7094 - Federal Register/Vol. 82, No. 12/Thursday, January 19, 2017

7094

Federal Register / Vol. 82, No. 12 / Thursday, January 19, 2017 / Rules and Regulations

Mortgagee letters issued under the authority

granted to HUD in RMSA will be identified

throughout this rule as RMSA mortgagee letters.

Mortgagee letters issued under the authority

granted to HUD in HERA will be identified

throughout this rule as HERA mortgagee letters.

DEPARTMENT OF HOUSING AND

URBAN DEVELOPMENT

24 CFR Parts 30 and 206

[Docket No. FR–5353–F–03]

RIN 2502–AI79

Federal Housing Administration:

Strengthening the Home Equity

Conversion Mortgage Program

AGENCY

: Office of the Assistant

Secretary for Housing—Federal Housing

Commissioner, HUD.

ACTION

: Final rule.

SUMMARY

: This final rule codifies several

significant changes to FHA’s Home

Equity Conversion Mortgage program

that were previously issued under the

authority granted to HUD in the

Housing and Economic Recovery Act of

2008 and the Reverse Mortgage

Stabilization Act of 2013, and makes

additional regulatory changes. The

HECM program is FHA’s reverse

mortgage program that enables seniors

who have equity in their homes to

withdraw a portion of the accumulated

equity. The intent of the Home Equity

Conversion Mortgage program is to ease

the financial burden on elderly

homeowners facing increased health,

housing, and subsistence costs at a time

of reduced income. FHA’s mission is to

serve underserved markets, which must

be balanced with HUD’s inherent, as

well as, statutory obligation under the

National Housing Act to protect the

FHA insurance funds. This rulemaking

strengthens the FHA Home Equity

Conversion Mortgage program and

codifies changes that reduce risk to the

Mutual Mortgage Insurance Fund and

increase the sustainability of this

important program for seniors. This

final rule follows publication of a May

19, 2016, proposed rule and takes into

consideration the public comments

received on the proposed rule.

DATES

: Effective Date: September 19,

2017.

FOR FURTHER INFORMATION CONTACT

Karin Hill, Senior Policy Advisor, Office

of Single Family Housing, Department

of Housing and Urban Development,

451 7th Street SW., Room 9282,

Washington, DC 20410–8000; telephone

number 202–402–3084 (this is not a toll-

free number). Persons with hearing or

speech challenges may access this

number through TTY by calling the toll-

free Federal Relay Service at 800–877–

8339.

SUPPLEMENTARY INFORMATION

I. Executive Summary

A. Purpose of Regulatory Action

Since the 2008 housing and economic

recession, the HECM portfolio has

experienced major borrower

demographic and behavioral changes

that have caused additional risk to the

Mutual Mortgage Insurance Fund

(MMIF). Some of the changes include

shifting from a predominantly

adjustable interest rate mortgage with

borrowers receiving payments over time

using the line of credit, modified term,

or modified tenure payment options to

a fixed interest rate mortgage with

borrowers drawing large amounts of

HECM proceeds at the time of closing;

younger borrowers with higher amounts

of property indebtedness; and

increasing property charge defaults.

While program changes made prior to

and during 2013, such as consolidating

the HECM Standard and HECM Saver

products, did improve the stability of

the HECM program, the HECM portfolio

has continued to experience volatility.

The economic value of the HECM

portfolio has fluctuated from a negative

$1.2 billion reported in FHA’s Fiscal

Year (FY) 2014 submission to Congress,

to a positive $6.8 billion in FY 2015, to

a negative $7.7 billion in FY 2016. Even

under an improved housing market, the

positive impacts of program changes on

the HECM portfolio overall will be

gradual and initially difficult to model

for purposes of the actuarial study, as

they will be evidenced only in future

cohorts of activity. As a result, it is

critical to remain vigilant in monitoring

program performance and policy to

ensure the soundness of the MMIF.

Recognizing the need to stabilize the

HECM program and ensure it remains a

sustainable program, Congress passed

and the President signed into law, the

Reverse Mortgage Stabilization Act of

2013 (RMSA) (Pub. L. 113–29). The

RMSA gave FHA the tools to make,

through mortgagee letter,

changes to

the HECM program that are necessary to

improve the fiscal safety and soundness

of the program. Under this authority,

FHA implemented a number of changes

to the HECM program, including the

Financial Assessment and Property

Charge Funding Requirements; deferring

the due and payable status for Eligible

Non-Borrowing Spouses; limiting

disbursements during the first 12

months of the HECM; and eliminating

future draws on fixed interest rate

HECMs.

On May 19, 2016 (81 FR 31770), HUD

published a proposed rule to codify

these policies, with amendments as

discussed in the preamble to the

proposed rule. In addition, FHA

proposed to implement a number of

new policies. Also, so that all regulatory

requirements are codified in the HECM

regulations, HUD also proposed to

codify HECM program changes made by

mortgagee letter

under the Housing

and Economic Recovery Act of 2008

(HERA) (Pub. L. 110–289), which

implemented the HECM for Purchase

program and established new

origination fee limits, and amends the

initial and monthly mortgage insurance

premium (MIP) limits to correspond

with statutory changes. This final rule

follows publication of the May 19, 2016,

proposed rule and takes into

consideration the public comments

received on the proposed rule.

B. Summary of Major Provisions of This

Final Rule

In this rule, FHA codifies existing

policy which has been implemented by

mortgagee letters under various

statutory authorities; implements

statutory changes; issues new

origination and servicing policies; and

clarifies existing regulatory language.

The main policy provisions are

discussed below. All policies which

have been implemented by mortgagee

letters will remain in effect until the

effective date of this final rule.

Implementing Statutory Changes and

Codifying Existing Policies

Implemented Under Statutory Authority

Financial Assessment and Property

Charge Funding Requirements. RMSA

Mortgagee Letter 2014–21 required

mortgagees to perform a Financial

Assessment of the prospective borrower

prior to loan approval, which considers

the prospective borrower’s credit

history, cash flow and residual income,

extenuating circumstances, and

compensating factors. Based on the

results of the Financial Assessment, the

mortgagee may require a Life

Expectancy Set Aside (LESA) for the

payment of certain property charges. For

fixed interest rate HECMs, if a LESA is

required, it may only be a Fully-Funded

LESA. For adjustable interest rate

HECMs, if a LESA is required, the

mortgagee may require either a Partially-

or Fully-Funded LESA. Proceeds from a

Partially-Funded LESA will be

disbursed to the borrower semi-annually

to be used to assist in the payment of

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property charges; for Fully-Funded

LESAs, mortgagees disburse funds

directly to the tax authority or insurance

company for the payment of certain

property charges when they are due. If

the mortgagee does not require a Fully-

Funded LESA, a borrower with an

adjustable or fixed interest rate HECM,

may elect to have a Fully-Funded LESA.

Deferring the Due and Payable Status

for Eligible Non-Borrowing Spouses.

RMSA Mortgagee Letter 2014–07, as

amended by RMSA Mortgagee Letter

2015–02, established a Deferral Period,

during which the due and payable

status of a HECM is deferred after the

death of the last surviving borrower for

an Eligible Non-Borrowing Spouse,

provided eligibility and all other FHA

requirements are, and continue to be,

satisfied. In addition, the new policy

required the principal limit to be based

on the age of the youngest borrower or

Eligible Non-Borrowing Spouse, instead

of only the youngest borrower. The new

policy also provided for a 30-day period

for the Eligible Non-Borrowing Spouse

to cure a default and to reinstate a

Deferral Period.

Limiting Disbursements During the

First 12 Months of the HECM. Through

RMSA Mortgagee Letter 2014–21, FHA

limited initial disbursements for

HECMs. For fixed and adjustable

interest rate HECMs, the funds

advanced to the borrower at closing and

during the First 12-Month Disbursement

Period could not exceed the greater of

60 percent of the principal limit; or

Mandatory Obligations plus an

additional 10 percent of the principal

limit.

While FHA does not intend to change

the current limits of 60 percent and 10

percent at this time, this rule provides

flexibility for this limit to be changed in

the future to respond to market changes

or other factors. Specifically, this rule

revises the regulations such that the 60

percent cap will never be modified to be

less than 50 percent, and the additional

percentage will never be modified to be

less than 10 percent absent future

rulemaking.

Eliminating Future Draws on Fixed

Interest Rate HECMs. Ginnie Mae issued

an All Participants Memorandum, APM

14–04, announcing that fixed interest

rate HECM loans with future draws

would be ineligible for securitization on

or after June 1, 2014. As a result of APM

14–04, in RMSA Mortgagee Letter 2014–

11, FHA limited the insurability of fixed

interest rate mortgages under the HECM

program to mortgages with the Single

Lump Sum payment option, which does

not allow for future draws after closing.

HECM for Purchase Program. HECM

for Purchase program requirements were

originally located in HERA Mortgagee

Letter 2009–11. This rule codifies the

HECM for Purchase program

requirements, with an important change

to the existing prohibition on interested

party contributions. The rule permits

the seller to pay fees required to be paid

by the seller under state or local law and

fees that are customarily paid by a seller

in the locality of the subject property

and to purchase the Home Warranty

policy. The rule also allows the

Commissioner to define the types and

parameters of other allowable interested

party contributions through Federal

Allowable Loan Origination Fees and

Charges. FHA implemented the loan

origination fee limits imposed by HERA

through HERA Mortgagee Letter 2008–

34. In this rule, FHA clarifies that such

loan origination fee limits include

expenses incurred in originating,

processing and closing the HECM.

Amount of MIP. This rule amends the

allowable initial and monthly MIP

charges to reflect that HECMs are now

obligations of the MMIF instead of the

General Insurance Fund and to reflect

statutory amendments to the National

Housing Act providing FHA with a

wider range of acceptable MIP charges.

FHA is not changing actual MIP charges,

which may be set outside of the

rulemaking process by mortgagee letter

or other similar administrative issuance.

Seasoning Requirements. HUD

implemented seasoning requirements

for existing non-HECM liens through

Mortgagee Letter 2014–21. Under the

mortgagee letter, borrowers could only

pay off existing non-HECM liens using

HECM proceeds if the liens had been in

place longer than 12 months or resulted

in less than $500 cash to the borrower.

This rule adopts these seasoning

requirements for existing non-HECM

liens but amends them to: (1) Impose

the 12-month requirement beginning at

the date of the HECM closing rather

than the HECM loan application; and (2)

allow the pay-off, at closing, of Home

Equity Lines of Credit (HELOCs) that do

not meet seasoning requirements from

borrower funds, the HECM funds, or a

combination of HECM funds and

borrower funds, as long as the draw

from HECM funds does not exceed the

draw limits during the first 12 months

of the HECM.

New Origination and Servicing Policies

Disclosure of Available HECM

Program Options. This rule requires that

mortgagees inform potential HECM

borrowers of all of the HECM products,

features, and options that FHA insures,

in a manner acceptable to the

Commissioner, irrespective of the

particular HECM products offered by

the mortgagee.

Interest Rate Lock-In. This rule

amends the definition of ‘‘expected

average mortgage interest rate,’’ to

provide that the mortgagee, with the

agreement of the borrower, may lock in

the expected average mortgage interest

rate prior to the date of loan closing or

establish the expected average mortgage

interest rate on the date of loan closing.

Appraisal Requirements. This rule

requires the mortgagee to have the

property appraised no later than 30 days

after receipt of the request by an

applicable party in connection with a

pending property sale; the property

must be appraised within 30 days of a

foreclosure sale. The rule also allows

the Commissioner to approve the use of

other appraisers when the mortgagee is

required to appraise the property.

Limiting Reimbursement of Property

Charge Advances. This rule limits

insurance claim reimbursement to a

mortgagee to two-thirds of the total

payments for: (a) Taxes, ground rents,

and water rates; (b) special assessments,

which are noted on the application for

insurance or which become liens after

the insurance of the mortgage; and (c)

hazard insurance premiums on the

mortgaged property not in excess of a

reasonable rate.

Acquisition and Sale of Property. This

rule replaces the requirement that the

property be sold for at least 95 percent

of the appraised value with a more

flexible provision which allows the

Commissioner to lower this amount as

necessary to adapt to market conditions

and other factors. This rule also requires

that the closing costs from the sale be no

more than the greater of 11 percent of

the sales price, or a fixed dollar amount

as determined by the Commissioner

through Federal Register notice.

Cash for Keys. This rule provides an

incentive for parties with legal authority

to dispose of a property that serves as

the security for a HECM to complete a

deed in lieu of foreclosure more quickly.

The rule also applies the Cash for Keys

incentive when a bona fide tenant

vacates the property prior to an eviction

being initiated by the mortgagee in the

case of a foreclosure. This rule grants

the Commissioner the flexibility to

increase the minimum amount of time

a mortgagee shall grant the borrower or

bona fide tenant to vacate the property

and the authority to establish the

amount of the financial incentive.

Pay-Off of Debt Not Secured by the

Property. This rule allows HECM

proceeds to be used to pay off debt that

is not secured by the property, as

defined by the Commissioner through

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Any changes made in this section from what

was presented in the proposed rule only indicate

policy changes that were made based on public

comments or reconsideration of the issues.

Federal Register notice, as a mandatory

obligation.

Property Charge Payments. This rule

allows the Commissioner, through

Federal Register notice, to establish an

incentive for the borrower voluntarily

electing a Life Expectancy Set Aside.

