What are the basic guidelines for refinancing an FHA Home Equity Conversion Mortgage (HECM)?

The basic guidelines for refinancing an FHA Home Equity Conversion Mortgage (HECM) include the following requirements.

A Home Equity Conversion Mortgage (HECM) Anti-Churning Disclosure (HUD-92901) must be issued with the Good Faith Estimate (GFE).

For open end lines of credit, the disclosure is provided with such other disclosure forms that can be provided in lieu of the GFE under RESPA regulations.

Lenders shall provide their best estimate of:
• The total cost of refinancing to the borrower
• The increase in the borrower's principal limit as measured by the estimated initial principal limit on the HECM refinance less the current principal limit on the existing HECM. The current principal limit is the remaining loan amount the mortgagor could withdraw from the existing HECM.

Disclosures must be signed by the borrower and included in the HECM case binder.

HECM counseling is required, however, HUD will allow a borrower to opt out if all of the following conditions are met:
1) The borrower has received the Anti-Churning Disclosure
2) The increase in the principal limit exceeds the total cost of the refinancing by five (5) times the cost of the transaction
3) The time between the closing on the existing HECM and the refinance application does not exceed 5 years.

The lender must include an estimate of the increase in the principal limit in the case binder to document that the conditions have been met. (see ML 09-21)

NOTE: The State of California requires counselors to provide face-to-face counseling unless the borrower elects to receive the counseling in another manner, such as telephone counseling (Refer to FHA Info #12-97 for additional guidance).

Lenders are responsible for maintaining compliance with applicable State and Federal disclosure requirements (including HECMs).

Form HUD-92901 is located at:  https://www.hud.gov/program_offices/administration/hudclips/forms/hud9 

See Also Mortgagee Letters 13-33, 13-27, 13-01, 10-34, 09-21 available at:           https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-04138