the HECM Program requires that a mortgagor
receive reverse mortgage housing counseling from a HUD-approved housing
counseling agency as a condition for obtaining HECM financing (see
Sec. 206.41). However, the mortgagor who is refinancing a HECM would
previously have received the required counseling when obtaining FHA
insured mortgage financing for the initial HECM. Accordingly, new
section 255(k)(3) of the NHA provides that such mortgagors may elect to
forego housing counseling if certain requirements are satisfied. The
new statute establishes three conditions that must be met in order to
waive the housing counseling requirement:
a. The mortgagor has received the anti-churning disclosure;
b. The increase in the mortgagor's principal limit (as described in
the anti-churning disclosure) exceeds the total cost of the refinancing
by an amount established by HUD; and
c. The time between the closing on the original HECM and the
application for refinancing does not exceed 5 years.
2. Second condition for waiver of the housing counseling
requirement. HUD proposes that the second condition for a waiver be
satisfied if the increase in the mortgagor's principal limit exceeds
five times the total cost of the refinancing. Housing counseling is an
important component of HUD's efforts to protect borrowers participating
in the HECM Program from predatory lending abuses. While no one set of
abusive practices or terms characterizes a predatory mortgage loan,
such loans frequently contain excessive, often hidden, fees. In
establishing the amount required for the second waiver criterion, HUD
has attempted to assure that mortgagors who may be subject to such
predatory fees receive housing counseling. At the same time, HUD is
cognizant of the statutory intent to waive a potentially duplicative
requirement for HECM mortgagors who wish to refinance and who have
already received counseling. Accordingly, HUD proposes to establish a
high threshold for waiver of the housing counseling requirement. HUD
believes that a refinanced HECM with an increase in the principal limit
that does not exceed the proposed threshold is more likely to contain
the excessive fees that frequently characterize predatory loans.
The amount necessary to satisfy the second condition for a waiver
would not be specified in the regulatory text. This amount may need to
be updated on a periodic basis due to changes in the available
financial data, or changes in the housing market. Codification of the
threshold amount would require that HUD use rulemaking procedures each
time the amount is revised. Rulemaking is a potentially lengthy process
that may delay HUD's ability to quickly update this figure in response
to rapidly changing circumstances. Accordingly, HUD proposes to
announce any changes to the second waiver criterion through Federal
Register notice. In order to provide HECM program participants with
sufficient time to adjust to any such change, HUD will delay the
effective date of the revision for a period of not less than 30-days
following publication in the Federal Register notice. After
consideration of the public comments on this proposed rule, HUD will
announce the initial threshold amount in the preamble to the final
rule.
3. Third condition for waiver of the housing counseling
requirement. With regards to the third condition for waiver of the
counseling requirement, HUD notes that the statutory language refers to
the ``original'' HECM that is to be refinanced. Accordingly, a
refinancing mortgagor would be required to receive housing counseling
if more than 5 years have passed since closing on the mortgagor's first
HECM, regardless of whether less than 5 years have passed since a
previous refinancing.

D. Limit on Origination Fee

New section 255(k)(6) of the NHA permits HUD to ``establish a limit
on the origination fee that may be charged to a mortgagor'' for a HECM
refinancing. HUD proposes to adopt the existing limit on HECM
origination fees for purposes of HECM refinancings. Specifically, the
origination fee on a refinanced HECM would be limited to the greater of
$2,000 or two percent of the maximum claim amount on the refinanced
reverse mortgage (see HUD Mortgagee Letter 00-10, issued on March 8,
2000). Although this proposed rule would adopt the existing HECM
origination fee limits for HECM refinancings, different limits may be
established for ``original'' HECMs and refinanced HECMs at a later
date. As with the current origination fee limits for the HECM Program,
the limits for HECM refinancings would not be specified in the
regulatory text.
The proposed rule would also revise Sec. 206.31(a)(1) of the
existing HECM regulations (which concerns origination fees) to clarify
that the origination fee may be fully financed with the mortgage.
Further, any origination fee limit shall include any fees paid to
correspondent mortgagees approved by the Secretary. HUD also proposes
to adopt a new process for revising the origination fee limits for the
HECM Program (this procedure would apply to both HECM financing and
refinancings). Specifically, HUD will announce any changes to the
origination fee limits through publication of a Federal Register
notice. Further, in order to provide program participants with
sufficient time to adjust to any such change, HUD will delay the
effective date of the revision for a period of not less than 30-days
following publication in the Federal Register.