Additionally, the final rule authorizes

the Commissioner, through Federal

borrower’s options for electing to have

the mortgagee make property charge

payments.

C. Costs and Benefits of This Rule

This rule codifies the following

program changes that have reduced

risks to both FHA and to borrowers:

Implementation of limits on fixed-rate

full draw loans (full draw loans expose

FHA to high risk of insurance loss, and

such loans are often not sustainable

solutions for borrowers since they do

not provide the borrower with future

access to HECM proceeds); a Financial

Assessment to enable mortgagees to

determine if the HECM enables

borrowers to comply with the mortgage

requirements and that the HECM is a

sustainable solution for borrowers;

protection to Eligible Non-Borrowing

Spouses from foreclosure after the death

of the last borrower; removal of

incentives for borrowers to obtain

higher principal limits by using only the

age of the older spouse through quit-

claiming the younger spouse from the

title; and a Life Expectancy Set Aside

which will reduce the incidence of

borrower defaults due to non-

compliance with the mortgage

obligation for the borrower to make

timely payment of property taxes, and

hazard and flood insurance payments.

The new changes to the HECM program

are expected to reduce foreclosures

arising from these defaults, which will

benefit FHA, borrowers, and

communities where properties are

located; give FHA more flexibility to

accept short sales on properties where

market conditions warrant; and provide

homeowners with the ability to

purchase a more suitable home without

incurring the costs of two loan closings.

Together, these changes may initially

reduce HECM origination volume,

although the potential demand for

HECM is expected to remain high.

The social benefits that may be

realized by this rule also include

reducing resolution costs and borrower

distress in cases where loans are no

longer sustainable; improved

sustainability of the MMIF, which

would enhance the choice and

wellbeing of future borrowers; and

increased protections for borrowers,

including those afforded non-borrowing

spouses and those from improving the

ultimate sustainability of HECM loans

related to financial assessment changes.

The policies discussed in this rule

may reduce FHA HECM insurance

endorsements by $1.9 billion per year,

thereby reducing choices for potential

HECM borrowers to access home equity

and imposing an equivalent cost on

them; reduce foreclosures due to tax and

insurance default by up to 6,000 cases

(totaling about $1.5 billion in loan

amount) per year, along with reduction

in ancillary costs of foreclosures to

neighborhoods and local governments;

and reduce loan origination costs for

2,000 ‘‘HECM for Purchase’’ borrowers,

saving them $12 million per year

representing transfers from mortgagees

to borrowers.

Other costs from the rule would

include reduced borrowers’ choice and

the well-being of those borrowers who

may not meet the eligibility

requirements, or who no longer have

access to as much upfront cash. The

table below and the bullet points that

follow display the benefits, costs, and

transfers of this rule.

Absent the changes in the HECM

program made by mortgagee letters

issued by HUD under the authority of

RMSA, the ongoing operation of the

HECM program would have required a

credit subsidy appropriation under the

Federal Credit Reform Act of

approximately $684 million. The fact

that this appropriation was not required

represents a transfer from potential

HECM borrowers to taxpayers. This

transfer was effected by the regulatory

mortgagee letters, and not this final rule

which merely codifies these existing

policies in the Code of Federal

Regulations. This transfer amount is

reported in this analysis to inform the

public, but had no bearing on whether

these provisions would be included in

the final rule.

Benefits Costs Transfers

4,400 fewer foreclosures per year from tax and

insurance default.

• $1.1 billion aggregate unpaid principal bal-

ance.

• Reduction in ancillary costs of foreclosures to

neighborhoods, borrowers, and local govern-

ments.

Reduce FHA HECM insurance endorsements

by $1.9 billion per year, thereby reducing

choices for potential HECM borrowers to

access home equity.

Mortgagee letters issued under authority

granted by the Reverse Mortgage Stabiliza-

tion Act and codified by this rule reduced

credit subsidy appropriations required under

the Federal Credit Reform Act for the

HECM program from $684 million to $0.

This is a transfer from potential HECM bor-

rowers to taxpayers.

Reduced loan origination costs for 2,000

‘‘HECM for Purchase’’ borrowers per year.

• Total benefit of $12 million per year.

• Frees resources for other purposes.

No additional costs .......................................... No additional transfers.

Other benefits include the following:

• Improving the financial condition

of the FHA MMIF due to:

Æ Fewer foreclosures and lower loss

rates;

Æ Financial incentives of a Cash for

Keys program for short sales and REO

properties;

Æ Persistently lower insured loan

balances over time, due to limits on

initial disbursement; and

Æ More flexibility for FHA to accept

short sales on properties where market

conditions warrant.

• Improving overall HECM program

viability and in turn improving

suitability and attractiveness for

potential borrowers

Æ Reduces risks to both FHA and to

borrowers associated with fixed-rate full

draw loans (full draw loans expose FHA

to high risk of insurance loss, and such

loans are often not suitable for

borrowers);

Æ Helps borrowers and their housing

counselors determine if a HECM is a

sustainable option for them through the

use of a Financial Assessment;

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Æ Provides protection to Eligible Non-

Borrowing Spouses from foreclosure,

and removes incentives for borrowers to

obtain higher principal limits than they

would otherwise be eligible for by using

only the age of the older spouse; and

Æ Reduces the incidence of borrower

defaults due to non-compliance with the

mortgage obligation.

II. Background

A. Program Description

The HECM program, authorized by

section 255 of the National Housing Act

(NHA) (12 U.S.C. 1715z–20), is FHA’s

reverse mortgage insurance program.

The regulations for this program are

codified in 24 CFR part 206. The HECM

program enables FHA-approved

mortgagees to extend insured mortgage

financing to eligible borrowers, 62 years

of age or older, who want to convert the

equity in their homes into liquid assets.

The withdrawal of equity may take a

variety of forms, as authorized by the

NHA and selected by the borrower. The

home, which serves as security for the

mortgage, must be, and continue to be,

the borrower’s principal residence

during the life of the borrower. For

adjustable interest rate HECMs, equity

payments to the borrower may be in the

form of monthly disbursements for life

or a fixed term of years, disbursements

from a line of credit advance or a

combination of monthly disbursements

and a line of credit. For fixed interest

rate HECMs, equity payments to the

borrower must be in the form of a single

lump sum disbursement at closing.

The maximum amount of equity in

the home that is available to a borrower

under a HECM loan is the ‘‘principal

limit’’ that is calculated for that loan.

The borrower retains ownership of the

property and may sell the home at any

time keeping any residual sale proceeds

in excess of the outstanding loan

balance. Until the mortgage is repaid,

and regardless of whether or not

additional disbursements under the

mortgage are permissible, interest on the

mortgage, mortgage insurance

premiums, and servicing charges, where

applicable, continue to accrue.

B. HUD’s May 19, 2016, Proposed Rule

On May 19, 2016, HUD published its

proposed rule to implement the HERA

and RMSA mortgagee letters described

above in addition to other regulatory

changes. HUD proposed to strengthen

the HECM program by consolidating the

requirements of these HERA and RMSA

mortgagee letters into the regulations

and introducing new requirements that

would reduce risk to the Mutual

Mortgage Insurance Fund and increase

the sustainability of the HECM program

for seniors. Interested readers should

refer to the preamble of the May 19,

2016, proposed rule for details regarding

the proposed regulatory changes to the

HECM program.

C. Solicitation of Comment on Required

Assignment

On August 11, 2016, at 81 FR 53095,

HUD published in the Federal Register

a supplemental notice of proposed

rulemaking to solicit comment in

response to a proposal raised by one of

the public commenters on the proposed

rule. The document opened the public

comment period solely to address this

proposal regarding the mortgagee’s

option to file a claim when the loan

balance reaches 98 percent of the

maximum claim amount.

The current regulations at § 206.107(a)

provide the mortgagee an option, before

the mortgage is submitted for insurance

endorsement, to select either: (1) The

assignment option, which allows the

mortgagee to assign the HECM to the

Secretary if the mortgage balance is

equal to or greater than 98 percent of the

maximum claim amount; or (2) the

shared premium option, which allows

the mortgagee to retain a portion of the

monthly MIP but does not allow the

mortgagee to assign the mortgage unless

the mortgagee fails to make payments

and the Secretary demands assignment.

Under the assignment option, the

mortgagee may only assign the mortgage

to the Secretary if the following

requirements are satisfied: (1) The

mortgagee is current in making the

required payments to the mortgagor; (2)

the mortgagee is current in making the

required MIP payments to the Secretary;

(3) the mortgage is not due and payable;

and (4) the mortgage is a first lien of

record and title to the property securing

the mortgage is good and marketable.

The public commenter suggested that,

under the assignment option, HUD

should instead require that the

mortgagee assign the HECM loan to FHA

if the outstanding loan balance is equal

to or greater than 98 percent of the

maximum claim amount. The

commenter stated that, in some cases, a

mortgagee may decline to file a claim in

this scenario if the property value has

risen rapidly and the loan has an above-

market rate. The commenter concluded

that lenders in this way have a ‘‘put

option’’ and ‘‘can choose to keep the

best loans and make claims for the worst

ones’’.

HUD is deferring its final

determination as to whether to adopt

the commenter’s proposal at this time,

and after HUD fully reviews and takes

into consideration the comments

received, HUD will issue, or choose not

to issue, its final determination of this

proposal through a subsequent final

rule.

III. Overview of Final Rule—Key

Changes Made at Final Rule Stage

In the May 19, 2016, proposed rule,

HUD explicitly solicited public

comment on numerous proposed policy

changes, including specific questions on

the maximum closing costs allowed on

the sale of a property, including utilities

as property charges, property

inspections, non-borrowing spouse

communication, and the benefits and

costs of the rule. HUD received 241

public comments, including 83 unique

comments, on the proposed rule. HUD

appreciates all the questions raised, and

suggestions and recommendations made

by the public commenters. After review

and consideration of the public

comments and upon further

consideration of issues by HUD, the

following highlights key clarifications

and changes made by HUD at the final

rule stage.

The final rule:

• Amends the provision limiting the

number of mortgages by allowing

borrowers to provide legal

documentation evidencing the release of

the borrower’s financial obligation to

satisfy the existing HECM rather than

requiring the borrower to demonstrate a

final divorce decree. (See § 206.34.)

• Amends the seasoning requirements

for existing non-HECM liens to: (1)

Impose the 12-month requirement

beginning at the date of the HECM

closing rather than the HECM loan

application; and (2) allow the pay-off at

closing of Home Equity Lines of Credit

(HELOCs) that do not meet the

seasoning requirements from borrower

funds, the HECM funds, or a

combination of HECM funds and

borrower funds, as long as the draw

from HECM funds does not exceed the

draw limits during the first 12 months

of the HECM. (See § 206.36.)

• Includes required pay-off of debt

not secured by the property, as defined

by the Commissioner through Federal

obligation. (See § 206.25(b) and

§ 206.25(c).)

• Clarifies that the mortgagees are

required to request borrowers to

designate, at the borrower’s discretion,

an alternative individual for the purpose

of communicating with the mortgagee if

the mortgagee has not been able to reach

the borrower directly. (See § 206.40(c).)

• Retains the current policy

requirement that the mortgagor must

provide the mortgagee with a physical

copy of the housing counseling

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certificate, and removes the requirement

that the HECM counselor upload the

certificate to an electronic database. (See

§ 206.41(c).)

• Clarifies that the mortgagee shall

provide any disclosures required by law

when asking the borrower about any

costs or other obligations that the

borrower has incurred to obtain the

mortgage. (See § 206.43(a).)

• Allows fees customarily paid by the

seller in the subject property locality to

be included as an interested party

contribution. (See § 206.44(c).)

• Clarifies the requirement for

maintaining flood insurance coverage.

(See § 206.45(c).)

• Grants the FHA Commissioner the

authority, where a HECM is due and

payable, to increase the maximum

closing costs allowable for selling the

property above 11% of the sales price by

establishing a fixed dollar amount as

determined through Federal Register

notice. (See § 206.125(a)(2)(ii).)

• Allows the FHA Commissioner to

approve the use of qualified appraisers

acceptable to and identified by the

Commissioner when the mortgagee is

required to appraise the property. (See

§ 206.125(b).)

• Authorizes the FHA Commissioner

to expand availability of the Cash for

Keys incentive, in an amount to be

determined by the Commissioner, on

REO properties with bona fide tenants.

(See § 206.125(g)(4).)

• For the Cash for Keys incentive,

authorizes the Commissioner to increase

the minimum amount of time a

mortgagee shall grant the borrower or

bona fide tenant to vacate the property.

(See § 206.125(f)(1)(ii) and

§ 206.125(g)(4).)

• Amends the limitation on

reimbursements for advances made by

the mortgagee for property charges to

cover two-thirds of the overall advances

made by the mortgagee rather than the

full value of the first two years of such

advances. (See § 206.129(d)(3).)

• Removes the ability for the

borrower to elect that the mortgagee pay

ground rents through the borrower’s

voluntary election to have the mortgagee

pay property charges. (See

§ 206.205(b)(2) & §206.205(d).)

• Authorizes the Commissioner to

establish an incentive for voluntarily

electing a Life Expectancy Set Aside

through Federal Register notice. (See

§ 206.205(b)(2)(ii).)

• Authorizes the Commissioner to

expand the borrower’s options for

property charge payment by the

mortgagee through Federal Register

notice. (See § 206.205(d).)

Deferred Final Determination

Additionally, in order to fully

consider the comments received on

these issues, HUD will defer making its

final determination of the policies listed

below from the proposed rule and

afterwards, HUD will issue its final

determination on these issues in a final

rule.

• The change to the cap on interest

rate adjustments for annually adjustable

interest rate products and the

imposition of a five percent cap on

interest rate adjustments for monthly

adjustable interest rate products;

• The establishment of extenuating

circumstances exceptions for exceeding

the Initial Disbursement Limit or

Borrower’s Advance during the First 12-

Month Disbursement Period;

• Post-closing property inspections;

• The requirement to undergo

counseling before signing a HECM for

Purchase contract and/or making an

earnest money deposit; and

• The definition of property charges

to include utilities.

IV. Public Comments and HUD’s

Response to Public Comments

A. The Public Comments Generally

HUD received 241 public comments,

including duplicate mass mailings,

resulting in 83 unique public

submissions covering a wide range of

issues. Comments came from a wide

variety of entities, including lenders,

servicers, interest groups, real estate

agents, and academics. In general, the

public commenters expressed support

for codifying policy implemented via

Mortgage Letter under statutory

authority, updating CFR part 206 and a

number of the proposed regulatory

changes. Many commenters also raised

questions or offered suggestion for

changes at the final rule stage. This

section of the preamble discusses the

significant issues raised by the

commenters and provides HUD’s

responses to the comments received. All

public comments can be viewed at

https://www.regulations.gov/

docket?D=HUD-2016-0052.

B. Specific Public Comments

1. Definitions

Comment: The definition of

‘‘borrower’’ should be consistent with

the definition used in the Mortgagee

Optional Election Assignment guidance

(Mortgagee Letter 2015–15) to mean the

‘‘original borrower under a note and

mortgage.’’ The commenter encouraged

the use of consistent definitions

throughout HECM program guidance.

HUD Response: With the recent

changes to the HECM program,

particularly the protections and benefits

for non-borrowing spouses, it was

necessary for HUD to revise the

definitions of ‘‘borrower’’ and

‘‘mortgagor’’ in order to resolve title

issues involving quit claiming practices

of non-borrowing spouses or other non-

borrowing owners. The definition of

‘‘borrower,’’ as provided in 206.3,

‘‘means a mortgagor who is an original

borrower under the HECM Loan

Agreement and Note. The term does not

include successors or assigns of a

borrower.’’

Comment: HUD should clarify that

the new proposed definition of

‘‘mortgagee’’ does not conflict with the

rule change regarding sales to other

FHA-approved entities, as proposed in

§ 206.101(d)(2). The commenter stated

that ‘‘mortgagee’’ is defined as the

original lender under a mortgage and its

successors and assigns, as approved by

the Commissioner, but that HUD also

proposed to include a non-FHA-

approved entity as a possible successor

or assign, in some limited cases.

HUD Response: These requirements

are not new additions to the HECM

program. They were previously listed in

the regulations at 24 CFR part 203 and

incorporated into the HECM program by

reference. This rule simply moves the

regulations into part 206 in order to

reduce the number of cross-references.

HUD intends to retain these regulatory

requirements.

2. State Statutes of Limitations

Comment: HUD should state that

when a HECM loan is assigned to HUD,

any state statute of limitations on

collecting or foreclosing upon the loan

does not apply to HUD. The commenter

also suggested that HUD state that any

such state law is preempted by HUD

HECM regulations and program

guidelines.

HUD Response: HUD appreciates the

recommendation and will take it under

consideration for future rulemaking and

policy guidance. However, FHA

reminds mortgagees that the model loan

document provided must be adapted by

the lenders to local and state

requirements that preserve first lien

status.

3. Program Complex/Disclosures

Comment: The HECM program is

incredibly complex and could be

improved by the use of plain language

educational materials and software.

HUD Response: HUD agrees that the

program is complex. The HECM

program is unique and was designed to

reduce the effects of economic

hardships that senior homeowners may

experience. Over the years, changing

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borrower and industry practices have

required HUD to respond with

appropriate policymaking to manage

risk to the MMIF and support

sustainability of the program. HUD

supports consumer education and

awareness through its HECM counseling

requirement. HUD understands the need

to provide plain language educational

materials and appreciates suggested

content. However, prospective

borrowers must understand the terms

and conditions of the mortgage as

defined in the legal documents.

Comment: The program changes are

overly restrictive and protective of

senior borrowers. The commenter stated

that seniors are not necessarily

uneducated and have had many years of

experience. The commenter also stated

that the current disclosure and

guideline requirements are sufficient.

HUD Response: HUD’s mission is to

serve underserved markets, which must

be balanced with HUD’s inherent, as

well as, statutory obligation under the

NHA to protect the MMIF. Knowing that

many seniors are educated and

resourceful, HUD must take every

precaution to ensure seniors who need

a reverse mortgage are equipped with

the information necessary to make an

informed decision of whether the HECM

is a sustainable solution that enhances

their financial position.

Comment: The changes in this rule

are less about protecting seniors and

more about controlling the marketplace,

lenders, and seniors, and that the same

policies do not apply to forward

mortgages.

HUD Response: Despite the varying

opinions concerning the recent changes

to the HECM program, HUD’s mission is

to serve underserved markets, which

must be balanced with HUD’s inherent,

as well as statutory, obligation under the

NHA to protect the MMIF. Governance

of the marketplace is beyond HUD’s

purview and the reverse mortgage

industry must examine its practices to

determine what is acceptable and

beneficial for the survival of this

program. The requirements of the HECM

program are unique and it is important

to note that the program has a very

different risk profile than Forward

Mortgages. Where feasible, HUD strives

to adopt forward mortgage requirements

that can be applied to the HECM

Program.

Comment: HUD should expand the

disclosure requirement to allow for new

and improved methods with which to

inform potential HECM borrowers. One

commenter proposed that HUD host a

technology roundtable to discuss and

evaluate a new consumer-friendly

marketing campaign. Another

commenter stated that HUD should

elaborate on the disclosure requirement

and further define the extent to which

lenders must disclose all products,

features, and options that HUD will

insure. Commenters stated that the

description of these products should

include overall access to equity, costs,

and the amount of funds available

during the first 12 months.

HUD Response: Mortgagees are

required to explain in clear, consistent

language all requirements and features

of the HECM program. Mortgagees have

the flexibility to identify and use

methods that will ensure borrowers are

properly informed of all features and

products that are available.

Comment: HUD should discourage

product-steering by lenders.

HUD Response: HUD believes its

requirement that mortgagees must

disclose all products, whether they are

offered by the mortgagee or not, will

discourage product-steering.

Comment: HUD should promulgate

suitability rules to ensure that lenders

only recommend reverse mortgage loans

that are suitable for borrowers’ needs.

HUD Response: Housing counseling

and the Financial Assessment are

prudent practices for evaluating

whether the HECM is a sustainable

solution. Both practices promote the

participation of homeowners who are

well-informed and financially well-

positioned for a HECM loan.

Comment: Disclosing too many

options may be confusing to borrowers.

HUD Response: HUD disagrees and

believes that the full disclosure of all

products is necessary to insure

borrowers are aware of all options and

to avoid potential steering.

4. Interest Rate Lock-In

Comment: HUD should eliminate the

credit line growth feature of adjustable-

rate HECM loans. The commenter stated

that the growth is determined by

interest rate, lender margin, and

mortgage insurance premiums, and

borrowers have access to increasing

amounts of funds even if home prices

fall, which leads to greater risk for the

MMIF.

HUD Response: The HECM program

was designed to allow the line growth

feature to insure borrowers had access

to equity. Other program features

balance risk such as principal limit

factors, MIP, controls over large cash

draws upfront, and no future draws on

fixed rate product.

Comment: HUD should clarify that

rate locks are optional.

HUD Response: The rate lock is

optional. HUD notes that the proposed

rule, in its definition ‘‘expected average

mortgage interest rate,’’ indicates that

mortgagees, with the agreement of the

borrower, may lock in the expected

average mortgage interest rate and the

mortgagee’s margin prior to the date of

loan closing or on the date of loan

closing. HUD retains this option in this

final rule.

Comment: HUD should maintain the

current policy regarding the timing of

when the mortgagee may lock in the rate

that determines the principal limit,

which is the application date.

HUD Response: HUD appreciates the

feedback but believes the borrower

should have the flexibility of setting the

expected average mortgage interest rate

and mortgagee’s margin, if applicable,

any time prior to closing or at closing.

Comment: HUD should continue to

permit the ‘‘float down’’ option whereby

the principal limit may be recalculated

at closing if the expected interest rate

has declined and is lower than at

application date.

HUD Response: HUD will continue to

permit the ‘‘float down’’ option, per ML

2006–22.

Comment: HUD should allow the

borrower to keep the rate lock they have

chosen or the expected rate based on

the index in effect at closing, whichever

is most beneficial to the borrower.

HUD Response: HUD will continue to

permit the ‘‘float down’’ option, per ML

2006–22.

Comment: HUD should elaborate on

the interest rate lock-in timeframes and

further clarify the terms used.

HUD Response: The guidance found

in ML 2006–22 provides useful

background for interest rate lock-in

timeframes.

5. Shared Premium/Shared

Appreciation

Comment: Shared appreciation

should not be utilized in the HECM

market. One commenter stated that the

terms of a shared appreciation reverse

mortgage are heavily weighted towards

benefiting the mortgagee and not the

borrower. Another commenter stated

that there should be a prohibition

against shared appreciation schemes,

due to the harm done to the borrower.

HUD Response: The National Housing

Act provides for a shared appreciation

option, and HUD will retain the shared

appreciation option in the regulations to

allow for future potential product

design.

Comment: The shared appreciation

option has not been utilized, but may be

useful in the future. One commenter

stated that shared appreciation could be

an example of a product that seems

unnecessary but eventually becomes

popular due to changing market

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conditions. The commenter stated that

‘‘low balance’’ HECM options or the

HECM Saver product could be other

examples of such products. Commenters

stated that these items could allow for

important product design and

innovation in the future. Some

commenters suggested that this could

give an opportunity for further review

and study on how such features may be

used to design new products and

features. Some commenters also stated

that the product could be used in the

future to reduce risk to the MMIF. One

commenter stated that these options

have the potential for creating

competitive loan products in the

marketplace.

HUD Response: HUD will retain the

shared appreciation option in the

regulations for future potential product

design.

Comment: More information is

needed on the shared premium and

shared appreciation options. The

commenter also stated that the 2009 PLF

tables do not include the shared

premium basis points as in previous

versions, and that there is little

explanation of how the shared premium

and shared appreciation options are

administered or audited by HUD, or

whether these loans are eligible for

securitization.

HUD Response: We do not currently

administer these options.

6. Deferral of Due & Payable Status

Comment: Eligible Non-Borrowing

Spouses should continue to enjoy the

benefits of any monthly distributions or

the availability of any line of credit

funds once the last borrower dies. The

commenter stated that the eligible NBS

should still have access to these benefits

since the amount available to the

borrower is determined by the age of the

NBS.

HUD Response: The NBS is not a

borrower and as such is not a party to

the Loan Agreement. The Loan

Agreement is a contract solely between

the borrower and the mortgagee, not the

NBS. Upon the last surviving borrower’s

death, the terms of the Loan Agreement

provide that no further funds can be

made available to a person who is not

a party to the Agreement.

Comment: Ninety days is insufficient

for a grieving spouse to take practical

measures to secure her or his right to the

property. One commenter stated that the

probate process alone can take longer

than ninety days for reasons outside of

the surviving spouse’s control.

Commenters suggested that the time

frame should be extended to 180 days.

Another commenter suggested 120 days

would be sufficient. One commenter

also suggested that HUD may require

that a probate action be opened within

a reasonable time after the borrower’s

death.

HUD Response: HUD appreciates the

recommendation. HUD would like to

remind the public that a NBS does not

have to obtain legal title in order to be

eligible for a deferral period. A NBS

must establish a legal right to remain in

the property, which may be

accomplished through means other than

obtaining legal title to the property.

While HUD understands and

appreciates that concerns raised about

the time required to obtain legal title, as

it is not the requirement and the NBS

has other means in which to establish a

legal right to remain, HUD will not

adopt this recommendation at this time.

Comment: Thirty days after a deferral

period ceases is not a sufficient time

frame to cure a default. The commenter

stated that most spouses will need more

time to obtain documentation or

evidence from a taxing authority to

provide timely payment and to

successfully navigate the servicer’s

protocols.

HUD Response: Non-borrowing

spouses are provided the same

timeframes and opportunity during a

deferral period to cure a default as a

borrower is provided during his or her

lifetime and HUD believes this

timeframe to be sufficient. Additionally,

borrowers and non-borrowing spouses

can cure a default up until the

foreclosure sale occurs.

Comment: HUD should expand the

definition of events that are able to

trigger the deferral period under

§ 206.55. The commenter recommended

that the definition should be expanded

to cover all events that are outside the

control of the borrower, such as

significant health or life events. Another

commenter stated that due and payable

status should also be deferred when a

borrower is no longer residing in the

home serving as collateral property but

there is an Eligible NBS present and

occupying the home.

HUD Response: HUD understands the

issue raised by the commenter but is

unable to adopt this suggestion to

expand events that would be eligible for

a deferral period. The other events that

would give rise to a due and payable

status result from a borrower failing to

comply with his or her obligations of

the mortgage. As such, HUD cannot

provide for a deferral where there is a

breach of a contractual duty.