E. Reduction of Up-Front HECM Mortgage Insurance Premium

For a refinancing mortgage, new section 255(k)(4) of the NHA
authorizes HUD to reduce the amount of the initial MIP otherwise
collected on a HECM (equal to 2 percent of the maximum claim amount--
see Sec. 206.105(a)). Section 255(k)(4) requires that any such
reduction be based on the results of a statutorily mandated actuarial
study to determine the adequacy of the insurance premiums collected for
HECM refinancings. Further, the statute requires that HUD conduct the
actuarial study no later than 180 days after enactment of the American
Homeownership and Economic Opportunity Act of 2000. The required
actuarial study is currently under development. As provided by the
statute, HUD may, based on the findings of the study, determine that a
reduction in the initial MIP for HECM refinancings is appropriate. HUD
will implement any such reduction through a proposed rule and will
provide the public with an opportunity to comment on the proposed MIP
reduction.

III. Justification for Reduced Comment Period

It is the general practice of the Department to provide a 60-day
public comment period on all proposed rules. The Department, however,
is reducing its usual 60-day public comment period to 30 days for this
proposed rule. Section 201(a)(2) of the American Homeownership and
Economic Opportunity Act of 2000 requires that HUD's final regulations
implementing new section 255(k) of the NHA take effect no later than
180 days after enactment. The reduced 30 day comment period is
necessary to help ensure that the final rule is effective by the
statutory deadline date, and to provide sufficient time for compliance
with all applicable rulemaking requirements (such as the statutory 15-

[[Page 30280]]

day prepublication Congressional review requirements and the 30-day
delayed effective date requirements of section 7(o) of the Department
of HUD Act (42 U.S.C. 3535(d)).

IV. Findings and Certifications

Regulatory Planning and Review

The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866, Regulatory Planning and Review. OMB determined
that this rule is a ``significant regulatory action'' as defined in
section 3(f) of the Order (although not an economically significant
regulatory action under the Order). Any changes made to this rule as a
result of that review are identified in the docket file, which is
available for public inspection in the office of the Department's Rules
Docket Clerk, Room 10276, 451 Seventh Street, SW, Washington, DC 20410-
0500.

Information Collection Requirements

The information collection requirements contained in Sec. 206.53(c)
have been submitted to the Office of Management and Budget (OMB) under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). In
accordance with the Paperwork Reduction Act, HUD may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection displays a currently valid OMB
control number.
The burden of the information collections in this proposed rule is
estimated as follows:

Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
Estimated
Number of average time Estimated
Section reference Number of responses per for annual burden
parties respondent requirement (in hours)
(in hours)
----------------------------------------------------------------------------------------------------------------
206.53(c) anti-churning disclosure.......... 4,000 1 .5 2,000
----------------------------------------------------------------------------------------------------------------

Total Reporting and Recordkeeping Burden: 2,000 hours.
In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments
from members of the public and affected agencies concerning this
collection of information to:
(1) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
(2) Evaluate the accuracy of the agency's estimate of the burden of
the proposed collection of information;
(3) Enhance the quality, utility, and clarity of the information to
be collected; and
(4) Minimize the burden of the collection of information on those
who are to respond; including through the use of appropriate automated
collection techniques or other forms of information technology, e.g.,
permitting electronic submission of responses.
Interested persons are invited to submit comments regarding the
information collection requirements in this proposal. Comments must be
received within sixty (60) days from the date of this proposal.
Comments must refer to the proposal by name and docket number (FR-4667)
and must be sent to: Joseph F. Lackey, Jr., HUD Desk Officer, Office of
Management and Budget, New Executive Office Building, Washington, DC
20503; and Ethelene Washington, Reports Liaison Officer, Office of the
Assistant Secretary for Housing--Federal Housing Commissioner,
Department of Housing and Urban Development, 451 7th Street, SW., Room
9114, Washington, DC 20410.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. This proposed rule does not impose
any Federal mandates on any State, local, or tribal governments or the
private sector within the meaning of Unfunded Mandates Reform Act of
1995.

Environmental Impact

A Finding of No Significant Impact with respect to the environment
has been made in accordance with HUD regulations at 24 CFR part 50,
which implement section 102(2)(C) of the National Environmental Policy
Act of 1969 (42 U.S.C. 4223). The Finding of No Significant Impact is
available for public inspection between the hours of 7:30 a.m. and 5:30
p.m. weekdays in the Office of the Rules Docket Clerk, Office of
General Counsel, Room 10276, Department of Housing and Urban
Development, 451 Seventh Street, SW, Washington, DC.