Additionally, by providing a deferral

period for a NBS where the borrowing

spouse has died, the requirements of

this provision in the NHA are satisfied.

7. Initial Disbursement Limit/Borrower’s

Advance

Comment: HUD should allow any

funds disbursed as a monthly tenure

payment to the borrower to exceed the

Initial Disbursement Limit (IDL) during

the first 12 months. One commenter

stated that applying the Initial

Disbursement Limit to monthly tenure

payments causes confusion by requiring

the payments to be reduced so that they

remain less than the IDL during the first

12 months, and then recast at the end

of the first year to recapture the amount

reduced during that time period.

HUD Response: HUD appreciates the

recommendation and will take it under

consideration for future rulemaking or

policy guidance.

Comment: HUD should clarify what

constitutes fees and charges for real

estate purchase contracts, warranties,

inspections, surveys, and engineer

certifications.

HUD Response: HUD appreciates the

recommendation and will take it under

consideration for future policy

guidance.

Comment: HUD should only require

the borrower to report whether the

amount drawn during the First 12-

Month Disbursement Period will exceed

the 60 percent limit. Commenters stated

that reporting the exact percentage

would be confusing and unnecessary.

HUD Response: HUD has amended

the language in this final rule to remove

the word ‘‘exact’’ from § 206.25(a) to

avoid any confusion. HUD will continue

to require the borrower to indicate what

percentage, up to 10% of the principal

limit, she or he chooses to receive

during the first year. The additional

amount that the borrower plans to use

during the First 12-Month Disbursement

Period is needed for the initial MIP

calculations.

Comment: HUD should not further

amend the limits on the initial

disbursements during the first 12

months.

HUD Response: HUD appreciates the

concern raised. However, the flexibility

in the regulation will enable HUD to

react to market conditions, for the

viability of the HECM program, and to

protect the fiscal soundness of the

MMIF. The flexibility in place at

§ 206.25(a) allows the Commissioner to

raise or lower the maximum initial draw

but cannot go lower than 50% and the

additional percentage cannot be less

than 10%.

Comment: HUD should be careful not

to set limits at a point in which it

eliminates access to the program for

many potential borrowers. The

commenter referenced examples of

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seniors who were convinced to

withdraw the maximum amount at

closing and immediately invest in

financial products.

HUD Response: The flexibility in

place at § 206.25(a) only allows the

Commissioner to raise or lower the

maximum initial draw but cannot go

lower than 50% and the additional

percentage cannot be less than 10%.

This limitation was specifically

designed to reduce initial draws and is

presently set at the amount of

Mandatory Obligations or 60% plus an

additional 10% of the Principal Limit.

In addition, the MIP Structure also

provides a lower upfront rate of 0.50%

for draws of 60% or less and 2.50% for

draws in excess of 60%. Mortgagee

Letter 2014–10 provides specific

guidance regarding the borrower’s right

to determine the amount of the initial

disbursement and requires mortgagees

to inform them of these rights.

8. Allowable Charges and Fees

Comment: HUD should clarify in the

preamble to the final rule that the

origination fee limit does not include

and does not apply to third party

closing costs or fees. Another

commenter stated that including more

fees without increasing the allowable

origination fee is reducing funds for a

company to operate even though the

costs of operating a business and the

cost of living is increasing.

HUD Response: HUD is not seeking to

include additional borrower charges in

the loan origination fee. The

amendments to § 206.31 in this final

rule clarify the loan origination fee

includes expenses incurred in

originating, processing, and closing the

HECM. Third party closing costs or fees

such as an appraisal fee, MIP, transfer

fees, etc., are the responsibility of the

borrower. The practice of the lender

using the loan origination fee to cover

the full amount or a portion of those

fees and charges to reduce the

borrower’s out-of-pocket expenses may

continue.

Comment: HUD should clarify the

ability of mortgagees to charge other

fees, which should also be included as

allowable Mandatory Obligations.

Commenters stated the following should

fall under this category: Tax history

verifications, credit report fees, 4506T

tax verifications, and other verifications

such as verification of employment,

income, bank statements, and assets.

Another commenter requested that HUD

allow mortgagees to incur and pass

along to HECM borrowers a document

delivery or technology fee that allows

for the delivery of loan documents and

disclosures as well as any required

document review fee such as those

mandated by state law. Another

commenter requested additional

clarification on the allowance of closing

charges and fees.

HUD Response: Section 206.25 was

amended by the proposed rule to

include credit report fees as mandatory

obligations. The final rule retains this

language. HUD issued ML 2016–10 to

permit a Third Party Property Tax

Verification Fee to verify the borrower’s

property tax payment history and the

annual amount of property taxes due for

a specific property. HUD will use its

administrative authority to clarify its

policy concerning the handling of

reasonable and customary fees and

charges that are required to do business

as an FHA-approved lender.

Comment: HUD should consider

adding regulations to limit broker

compensation, particularly as to

adjustable rate line of credit reverse

mortgages where the Truth in Lending

Act regulations do not apply. The

commenter provided an example of a

mortgage broker receiving a yield spread

premium of 15 percent of the loan

amount in exchange for acceptance of a

higher-than-market interest rate,

without the borrower’s understanding of

the situation.

HUD Response: HUD does not have

regulatory authority to issue these

requirements. Loan originator

compensation is regulated by the CFPB

under the Truth in Lending Act and its

implementing Regulation Z (12 CFR part

1026). The provisions apply to closed-

end consumer credit transactions

secured by a dwelling, including reverse

mortgages that are not home equity lines

of credit under 12 CFR 1026.40. See 12

CFR 1026.36.

Comment: HUD should consider

addressing the allowance of Appraisal

Management Company fees and

document preparation fees as part of

the allowable loan origination fees and

charges.

HUD Response: HUD appreciates the

recommendation and will take it under

consideration for future policy

guidance.

Comment: A second HECM should be

allowed in the case of a divorce.

Commenters stated that the divorced co-

borrower must show a divorce decree

and/or a copy of the deed indicating the

former spouse is responsible for the

prior marital home.

HUD Response: HUD is adopting in

this final rule the proposed rule change

that allows for a new HECM when the

existing HECM is satisfied prior to or at

the closing of the new HECM, or the

borrower provides legal documentation,

acceptable to the Commissioner,

evidencing release of financial

obligation to satisfy the existing HECM,

which may include a divorce.

Comment: A second HECM should be

allowed when the individual is no

longer on title to the property with the

existing HECM and a new primary

residence has been established. The

commenter stated that the proposed rule

solved for married individuals only and

not other situations such as domestic

partners or relatives.

HUD Response: HUD is adopting in

this final rule the proposed rule change

that allows for a new HECM when the

existing HECM is satisfied prior to or at

the closing of the new HECM, or the

borrower provides legal documentation,

acceptable to the Commissioner,

evidencing release of financial

obligation to satisfy the existing HECM.

This requirement is applicable to all

borrowers and not just married

individuals.

10. Title of Property Which Is Security

for the HECM

Comment: HUD should allow the NBS

to go on title without having to refinance

or qualify for another loan. The

commenter stated that there are many

examples of spouses not qualifying

under the new regulations and as a

result, they have to stay off title, which

causes other legal issues not pertaining

to the mortgage on the property.

HUD Response: The new definitions

for ‘‘mortgagor’’ and ‘‘borrower’’ in

§ 206.3 of this final rule address the

commenter’s concern.

Comment: Allowing non-borrowing

spouses to remain on the title could

open the door to claims by other non-

borrowing owners. Commenters

expressed concerns over whether other

co-owners could demand the sale of the

property or demand to receive their

share of the home title. One commenter

asked if HUD could limit the ability to

remain on title to eligible NBSs only or

perhaps only to owners who also reside

in the home. Another commenter

suggested that HUD should limit the

ability of a non-borrower to remain on

title to spouses, or alternatively, grant a

life estate right to the borrower so that

the borrower could keep the home.

HUD Response: While HUD

understands the potential issues that

could arise from shared legal ownership

of a property, HUD has determined it is

not in a place to dictate to a homeowner

or homeowners how to best structure

legal ownership to a property. Further,

even should HUD be inclined to limit

those individuals on title at origination,

there is nothing that would prevent the

borrower from subsequently adding

additional individuals to title. These

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individuals whether added before or

after origination would have certain

legal rights as would any other legal

owner of a property. Ultimately, how a

homeowner or homeowners elect to

hold title is within their control.

Comment: HUD should clarify when a

certification must be signed by all non-

borrowing spouses and non-borrowing

owners to consent to the borrower

obtaining a HECM. The commenter

recommended that the certification be

required at the time of closing or

funding.

HUD Response: HUD will take these

comments under consideration when

implementing related policy through

guidance.

Comment: HUD should clarify that

HECM servicers may encourage

borrowers on currently outstanding

HECMs to add NBSs and heirs to the

title when preparing for end-of-life

arrangements.

HUD Response: HUD has determined

it is not appropriate to dictate to a

homeowner or homeowners how to best

structure legal ownership to a property.

12. Seasoning Requirements for Existing

Non-HECM Liens

Comment: An unintended

consequence of the rule is that it

disallows a HECM even when the non-

HECM lien would not result in

exceeding the 60 percent of the initial

disbursement limit. Some commenters

suggested that the policy should be

changed so that liens seasoned for less

than one year can be paid off at closing

if the PLU is 60 percent or less.

HUD Response: HUD has considered

this proposal and is incorporating a

change to the final rule for HELOCs. The

final rule allows borrowers to pay off

unseasoned HELOCs using their own

funds, HECM funds, or a combination of

HECM funds and non-HECM funds. The

final rule allows the use of HECM funds

to pay off unseasoned HELOCs if the

IDL or Borrower’s Advance remains at

or under the percentage set by the

Commissioner in § 206.25(a).

Comment: The seasoning requirement

should be eliminated altogether. The

commenter stated that many seniors

take out a home equity line of credit

without realizing a reverse mortgage

would be a better option. The

commenter explained that if an

emergency makes it difficult for this

senior to make monthly payments on

the HELOC, it would put the borrower

in an even worse financial situation if

the borrower could not apply for a

HECM for twelve months. Another

commenter stated that this requirement

only hurts the seniors who have to wait

up to twelve months to get their HECM

loan. One commenter asked what is

wrong with allowing debts to be paid off

at closing. Some commenters stated that

it is not reasonable to expect a

homeowner to possibly know that an

ordinary consumer transaction such as

opening a home equity line of credit

will close the door to a HECM. One

commenter suggested two alternatives:

(1) Reduce the seasoning requirement to

draws made in the last 60 to 90 days;

or (2) make the effective date the date

of closing rather than the date of

application.

HUD Response: This final rule retains

an amended seasoning requirement that

imposes the 12-month requirement

beginning at the date of the HECM

closing rather than the HECM loan

application, and at closing, allows the

pay-off of HELOCs that do not meet

seasoning requirements from borrower

funds, HECM funds, or a combination of

a borrower’s own funds and HECM

funds if the IDL or Borrower’s Advance

remains under the percentage set by the

Commissioner in § 206.25(a).

Comment: The seasoning requirement

should be rewritten to exclude

construction and rehab loans, as long as

the borrower can show that all loan

proceeds were paid to contractors. One

commenter stated that in many cases,

these loans are required to bring the

property into compliance for a HECM.

HUD Response: Existing policy does

not consider funds paid to third parties

for construction and rehab to be ‘‘cash

to the borrower’’. As long as

documentation is provided to show that

loan proceeds in excess of $500 were

paid to a contractor, the seasoning

requirement in § 206.36 is considered

satisfied.

Comment: HUD should clarify the

current interpretation by wholesale

lenders concerning such loan proceeds

passing through the bank account of the

borrower.

HUD Response: If documentation is

provided to show that the loan proceeds

in excess of $500 were paid to a third

party, funds that were received by the

borrower and paid through the

borrower’s bank account satisfies the

seasoning requirement in § 206.36.

Comment: Rather than allowing the

Commissioner to impose additional

seasoning requirements through notice

and comment, the seasoning

requirements under Mortgagee Letter

2014–21 should remain the same and be

incorporated into the regulations.

HUD Response: As stated in the

proposed rule and retained in the final

rule in § 206.36, the seasoning

requirements that may be established by

the Commissioner will not prohibit the

payoff of non-HECM liens if the liens

have been in place for longer than 12

months or have resulted in cash to the

borrower in an amount of $500 or less.

Comment: HUD should allow for

greater flexibility for paying off existing

mortgages by imposing a 1.75 percent

upfront MIP cap rather than a 2.5

percent cap or by increasing the

percentage allowable from 42 percent to

52 percent with a 60 percent cap on

distributions.

HUD Response: HUD will take these

comments under consideration when

implementing future policy guidance.

11. Financial Assessment

Comment: The introduction of non-

property related expenses is outside the

scope of the financial assessment. One

commenter stated that a senior will pay

the property taxes when given a choice

between paying the property taxes or

paying off a credit card.

HUD Response: It is critical to

evaluate the willingness (credit history)

and financial capacity of the borrower

in order to determine whether the

HECM loan is a sustainable solution for

the borrower in order to reduce defaults

and manage risk to the MMIF.

Comment: Proof of on-time property

taxes and insurance payments should

not be required. The commenter stated

that those who have a history of less-

than-stellar credit, even if they pass the

Financial Assessment, should be

considered for a LESA.

HUD Response: Current regulations in

§ 206.205 require that if the borrower

does not meet the Financial Assessment

requirements that a Fully- or Partially-

Funded LESA is required. And all

HECM borrowers have the option to

voluntarily request a LESA for payment

of taxes and insurance or voluntarily

request the mortgagee to pay taxes and

insurance out of the HECM proceeds if

a LESA is not required.

Comment: Willingness is the primary

cause of tax and insurance defaults.

HUD Response: HUD rejects this

comment and recognizes the majority of

its borrowers demonstrate a willingness

to pay their property charges in a timely

manner. HUD’s guidance, as provided in

the revised HECM Financial Assessment

and Property Charge Guide attached to

Mortgagee Letter 2016–10, includes

instructions for reviewing and

evaluating the applicant’s credit history,

including tax and insurance payment

history, and extenuating circumstances

of prospective borrowers to determine

whether the HECM loan is a sustainable

solution and whether a LESA must be

required.

Comment: Borrowers with a certain

minimum credit score should be exempt

from the income assessment.

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HUD Response: HUD is receptive to

adding FICO Scores to the Financial

Assessment process; however, at this

time, sufficient performance data is not

available to support the implementation

of FICO score criteria for HECMs. HUD

is now collecting FICO information on

HECM borrowers and will, over time,

evaluate how that may be incorporated

in the Financial Assessment process.

Comment: Additional compensating

factors should be taken into

consideration at the discretion of the

direct endorsement underwriter, just as

in traditional mortgages.

HUD Response: HUD does not allow

additional compensating factors to be

taken into consideration of the direct

endorsement underwriter on forward

mortgages and does not intend to adopt

this recommendation for the HECM

program.

Comment: HUD should audit recent

financial assessments to determine how

much documentation is unnecessary.

One commenter stated that many

guideline requirements are beyond risk

management and ambiguous, and

suggested that HUD could establish

quarterly meetings with industry

underwriters and sales leaders for a path

toward closing good loans with limited

documentation.

HUD Response: HUD continues to

closely monitor performance of the

HECM portfolio and will update

guidance on the Financial Assessment

as needed.

Comment: HUD should wait to

implement further changes to the

financial assessment, since the impact

of the changes that took effect in April

2015 are not yet fully understood.

HUD Response: The proposed rule

does not include any changes to the

Financial Assessment requirements.

HUD continues to closely monitor the

performance of the HECM portfolio and

will update guidance on the Financial

Assessment as needed.

Comment: HUD should allow seniors

to pay off revolving debt at closing from

proceeds in order to qualify under the

financial assessment rules, particularly

since this can be done with forward

mortgages.

HUD Response: In this final rule,

HUD has included use of HECM

proceeds to be used to pay-off

unsecured debt, as defined by the

Commissioner through Federal Register

notice, as a mandatory obligation.

Comment: The financial assessment

guidelines are overly restricting access

to the HECM program. One commenter

stated that a LESA eliminates some

concern regarding residual income,

since a person with a full LESA is

covered with regards to tax and

insurance. Another commenter stated

that the Financial Assessment

guidelines apply HUD practices

designed for younger, employment-aged

consumers and should be more closely

correlated to the actual situation of

aging homeowners over time. The

commenter suggested that the rule

should recognize the evolving nature of

the Financial Assessment protocol and

require further review to expand the

population of low-risk senior

homeowners who are eligible to

participate in the HECM program.

Another commenter stated that even

borrowers with excellent credit are

forced to go through many underwriting

conditions that would not be required

for an FHA forward mortgage. Another

commenter stated that the process of

obtaining a HECM has become

unnecessarily documentation-intensive

and rigid with respect to the specific

documentation format.

HUD Response: As stated in

§ 206.37(b)(1), the financial capacity of

the borrower must be evaluated to

determine whether the HECM is a

sustainable solution for the borrower.

HUD has always required full

documentation for borrowers on all its

mortgage programs, except for

streamlined refinances. Providing

specific documentation requirements

ensures consistency and these

requirements may vary from forward

mortgages because of the different

profile of the programs and the

borrowers. However, a significant

amount of the required financial

assessment documentation reflects

standard documentation criteria for real

estate secured loans. The need to

require additional cash flow and

projected financial documentation on

HECMs reflects the unique structure of

this type of mortgage and borrower.

HUD appreciates the recommendation

and will take it under consideration for

future policy guidance.

Comment: The requirement to use the

prior year’s tax bill amount multiplied

by 1.04 or an amount set by the

Commissioner through notice is

unnecessary as the LESA formula

already has a 1.2 times multiplier to the

annual taxes and insurance.

HUD Response: When the mortgagee

requires the payment of taxes and flood

and hazard insurance at closing, or the

borrower requests that their property

charges are paid at closing, and a new

tax bill has not been issued or is

unavailable, the 1.04 multiplier is used

to calculate the projected amount of

taxes and insurance to be disbursed

during the first 12 months. The 1.2

multiplier is used for the LESA and

takes into account expected increases in

property taxes and hazard and flood

insurance over the life expectancy of the

youngest mortgagor.

Comment: HUD should clarify that

Financial Assessment underwriting

should not include utility payments in

the expenses of HECM borrowers.

HUD Response: Utility payments,

using the residual income formula in

the Financial Assessment Guide, is a

requirement and HUD does not intend

to change this policy at this time.

13. Disclosure, Verification, &

Certifications

Comment: HUD should clarify, in

guidance if not in the regulations, that

borrowers will not be required to grant

the agent specified power of attorney

with the ability to access HECM funds.

Some commenters stated that some

borrowers will not know someone

trustworthy enough for that purpose.

Another commenter suggested that HUD

should restrict this person’s role to that

of a ‘‘trusted contact’’ person. One

commenter stated that HUD should

clarify that the designation of an

additional contact is optional on the

part of HECM borrowers.

HUD Response: It was not HUD’s

intent to have all borrowers designate an

agent with the authority to make

financial decisions or withdraw funds.

It is HUD’s intent that HECM borrowers

be requested to designate a point of

contact that mortgagees would be

required to use in the event a problem

arises or in the event of the borrower’s

death or incapacitation. Accordingly,

HUD has revised § 206.40(c) to clarify

that the contact person is not acting as

an agent and that the mortgagee will be

required to request the designation, but

that the borrower is not required to

designate such a contact person.

Comment: HUD should require

borrowers to provide a trusted contact at

the time of loan origination, who would

be notified in the event HUD could not

establish contact with the borrower. The

commenter stated that a failure to

respond by the borrower would result in

a notification sent to the trusted contact.

HUD Response: HUD has revised

§ 206.40(c) to clarify that the contact

person will not be an ‘‘agent’’ and that

the mortgagee will only request that the

borrower designate such a contact

person that mortgagees would be

required to use if they cannot reach the

borrower directly in the event a problem

arises or in the event of the borrower’s

death or incapacitation.

Comment: The servicer should verify

the agent’s information annually when

the borrower’s certification of residency

is obtained, to ensure that the

information is up-to-date.

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HUD Response: In § 206.211(a), the

proposed rule includes the borrower

designation of alternate individual as

part of the annual certification.

Comment: The requirement to collect

an alternative point of contact for

notifications from the mortgagee should

be required at the time of loan

origination and updated annually.

HUD Response: HUD has revised

§ 206.40(c) to clarify the mortgagee shall

request but not require the borrower to

designate an alternative individual at

origination. In section 206.211(a), the

proposed rule includes the borrower

designation of alternate individual as

part of the annual certification.

Comment: HUD should make certain

revisions to the Eligible Non-Borrowing

Spouse Certification. The commenter

stated that the certification should

affirm that the NBS does not have, and

is not aware of, any claims against the

mortgagee. The commenter also stated

that the certification should affirm that

the NBS agrees to execute

documentation reasonably requested in

order to toll the running of any

applicable statute of limitation after the

borrower passes away but the NBS

remains in the property during a

deferral period. The commenter finally

stated that similar changes should be

made to the certifications issued under

FHA Info, prior to the issuance of

Mortgagee Letter 2016–05 for HECMs

subject to the Mortgagee Letter and the

MOE Assignment election.

HUD Response: HUD will take these

comments under consideration when

implementing related policy through

guidance. Additionally, FHA reminds

mortgagees that the model loan

document provided must be adapted by

the lenders to local and state

requirements that preserve first lien

status.

Comment: HUD should allow

mortgagees to amend the HECM loan

documents to revise the recitals in the

security instrument to make clear that

the non-borrowing spouse is not a

borrower. The commenter also stated

that the repair rider and other riders

should be indicated as secured items in

the initial recitals of the HECM

mortgages.

HUD Response: HUD will take these

comments under consideration when

implementing related policy through

guidance. Additionally, FHA reminds

mortgagees that the model loan

document provided must be adapted by

the lenders to local and state

requirements that preserve first lien

status.

Comment: HUD should add a seventh

Qualifying Attribute that the non-

borrowing spouse must agree to execute

certain documentation in order to toll

the running of any applicable statute of

limitation during a deferral period.

HUD Response: HUD will take these

comments under consideration when

implementing related policy through

future rulemaking or policy guidance.

Additionally, FHA reminds mortgagees

that the model loan document provided

must be adapted by the lenders to local

and state requirements that preserve

first lien status.

Comment: HUD should consider

defining the due and payable date as

the later of when the Eligible NBS no

longer meets all of the Qualifying

Attributes or when the borrower dies, in

those cases where there is an Eligible

NBS present. The commenter stated that

this language could be used by

mortgagees in states that do not allow

the tolling of a statute of limitations.

HUD Response: HUD will take these

comments under consideration for

future rulemaking. Additionally, HUD

reminds mortgagees that the model loan

document provided must be adapted to

local and state requirements that

preserve first lien status.

14. Monetary Investment for HECM for

Purchase

Comment: Like most other loan

products, there should only be a

restriction to payment of those items

that are reasonable and customary.

Many commenters stated that seller

contribution rules for the HECM for

Purchase program should be the same as

those in the FHA forward market. Some

commenters stated that further

restrictions result in the senior

borrowers having more of a cost burden

than similar borrowers using FHA’s

forward mortgage program as well as

conventional and VA mortgage

borrowers. One commenter stated that

HECM buyers are currently

unnecessarily burdened with paying for

transfer tax, owner’s title insurance, and

some escrow fees, whereas forward

mortgage buyers have these expenses

paid by a third party. Another

commenter stated that these restrictions

cause seniors to pay more than what

they would if they chose a forward

mortgage, especially with new

construction. One commenter stated

that not allowing for customary

transaction charges normally paid by

the seller can create confusing market

irregularities when a HECM is used to

purchase a new home. The commenter

also stated that some HECM rules are in

direct conflict with state law.

HUD Response: In addition to

allowing seller payment of fees required

by State or Local tax laws and a Home

Warranty Policy, the final rule has been

revised to allow fees customarily paid

by a seller in the subject property

locality to be a permissible interested

party contribution. The final rule also

retains the proposed rule language to

grant flexibility to the Commissioner to

consider additional permissible

interested party contributions through

notice for comment, and will take these

comments under consideration in

possibly issuing such a future notice.

Comment: The amount of closing

costs that other parties can pay should

be expanded to further support the use

of the HECM for Purchase program.

Some commenters stated that it does not

make sense to prevent other parties from

helping to cover other borrower costs,

when these practices are perfectly

acceptable for all other types of

mortgage transactions. Some

commenters stated that HUD should

allow lenders credit for buyer closing

costs up to 3 percent. Other commenters

suggested that the rule be changed to

allow the seller to pay 3 to 6 percent of

closing costs, similar to the forward

side. Another commenter stated that the

lender should be able to pay closing

costs without limitation, other than the

counseling fee. Commenters stated that

the practice of prohibiting sellers from

paying customary fees or closing costs is

unfair to reverse mortgage borrowers.

Another commenter stated that if HUD

allows the same closing costs to be paid

by the seller as are allowed in a

traditional FHA loan, HECM for

Purchase loans will skyrocket in

popularity and greatly benefit the senior

real estate market. One commenter

stated that even a 2 percent allowable

concession would put the consumer

into a better cost structure. Another

commenter recommended that HUD

exclude lender closing cost credits,

adjustments, and discounts from the

definition of ‘‘interested party’’

contributions.

HUD Response: In addition to

allowing seller payment of fees required

by State or Local tax laws and Home

Warranty Policy, the final rule has been

revised to allow fees customarily paid

by a seller in the subject property

locality to be a permissible interested

party contribution. The final rule also

retains the proposed rule language to

grant flexibility to the Commissioner to

consider additional permissible

interested party contributions through

notice for comment, and will take these

comments under consideration in

possibly issuing such a future notice.

Comment: HUD should specify what it

means by ‘‘typical’’ and ‘‘required by

state law.’’

HUD Response: HUD appreciates the

recommendation and will take it under

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consideration for future policy

guidance.

Comment: HUD should allow the

seller to pay for the buyer’s closing costs

and thereby increase the popularity of

HECM for Purchase loans. The

commenter stated that many borrowers

would use a HECM for Purchase loan

that they do not intend to live in for the

long-term, which would be a great loan

for the MMIF.