Impact on Small Entities

The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)) (the RFA), has reviewed and approved this proposed rule
and in so doing certifies that this rule will not have a significant
economic impact on a substantial number of small entities. The reasons
for HUD's determination are as follows.
The proposed regulatory amendments are not discretionary, but are
mandated by statute. These amendments authorizes FHA mortgage insurance
for HECM refinancings, and provide consumer safeguards for such
refinancings. The amendments would impose minimal, if any, economic
costs on small lenders and other participants in the HECM Program. For
example, the origination fee limits that would be established under
this proposed rule for HECM refinancings do not impose any economic
burden on lenders (the same fee limits are already applicable original
financing under the HECM Program). The anti-churning disclosure
(although a new information collection requirement) also does not add
new costs or impose additional economic burdens on lenders.
Notwithstanding HUD's determination that this rule will not have a
significant economic effect on a substantial number of small entities,
HUD specifically invites comments regarding any less burdensome
alternatives to this rule that will meet HUD's objectives as described
in this preamble.

Executive Order 13132, Federalism

Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial direct compliance costs on State and local
governments and is not required by statute, or the rule preempts State
law, unless the agency meets the consultation and funding requirements
of section 6 of the Executive Order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive Order.

[[Page 30281]]

Catalog of Domestic Assistance Number

The Catalog of Domestic Assistance Number for the HECM program is
14.871.

List of Subjects in 24 CFR Part 206

Aged, Condominiums, Loan programs--housing and community
development, Mortgage insurance, Reporting and recordkeeping
requirements.

Accordingly, for the reasons described in the preamble, HUD
proposes to amend 24 CFR part 206 as follows:

PART 206--HOME EQUITY CONVERSION MORTGAGE INSURANCE

1. The authority citation for 24 CFR part 206 continues to read as
follows:

Authority: 12 U.S.C. 1715b, 1715z-1720; 42 U.S.C. 3535(d).

2. Revise Sec. 206.31(a)(1) to read as follows:

Sec. 206.31 Allowable charges and fees.

(a) * * *
(1) A charge to compensate the mortgagee for expenses incurred in
originating and closing the mortgage loan, which may be fully financed
with the mortgage. The Secretary may establish limitations on the
amount of any such charge. Any limitation on the origination fee shall
include any fees paid to correspondent mortgagees approved by the
Secretary. HUD will publish any such limit in the Federal Register at
least 30-days before the limitation takes effect.
* * * * *
3. Add Sec. 206.53 under a new undesignated heading ``REFINANCING
OF EXISTING HOME EQUITY CONVERSION MORTGAGES'' to read as follows:

Sec. 206.53 Refinancings.

(a) General. This section implements section 255(k) of NHA. Except
as otherwise provided in this section, all requirements applicable to
the insurance of home equity conversion mortgages under this part apply
to the insurance of refinancings under this section. HUD may, upon
application by a mortgagee, insure any mortgage given to refinance an
existing home equity conversion mortgage presently insured under this
part.
(b) Definition of ``total cost of the refinancing.'' For purposes
of paragraphs (c) and (d) of this section, the term ``total cost of the
refinancing'' means the sum of the allowable charges and fees permitted
under Sec. 206.31 and the initial MIP described in Sec. 206.105(a).
(c) Anti-churning disclosure. (1) Contents of anti-churning
disclosure. In addition to the disclosures required under Sec. 206.43,
the mortgagee shall provide to the mortgagor a good faith estimate of:
(i) The total cost of the refinancing to the mortgagor; and
(ii) The increase in the mortgagor's principal limit as measured by
the estimated initial principal limit on the mortgage to be insured
less the current principal limit on the home equity conversion mortgage
that is being refinanced under this section.
(2) Timing of anti-churning disclosure. The mortgagee shall provide
the anti-churning disclosure concurrently with the Good Faith Estimate
required under Sec. 3500.7 of this title.
(d) Waiver of counseling requirement. The mortgagor may elect not
to receive counseling under Sec. 206.41, but only if:
(1) The mortgagor has received the anti-churning disclosure
required under paragraph (c) of this section.
(2) The increase in the mortgagor's principal limit (as provided in
the anti-churning disclosure) exceeds the total cost of the refinancing
by an amount established by the Secretary through Federal Register
notice. HUD may periodically update this amount through publication of
a notice in the Federal Register. Publication of any such revised
amount will occur at least 30-days before the revision becomes
effective.
(3) The time between the date of the closing on the original home
equity conversion mortgage and the date of the application for
refinancing under this section does not exceed 5 years (even if less
than five years have passed since a previous refinancing under this
section).

Dated: April 19, 2001.
Mel Martinez,
Secretary.
[FR Doc. 01-14120 Filed 6-4-01; 8:45 am]
BILLING CODE 4210-27-P

Notices For
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994

Home Equity Conversion Mortgage (HECM) Program; Insurance for Mortgages To Refinance Existing HECMs

Local Navigation