HUD Response: In addition to the

allowing seller payment of fees required

by State or Local tax laws and Home

Warranty Policy, the final rule was

revised to allow fees and charges

customarily paid by a seller in the

subject property locality to be included

as a permissible interested party

contribution. HUD will continue to

explore responsible lending practices

and protections for the benefit for this

protected class.

Comment: Continuing the ban on

closing costs is a good idea for new

construction but not for resales.

HUD Response: HUD appreciates the

recommendation and will take it under

consideration for future policy

guidance.

Comment: HUD should find a way to

relieve all closing costs if the borrower

agrees to dedicate at least part of the

funds toward life and/or annuity

products which have prematurity

distribution clauses.

HUD Response: Section 255(o) of the

National Housing Act prohibits

prospective borrowers from being

required to purchase additional

products, such as annuities as a

requirement or condition of HECM

eligibility. Currently, closing costs

associated with a HECM are limited to

certain items such as, but not limited to,

MIP, mortgagee’s title insurance, hazard

and/or flood insurance, loan origination

fees, the discharge of all liens against

the property which serves as collateral

for the HECM, and other reasonable and

customary amounts, but not more than

the amount actually paid by the

mortgagee.

Comment: HUD should clarify that

lender-paid broker fees that are

disclosed as a ‘‘credit’’ on the HUD–1

for RESPA purposes are not lender

credits for purposes of the HECM for

Purchase program. The commenter

stated HUD should clarify that although

lender-paid mortgage broker fees are

reflected as a ‘‘credit’’ on line 802 of the

HUD–1, such fees paid by lenders to

mortgage brokers are not a credit for

purposes of the HECM for Purchase

program.

HUD Response: HUD appreciates the

recommendation and will take it under

consideration for future policy

guidance.

15. Eligible Properties

Comment: HUD should require the

Certificate of Occupancy as a closing

condition rather than for purposes of an

application. Another commenter stated

that HUD should remove the

requirement for a certificate of

occupancy to be issued prior to

application. The commenter stated that

the rule as proposed would restrict

consumer access to the HECM for

Purchase program. One commenter

stated that the builder may not be able

to afford to complete the home, and

then have the buyer apply for the HECM

and wait another 3–6 weeks to close.

HUD Response: The timing for taking

the initial loan application will be

addressed in future policy guidance

rather than this final rule.

Comment: Requiring the certificate of

occupancy to be completed on new

construction before the HECM can be

originated is very burdensome for

seniors. Some commenters suggested

that the HECM regulations should

follow standard FHA rules for forward

mortgages wherein the case number and

application may ensue upon 90 percent

of property completion with the

Certificate of Occupancy obtained prior

to closing. The commenter, and others,

stated that this would enable seniors to

compete for new construction homes in

55-and-over communities and energy

efficient properties. Another commenter

suggested that HUD should allow for an

order of a case number and appraisal

any time after the home is 50 percent

complete. Another commenter stated

that newly-built senior housing that is

more accommodative to aging

independently is a major national

demographic trend.

HUD Response: HUD appreciates the

comments concerning the timing for

collecting habitability documentation

and will take it under consideration for

future policy guidance.

Comment: As an alternative, HUD

should allow for a ‘‘temporary’’ or

‘‘conditional’’ Certificate of Occupancy

to be accepted at application. The

commenter suggested that the

conditional or temporary issues to be

addressed would be sod, landscaping, or

perhaps an unfinished driveway.

HUD Response: HUD appreciates the

recommendation and will take it under

consideration for future policy

guidance.

Comment: HUD should clarify that

the leasehold period is based on the life

of the borrower rather than the life of

the mortgagor.

HUD Response: The NHA requires

that the leasehold period must be under

a lease for not less than 99 years that is

renewable, or under a lease that has a

term that ends no earlier than the

minimum number of years, as specified

by the Secretary, beyond the actuarial

life expectancy of the mortgagor or

comortgagor, whichever is the later date.

The leasehold period cannot be based

on the life of the borrower as the NHA

requires that it be based on the life of

the mortgagor.

Comment: The proposal to add a new

flood insurance mandate ‘‘to the extent

required by the Commissioner’’ is vague

and unnecessary. One commenter stated

that the proposed rule does not contain

any description of the criteria the

Commissioner would use to make the

determination as to whether flood

insurance was required. The commenter

also stated that federal law and the flood

insurance program were already

designed to protect mortgagees and the

federal government from the risk of

property loss due to floods. Another

commenter stated that HUD should

make it clear that flood insurance is not

required unless required under the

National Flood Act because the property

is in a flood zone.

HUD Response: These requirements

are not new additions to the HECM

program. They were previously listed in

the regulations at 24 CFR part 203 and

incorporated into the HECM program by

reference. This rule simply moves the

regulations into part 206 in order to

reduce the number of cross-references.

HUD intends to retain these regulatory

requirements.

Comment: Section 206.45(c)(1)(ii)

should be deleted or paragraph (1)

should be edited by adding a paragraph

break after the first comma of

§ 206.45(c)(1)(ii). The commenter stated

that, without a paragraph break, it is

unclear whether the phrase ‘‘if flood

insurance under the National Flood

Insurance Program (NFIP) is available’’

applies only to paragraph (ii) or

paragraph (i) as well.

HUD Response: The final rule has

been revised to clarify the flood

insurance requirements.

Comment: HUD should remove its

inclusion of collateral ‘‘subsequently

erected’’ as it relates to hazard

insurance requirements because risk

can be effectively mitigated through

insurance requirements for the

collateral used to secure the loan at the

time of origination. One commenter

stated that the ability for the servicers to

monitor collateral that has been

subsequently erected by the borrower is

impractical and would require periodic

inspections of the property at an added

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cost to the borrower. Another

commenter requested that the

requirement be to protect the

collateralized value at the time of

origination.

HUD Response: These requirements

are not new additions to the HECM

program. They were previously listed in

the regulations at 24 CFR part 203 and

incorporated into the HECM program by

reference. This rule simply moves the

regulations into part 206 in order to

reduce the number of cross-references.

HUD intends to retain these regulatory

requirements.

16. Repair Work

Comment: HUD should clarify that

repair administration fees need not be

listed on the HUD Settlement Statement

at closing.

HUD Response: The HUD–1

Settlement Statement is under the

purview of the CFPB and is a statement

of actual charges and adjustments paid

by the borrower and the seller, if

applicable, to be given to the parties in

connection with the settlement.

Comment: HUD should permit the

mortgagees to establish a set-aside range

between 150 and 200 percent of the

estimated cost of repairs. The

commenter stated that when an

appraiser makes repair estimates, it

would be more beneficial to have up to

200 percent of the estimated cost set

aside, whereas if a qualified contractor

makes the repair estimates, 150 percent

should suffice.

HUD Response: HUD currently

requires the repair set aside to be

established in an amount equal to 150%

of the estimated cost of repairs when

such required repairs do not exceed

15% of the MCA. The 150% limit

provides a sufficient range of flexibility;

however, borrowers are also permitted

to add additional funds to the Repair Set

Aside, but the funds cannot be drawn

until the repairs are completed.

17. ‘‘Spot Approval’’ Exception for

Condominiums

Comment: The ‘‘spot approval’’

exception should be reinstated for

expired approvals. One commenter

stated that in some cases, the ‘‘spot

approval’’ exception is the only way in

which some elderly homeowners can

stay in their condominium unit when

the property management does not get

the entire project FHA approved. One

commenter stated that without access to

FHA, seniors who live in a non-certified

condominium project are cut off from a

major potential source of needed cash to

pay bills and support their retirement

years. The commenter asked whether

there is still an opportunity to

reconsider maintaining the spot

approval exception and whether there

are alternatives to the spot approval.

Another commenter suggested that if the

spot approval process is not reinstated,

the approval process for condominiums

needs to be completely revamped

because in some markets, it is

impossible to get a condominium FHA

approved. One commenter stated that

many condominium developments do

not fully understand FHA approval and

that homeowners are afraid to speak up

to say that a HECM would improve their

financial circumstances so that they

would be able to continue to stay in the

development. Another commenter asked

whether spot approvals could be

allowed for HECMs only, as the

previous spot approval process was

poorly handled and abused frequently.

The commenter stated that

condominiums provide an attractive,

low-maintenance option for seniors.

Another commenter requested that HUD

re-visit, update, and remedy the spot

approval process for single-family FHA-

insured loans, including HECMs.

HUD Response: HECMs are subject to

existing HUD Condominium eligibility

and approval processes as published in

ML 2016–15, ML 2016–13, ML 2015–27,

and ML 2012–18. This final rule

updates the existing HECM regulations

regarding spot loans to comply with

condominium guidelines that were

implemented under HERA via the

mortgagee letters referenced above. HUD

appreciates the recommendation and

will take it under consideration for

future rulemaking and policy guidance.

18. Eligible HECM for Purchase Sales

Comment: Ninety days after

acquisition is too long to require the

seller to wait in order to re-sell the

property. One commenter stated that 75

days is plenty of time to fix up a house,

get an offer, and close, and that a seller

could sell to conventional and VA loan

customers earlier.

HUD Response: This requirement

does not represent a change in the

regulations. This rule simply restates

the requirements of part 203 that were

previously incorporated into part 206

through cross-references.

19. MIP

Comment: The MIP is too high. One

commenter stated that the elevated

upfront MIP will often alienate a senior

due to cost and suggested, alternatively,

that the upfront MIP could be added to

the balance similar to the FHA forward

mortgage process. Another commenter

suggested that the refund of MIP be

permitted on a sliding scale or prorated

basis during the first few years of the

loan.

HUD Response: It has been HUD’s

longstanding practice to allow

borrowers to finance the initial MIP

charge. In response to the sliding scale

or proration suggestion, once a mortgage

is insured, HUD’s longstanding policy

has been to require termination of the

mortgage without refunding initial MIP.

This practice will continue. The limited

circumstances for warranting a refund of

initial MIP are outlined in paragraph 7–

13 of HUD Handbook 4235.1.

Comment: HUD should change the

upfront MIP structure for all HECMs.

Several comments proposed a tiered

MIP structure tied to the percent of

Principal Limit disbursed during the

first 12 months of the HECM. One

commenter suggested a .01 percent

upfront MIP for initial draws up to 25

percent, a half-percent upfront MIP for

initial draws between 26 and 50

percent, two and half percent upfront

MIP for initial draws between 51 and 75

percent, and a three and a half percent

upfront MIP for initial draws between

76 and 100 percent. Another commenter

suggested that any initial draw under 50

percent would be charged a half-percent

upfront MIP; an initial draw between 50

and 60 percent would be charged a one

percent upfront MIP; an initial draw

between 60 and 70 percent would be

charged one and a half percent upfront

MIP; etc.

HUD Response: HUD will take these

comments under consideration when

implementing related policy through

guidance.

Comment: The initial MIP should be

refundable for a HECM terminated in

the first twelve months due to the death

of the borrower(s).

HUD Response: Once a mortgage is

insured, HUD’s longstanding policy has

been to require termination of the

mortgage without refunding initial MIP.

Comment: HUD should review the

legislative history and authority

regarding HUD’s ability to increase the

MIP and re-consider proposing this

change at another time.

HUD Response: This final rule

updates the existing HECM regulations

to include statutory MIP requirements

that were implemented under Public

Law 111–229 on August 11, 2010, that

amended subparagraph (B) of section

203(c)(2) of the National Housing Act

(12 U.S.C. 1709(c)(2)(B)).

Comment: The consumer should only

be credited with 100 percent of the

initial MIP if they are too short to close;

otherwise, a fixed amount or percentage

should be credited. The commenter

stated that lenders that normally credit

100 percent have the servicing rights so

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they will recoup this credit on the back

end, but some other loan officers cannot

offer the same deal and are

disadvantaged.

HUD Response: HUD requires the

payment of initial MIP as a condition of

endorsement. HUD is responsible for

oversight and management of the HECM

portfolio, not competitive pricing. HUD

encourages and supports a borrower’s

decision to look for the best financing

option that will meet their individual

short- and long-term needs.

Comment: HUD should refrain from

changing the time period of 10 days to

remit payment of initial MIP to the

Commissioner. The commenter stated

that there are occasional cases in which

the commenter is unaware of an error

with the MIP payment, and 5 days

would not be sufficient time to resolve

the issue and remit payment before

incurring a late charge.

HUD Response: FHA is not changing

the 15-day requirement to remit initial

MIP to the Secretary. However, the final

rule retains the requirement to assess a

late charge when MIP is remitted more

than 5 days after the payment date as

described in § 206.111(a).

20. Insurance of Mortgage

Comment: HUD should use the

principal limit on the deed instead of

150 percent of the maximum claim

amount. The commenter explained that

using a deeded amount of 150 percent

of the maximum claim amount causes

reverse mortgage borrowers in certain

states to pay approximately 260 percent

of the tax they should owe. The

commenter stated that these states

charge an intangible tax or deed/

mortgage tax on the deeded amount of

the loan.

HUD Response: HUD appreciates the

recommendation and will take it under

consideration for future policy

guidance.

21. Commissioner Authorized to Make

Payments

Comment: If the regulations permit

the Commissioner to require or not

require a subordinate mortgage through

notice, HUD should clarify how this

change will affect the claims process.

HUD Response: The proposed rule

provides flexibility for the

Commissioner to consider future policy

changes. HUD appreciates the

recommendation and will take it under

consideration for future policy

guidance.

22. Acquisition and Sale of Property

Comment: Acquiring appraisals in the

currently strong real estate market

typically takes 45–60 days, so the

proposed 30-day time frame is not

realistic. One commenter asked what

happens when the appraisal is not

performed within 30 days of application

if the delay is a result of borrower action

or inaction. Another commenter stated

that the longer appraisal turnaround

time can be attributed to the market,

weather, review of title prior to

appraisal, borrower illness, borrower-

created delays, or the rural location of

a property.

HUD Response: HUD’s longstanding

policy has been to use 30 days as the

appraisal timeframe. However, should

there be any issues due to market

conditions making appraisers

unavailable, the mortgagee as always

may request an extension, which HUD,

in its discretion, may grant.

Comment: HUD should revise the

proposed language to state that a

servicing mortgagee must have a valid

appraisal in place at the time of the

foreclosure sale date based on HUD’s

current definition of a valid appraisal.

HUD Response: HUD will issue

guidance subsequent to the publication

of the final rule in which it will clarify

the use of a valid appraisal for

establishing the bid amount at a

foreclosure sale.

Comment: HUD should provide

additional clarity regarding the effective

date for the correction involving the

appraisal date following the borrower’s

death instead of the foreclosure sale.

The commenter stated that HUD and

participating lenders may have

disbursed excessive funds as a result of

multiple appraisal orders and

subsequent curtailments due to the

previous drafting error. Some

commenters suggested that this drafting

error correction should be retroactive in

order to protect servicing mortgagees for

missing the timeline.

HUD Response: This final rule does

not and cannot amend insurance

contracts for HECM loans.

Comment: HUD should differentiate

the type of ‘‘value’’ requested in

reference to the term, ‘‘appraised

value.’’ The commenter highly

recommended, in the case of a

foreclosure sale, for the appraisal to

include an estimate of the property’s

market value and liquidation value.

HUD Response: HUD intends to retain

its longstanding practice of requiring the

‘‘as is’’ appraised value.

Comment: HUD should clarify that

appraisals for pending property sales

should be ordered from a HUD-rostered

appraiser within 30 days according to

the uniform standards, while in cases of

foreclosure, appraisals should be

received within 30 days prior to the

expected foreclosure sale.

HUD Response: Section 206.125(b) of

the final rule was revised to provide the

Commissioner with the flexibility to

have the property appraised by an

appraiser on the FHA Roster or other

qualified individual. HUD will publish

guidance subsequent to the publication

of the final rule in which it can clarify

the use of a valid appraisal for

establishing the bid amount at a

foreclosure sale.

Comment: Picky appraisal conditions

are infuriating appraisers to the point

that they are refusing to accept the

orders.

HUD Response: HUD appreciates the

comment and will take it under

consideration for future policy

guidance.

Comment: HUD should tighten

appraiser eligibility standards. The

commenter suggested that HUD

consider a requirement for FHA

appraisers to demonstrate verifiable

education on FHA appraisal

requirements, as authorized by the

Housing and Economic Recovery Act of

2008.

HUD Response: Regulations of

appraiser requirements are outside the

scope of this proposed rule, but HUD

appreciates the comment and will take

it under consideration.

Comment: There is currently a

significant undersupply of appraisers.

One commenter suggested that the

requirements to become an appraiser

should be revised. Another commenter

stated that the undersupply is causing

borrowers to pay above-market rates and

that the wait times are beginning to

increase beyond one month in certain

areas. The commenter suggested that

some funds should be placed into

attracting talent into the appraiser pool.

HUD Response: Regulations of

appraiser requirements are outside the

scope of this proposed rule, but HUD

appreciates the comment and will take

it under consideration.

Comment: For the Cash for Keys

program, the amount should be

consistent with Mortgagee Letter 2016–

03, up to a maximum of $3,000.

HUD Response: HUD will take these

comments under consideration when

implementing related policy through

guidance.

Comment: HUD should allow for the

Cash for Keys option in lieu of evictions

and not merely deed-in-lieu

transactions.

HUD Response: HUD has adopted this

change in the final rule and will make

Cash for Keys available after foreclosure

to bona fide tenants only. A bona fide

tenant means a tenant of the property

who is not a mortgagor, borrower, a

spouse or child of a mortgagor or

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borrower, or any other member of a

mortgagor’s or borrower’s family. The

incentive to have the borrower or person

with legal right to dispose of the

property provide a deed-in-lieu would

be negated if they were aware that they

could force the mortgagee to foreclose,

allowing them to remain in the property

longer and still be paid a Cash for Keys

incentive.

Comment: Cash for Keys should not

only be available during the first six

months following the due date. The

commenter stated that there may be

circumstances in which a property

cannot be transferred within this time

frame, but a deed-in-lieu of foreclosure

would still be an attractive option for

both parties.

HUD Response: Deeds in lieu are

offered as a means to save the time it

takes to foreclose, particularly in states

with long foreclosure timeframes and to

limit the expenses HUD reimburses in

eventual claims. As indicated in the

preamble to the proposed rule, 9 months

allows a borrower or other party with

the legal right to dispose of the property

6 full months to sell the property and

then 3 additional months for the

mortgagee to obtain a title search and

get the deed signed, provided that title

is clear. Allowing a deed in lieu to occur

after that time does not represent the

time or cost savings intended by a deed

in lieu.

Comment: Nine months is not

sufficient time to allow the borrower to

attempt to sell the property under the

time frame for a deed-in-lieu of

foreclosure following the time at which

the HECM becomes due and payable.

The commenters stated that deed-in-lieu

of foreclosure transactions should be

allowed up until the foreclosure sale

date. The commenters also stated that

probate proceedings can make it

difficult for the heirs to sell the property

within nine months.

HUD Response: Deeds in lieu are

offered as a means to save the time it

takes to foreclose, particularly in states

with long foreclosure timeframes and to

limit the expenses HUD reimburses in

eventual claims. As indicated in the

preamble to the proposed rule, 9 months

allows a borrower or other party with

the legal right to dispose of the property

6 full months to sell the property and

then 3 additional months for the

mortgagee to obtain a title search and

get the deed signed, provided that title

is clear. Allowing a deed in lieu to occur

at any time up until the foreclosure sale

date does not represent the time or cost

savings intended by a deed in lieu.

Comment: Sixty days is not sufficient

for notice to be provided to HUD

regarding the mortgage becoming due

and payable. One commenter stated that

death cannot always be discovered

within this timeframe, which results in

servicers facing significant curtailment

risk due to their inability to provide

such timely notice. The commenter

suggested as an alternative to require

mortgagees to report notice of the

passing of the last surviving borrower

within ten days of receiving notification

of the borrower’s death following

reasonable diligence in monitoring the

loan portfolio. Another commenter

recommended notification within 60

days of the servicer discovering and

confirming the title was conveyed and

that no HECM borrower remains on

title. One commenter recommended that

the required timeline should begin

when the servicer knew or reasonably

should have known of the death.

HUD Response: The timeframes in the

proposed rule for the due date did not

change, with the exception of adding

the end of a deferral period. However,

the final rule codifies in § 206.125 the

guidance issued in ML 2015–10, and

HUD believes these are acceptable

timeframes.

Comment: The proposal to base the

foreclosure on the due date conflicts

with ML 2015–10 and should remain as

is.

HUD Response: HUD believes the

initiation of foreclosure is more

appropriately aligned with the due date,

i.e., the date of notice to HUD that the

borrower has died or conveyed title to

the property or the date HUD grants due

and payable permission. Basing the

foreclosure initiation date on when

notice is made to the borrower poses

increased risk to the MMIF because it

allows mortgagees to delay the process

unnecessarily by simply withholding

the required notice and thereby

increasing eventual claim expenses.

23. Payment of Claim

Comment: As in Mortgagee Letter

2016–03, HUD should require servicers

to exercise reasonable diligence in

prosecuting the foreclosure proceedings

to completion and in acquiring title to

and possession of the property pending

varying state procedures. The

commenter stated that the process

associated with the foreclosure of a

property with HECM financing can be

lengthy and that the two-year

reimbursement period would put both

the MMIF and servicer at risk.

HUD Response: HUD has taken public

comments into consideration and has

replaced the two-year reimbursement

period in § 206.129(d)(3) with a limit of

two-thirds of total advances for the

allowable expenses outlined in this

section.

Comment: HUD should remove the

proposed two-year limitation on

insurance claim reimbursements for

property charge advances. One

commenter stated that if this limitation

were applied to existing HECMs, the

number of HECM foreclosures would

increase as servicers called the loans

due and payable as the two-year limit

was reached. The commenter also stated

that this result would conflict with HUD

guidance allowing the deferral of due

and payable status for low-balance

arrearages and ‘‘At Risk’’ borrowers.

Another commenter stated that the

process can be delayed by factors

outside of a servicer’s control, such as

a tax and insurance default and a

repayment plan, new tax and insurance

disbursements, and default/foreclosure

timelines.

HUD Response: HUD has taken public

comments into consideration and has

replaced the two-year reimbursement

period in § 206.129(d)(3) with a limit of

two-thirds of total advances for the

allowable expenses outlined in this

section.

Comment: Regarding the regulations

addressing the amount of payment

when the borrower sells the property,

HUD should include provisions for

loans assigned prior to the effective date

of the rule that are or are not in due and

payable status. The commenter stated

that for such loans that are due and

payable, the claim amount should be

based on the outstanding loan balance

as of the due date and should include

the allowance for items to capture the

costs of title, foreclosure costs, and costs

associated with the acquisition of the

property.

HUD Response: The language in the

final rule has been revised to clearly

define what is reimbursable where the

borrower sells the property, pre and

post due and payable, based on the

effective date of the final rule.

Question 1: Should the HECM program

provide for the pro rata curtailment of

debenture interest and reduction of

expenses incurred as a result of the

mortgagee’s delay in filing the mortgage

insurance claim, and if so, how should

such a policy be structured to ensure

feasible implementation?

Comment: Debenture interest should

be curtailed on a pro rata basis, but

curtailing expenses could create an

incorrect incentive on the part of

servicers to refrain from expending such

amounts, which would perhaps impact

recoveries and place the MMIF at risk.

HUD Response: The regulations do

not remove the requirement for

mortgagees to protect the lien interest or

to preserve and protect the property.

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HUD is exploring options to ensure

mortgagees meet required timeframes.

There is great risk to the FHA MMIF

when mortgagees fail to timely

prosecute foreclosures or take other

required actions.

Comment: Debenture interest should

be paid from the date of notification to

HUD. The commenter stated that

servicers must demonstrate reasonable

diligence in monitoring for death but

should not be penalized for issues

related to reporting bureaus.

HUD Response: HUD believes without

this time frame; mortgagees will have

little incentive to move the HECM to

termination in a timely manner. In

addition, HUD believes mortgagees have

resources to identify the borrower’s

death, but because there may be an

expense related to such resources, the

mortgagees prefer not to subscribe to

them. HUD contends that 60 days is

sufficient time to identify a borrower’s

death through available resources, and

move the HECM toward its logical

conclusion.

Comment: The debenture interest rate

should continue to be based on the

endorsement date rather than the date

on which the default on the mortgage

occurred.

HUD Response: HUD did not propose

changing the date upon which the

debenture interest rate is based. It only

proposed to restate the requirements of

part 203 that are applicable to the

HECM program instead of cross-

referencing to part 203, which includes

the debenture interest calculations.

24. First Lien Status

Comment: As a result of this rule

change, lenders and servicers in super

lien states will do a more thorough job

of monitoring HOA payments to ensure

that the liens do not occur in the first

place. The commenter stated that this

rule change would allow homeowner

associations to receive the funds they

are owed sooner.

HUD Response: HUD appreciates the

comment.

Comment: The proposed rule change

on the lien priority for homeowners’

associations and condominiums

disregards the laws of 21 states and the

District of Columbia. Commenters noted

that allowing homeowners’ association

and condominium ‘‘super liens’’ to take

precedence over HECM liens would

probably render such properties un-

loanable. Some commenters stated that

the proposed changes would effectively

eliminate a condominium or house

purchase in those states by anyone

planning to finance with a HECM for

Purchase. One commenter stated that

condominiums provide a maintenance-

free lifestyle that is especially popular

with the HECM customer base. Another

commenter estimated that there would

be about a sixteen percent loss of

volume as a result of this rule change.

One commenter stated that this change

may cause further restrictions to

financing options for senior

homeowners living in low maintenance

condominiums. Commenters stated that

the rule change exposes community

association homeowners and residents,

including senior citizens, to risk of

higher housing costs and unjust

financial burdens. One commenter

stated that these state association lien

priority laws intend to prevent the

unjust enrichment of lenders at the

expense of community association

homeowners that occurred during the

Great Recession. Another commenter

stated that the proposed rule may

disqualify more than 4 million senior

citizens living in condominiums. One

commenter stated that removing the

HECM option for homeowners and

potential homeowners in these markets

would have dire consequences on the

senior population, the economic

stability in those markets, and a

negative impact on the MMIF due to the

reduction of HECM loans. Another

commenter stated that the difficulty

surrounding assignment of loans in such

markets could result in an inadvertent

curtailment or cessation of HECM

mortgage origination and servicing. One

commenter stated that seniors move into

condominiums without considering a

HECM, and then find out later that this

is not an option.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens for the final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: HUD should prohibit HOA

liens of record at the time of assignment,

and not afterwards. The commenter

stated that servicing mortgagees have no

way to determine whether HOA dues

are past due, and a lien from past due

HOA dues may only be reflected on a

title report ordered as part of or prior to

an assignment.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: The non-payment of HOA/

COA fees is already a condition of

default for HECMs. The commenter

encouraged HUD to share data regarding

the extent of HOA defaults to help

advocates better understand the scope of

this issue.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: Instead of threatening

seniors’ ability to take advantage of the

HECM program in certain states, HUD

should focus on ensuring compliance

from the lending community with

program rules and guidelines

concerning foreclosure, property

preservation, and title conveyance. The

commenter stated that the proposed rule

threatens pro-homeowner, pro-

consumer state statutes by excluding

senior citizens from the HECM program

in these states.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: HUD’s proposal will likely

have a disproportionate, negative

impact on female HECM borrowers

residing in condominiums in

association lien priority jurisdictions.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

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valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: HUD does not justify this

rule change by indicating any losses

HUD may have suffered insuring reverse

mortgages due to state law association

lien priority.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: HUD should include in the

LESA any association assessments in

states that recognize association lien

priority. One commenter suggested

requiring a set-aside for 6 months’ worth

of fees for borrowers in those markets

that have super lien laws. Another

commenter stated that HUD should

explore whether HOA dues should be

included as part of the required set-

aside, as well as what the impact would

be on low-income households.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: The different treatment of

utility charges and condominium or

HOA fees results in irrational

discrimination against owners in such

associations. The commenter stated that

if a nonpayment of utilities would result

in a lien, then HUD will reimburse the

lender for advancing the payment as a

property charge. However, the

commenter stated, if the utilities are

centrally metered and paid for by a

condominium association or HOA and

reimbursed through assessments, then

HUD would not have to reimburse the

lender for advancing payments.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: HUD should clarify its

position and procedures under

circumstances where state laws limit a

mortgage’s first lien status.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: HOA dues should be

considered property charges and treated

like taxes and insurances with regard to

default and repayment plans in the

super lien states in which delinquent

HOA dues may become a superior lien

to the HECM. Commenters stated that

the consumer should be allowed to

repay any advances made on these liens,

just like any other property charge. One

commenter stated that this would

protect HUD’s lien position and the

MMIF, and provide loss mitigation

options to HECM borrowers.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: HUD should expressly

prohibit the extinguishment of HECM

mortgage lien interests by HOA super

liens. Commenters stated that HUD has

successfully relied on the Constitution’s

Supremacy Clause to bar HOA

foreclosure sales from extinguishing

first liens deeds of trust in Nevada when

they are insured through HUD.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

Comment: HUD should clarify that

this requirement would not apply to

existing HECM loans where HUD has

issued a commitment to insure.

HUD Response: HUD has removed the

language referring to homeowners’

association liens and condo association

liens in this final rule. However, HUD

reminds mortgagees that in order for a

HECM to be eligible for loan

assignment, the mortgage must be a

valid, legally enforceable first lien and

title to the property securing the

mortgage must be good and marketable.

In the event that HUD discovers later

that good and marketable title is lacking

due to a lien, HUD may require

repurchase.

25. Effect of Noncompliance With

Regulations

Comment: The proposed new section

206.137 would violate the basic precept

in the National Housing Act that

mortgage insurance on an FHA loan is

incontestable in the hands of the holder.

The commenter stated that this

provision would cause a problem with

loans being pooled or sold in the

secondary market, as almost all HECM

loans are.

HUD Response: Section 206.137 does

not represent a change in the

regulations. This rule incorporates this

provision from 24 CFR part 203 into

part 206, whereas it had previously been

incorporated by cross-reference.

26. Final Payment

Comment: HUD needs to process all

past due HECM supplemental claims

and streamline the process for paying

such claims in the future within a time

period less than that proposed in new

section § 206.144.

HUD Response: Section 206.144 does

not represent a change in the

regulations. This rule incorporates this

provision from 24 CFR part 203 into

part 206, whereas it had previously been

incorporated by cross-reference.

27. Providing Information

Comment: HUD should expand its

requirement to provide the borrower

with a single statement at the end of

each month to include additional

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documentation that will help to

modernize the HECM program. The

commenter suggested that the borrower

be provided with visual charts and

diagrams depicting the loan status,

analysis tools for borrowers to explore

changing the disbursement plan, online

banking methods to review account

statement data, and account statement

formats that comply with the Plain

Writing Act. Another commenter stated

that specific contact information for

HECM experts with the mortgagee or

servicer should be included on the

monthly statement.

HUD Response: HUD does not intend

to prescribe a burdensome process for

providing monthly statements.

However, HUD does not restrict

mortgagees from offering any additional

information through the monthly

statement. Additionally, servicers’

monthly statements already include a

phone number for borrowers to contact

a HECM representative.

Comment: Mortgagees should be

required to provide borrowers with a

dedicated phone number they can call

and speak to employees on a team

specifically trained to address inquiries

concerning HECM mortgages.

HUD Response: The final rule, as did

the proposed rule, states that the

borrower may speak to the employee or

employees specifically designated by

the mortgagee or its servicer to address

inquiries concerning mortgages insured

under this part. Since the part in

question is 24 CFR part 206, which

deals solely with the HECM program,

the language in the rule already

addresses the commenter’s concern.

Comment: HUD should retain the

requirement that the mortgagee provide

a single point of contact for HECM loan

inquiries. The commenter stated that as

seniors can be targets for fraud or elder

abuse, providing a consistent point of

contact can provide borrowers with a

level of comfort when dealing with their

reverse mortgage company.

HUD Response: With the growth of

the HECM portfolio, the staffing

turnover within the mortgage industry,

and the challenges a borrower can face

if their single point of contact is away

from the office when needed, it is no

longer feasible for borrowers to be

provided the name of a single person

with whom they may speak. HUD feels

that having a group of mortgagee staff

specializing in HECMs available to

borrowers gives borrowers more

opportunity to speak to someone who

can assist them. HUD is adamant,

however, that borrowers must be able to

reach a live person when calling a

mortgagee and not have to rely on voice

mail and a return call.

28. Life Expectancy Set-Asides

Comment: HUD should allow the life

expectancy set-aside to be re-evaluated

after closing in order to use the correct

property tax amount for that year rather

than the previous year’s amount.

HUD Response: Currently, HUD

requires the servicing mortgagee to

disburse payments based on the actual

property tax and insurance amounts for

that year.

Comment: Lenders should have the

ability to change the first-year set-aside

to $0, as pre-closing charges are being

paid from the loan proceeds.

HUD Response: Currently, HUD

permits the mortgagee to require, or

when requested by the borrower, to

disburse funds for payment of taxes and

insurance at closing, when such

property charges are coming due within

30–45 days following closing. Payment

of taxes and insurance by the Mortgagee

usually requires multiple disbursements

by the lender over the initial

disbursement period depending on due

dates for tax and insurance payments,

thus, it is not feasible to omit the first

year of Life Expectancy Set Aside

payments.

Comment: The borrower’s election to

have the servicer pay taxes and

insurance by drawing from a line of

credit or withholding funds from

monthly tenure payments should not be

irreversible and should be available to

borrowers at any time during the HECM.

One commenter stated that few

borrowers would elect this option

without such flexibility.

HUD Response: HUD appreciates the

recommendation and has added

language that provides the

Commissioner with the authority to

issue a Federal Register Notice to

expand the property charge payment

options at a future date.

Comment: HUD should eliminate the

lifetime and partial LESA and

implement a three-year tax and

insurance reserve set-aside. The

commenter stated that LESAs can

amount to hundreds of thousands of

dollars or even exceed the entire

amount of the potential HECM,

particularly in higher property tax areas.

HUD Response: HUD explored

various options to address its property

charge default risk, including shorter

periods. After careful consideration and

review, the LESA provided the most

security for allowing the borrower to age

in place and comply with the terms and

conditions of the mortgage.

Comment: Partially-funded LESAs

should be paid directly to the tax

authority or insurance company. The

commenter stated that disbursement to

the borrower introduces additional risk

that property charges will not be paid.

HUD Response: HUD explored

various options to address its property

charge default risk, including

identifying prospective borrowers who

have shown a willingness to pay their

financial obligations but fall short of

having the means to make the payment.

The Partially-Funded LESA fills the gap

for allowing the borrower to be

responsible for such payments.

Additionally, tax payments cannot be

paid on a partial basis and would be

operationally infeasible.

Comment: Thirty days is an

insufficient time frame for a borrower to

respond to the mortgagee’s notification

of a missed property charge payment.

The commenter stated that thirty days is

a short time to respond to the

mortgagee’s request regarding the non-

payment, especially when there is a

delay in the mortgagee’s processing or

mailing of the initial notice. The

commenter suggested that the time

period be extended to 90 days.

HUD Response: This provision simply

codifies what has been implemented

through ML 2015–10. HUD believes the

timeframe is sufficient for a borrower to

have contacted the mortgagee to express

their willingness to repay the funds due.

Comment: HUD should provide a time

frame or guidance concerning how the

mortgagee is to determine the borrower

is unwilling or unable to repay the

mortgagee for funds advanced to pay

property charges outside of a LESA.

HUD Response: ML 2015–11 provides

the availability of loss mitigation

options for a mortgagee to work with the

borrower.

29. Allowable Charges and Fees After

Endorsement

Comment: What is the goal of

allowing a servicing charge to be

included in the mortgage Note rate?

HUD Response: The option for

allowing a servicing charge which is

included in the mortgage Note Rate

provides flexibility for the lender to

cover servicing costs in a manner that is

consistent with mortgage industry

practices if a Servicing Fee Set Aside is

not established. In addition, allowing

the servicing charge to be included in

the Note Rate provides the borrower

access to more funds from which to

draw against since such funds are not

being withheld in the Servicing Fee Set

Aside.

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Question 1: What is an appropriate

servicing fee range (minimum and

maximum dollar amounts) for the flat

monthly servicing fee, and what factors

support the upper and lower bounds of

that range?

Comment: HUD should not allow this

charge. The commenter stated that the

charge would infuriate and confuse the

borrower, as well as complicating the

loan and contributing to the headline

that reverse mortgages are too

expensive.

HUD Response: Servicing fee charges

are an allowable fee that has been a part

of the HECM program since inception.

Servicing fees provide compensation to

servicers for servicing the HECM loan.

Comment: HUD should increase the

dollar amounts for allowable servicing

fees based on the Consumer Price Index

from the last servicing fee adjustment in

1998. The commenter stated that reverse

mortgage borrowers usually require

more time spent on servicing-related

issues as compared to forward mortgage

borrowers. The commenter also justified

a raise in servicing fees based on the

increase in servicing policy

requirements implemented since 1998.

HUD Response: HUD will take these

comments under consideration when

implementing related policy through

guidance.

Comment: There is no reason for the

annual adjustable and fixed rate loans

to have a different dollar amount

servicing fee than the monthly

adjustable HECMs. The commenter

stated that all of these products have the

same servicing requirements. HUD

Response: Adjustable rate loans require

additional support for future draws and

payment plan changes.

Question 2: What is an appropriate

servicing fee range, in basis points, that

could be included in the Note rate, and

what factors support the upper and

lower bounds of that range?

Comment: There is no reason to

separate the servicing fee from the

lender margin. The commenter stated

that on a fixed rate loan, the lender

always has the option of charging a

higher interest rate to cover increased

servicing costs, and on an adjustable

rate loan, the margin can be increased

to cover rising servicing costs.

HUD Response: The Note rate

includes the lender’s margin and may

also include a servicing fee as stated in

§ 206.207(b).

Comment: The basis range is

acceptable as currently prescribed and

adjustments to this range should be

made by the Government National

Mortgage Association (GNMA).

HUD Response: The current

prescribed range is in accordance with

GNMA servicing parameters.

30. Housing Counseling

Comment: HUD should include

continuing education requirements so

that counselors keep up-to-date on the

ongoing changes in the HECM program.

The commenter noted that some clients

have indicated counselors have

discouraged them from using a HECM

and that the counselors seem unaware

of the usefulness of a HECM ARM as a

financial planning tool.

HUD Response: All counseling

sessions are required to cover all the

potential risk for a HECM, including

property charges, ineligible NBS, etc.

The rule would not change those

existing counseling requirements in

these areas. One of the primary

purposes of HECM counseling is to

provide education on all aspects of

HECMs from an objective third party.

The current HECM counselor roster rule

requires that counselors take continuing

education every 2 years and retake the

HECM counselor test every 3 years. This

ensures that counselors stay current

with program requirements.

Comment: Counseling should be

mandatory for all seniors considering

FHA loans. The commenter stated that

it is unconscionable for seniors to

receive a forward 20–30-year loan and

not receive counseling on the option of

a HECM loan. HUD Response:

Counseling by a counselor on the HECM

roster is statutorily required. Given the

unique nature of a HECM loan, the

requirement for counseling is a critical

consumer protection for an ‘‘at risk’’

population.

Comment: Borrowers are not very

well-prepared for the multiple downside

risks inherent in reverse mortgages. One

commenter stated that many borrowers

are told by unscrupulous loan brokers

that there are no further obligations to

fulfill once they receive the HECM, and

that current counseling is ineffective at

correcting those misrepresentations. The

commenter suggested that HUD study

this counseling problem and adjust

counseling requirements accordingly.

Another commenter stated that the

counselors should have training and

additional responsibility to inform the

borrower whether a reverse mortgage is

right for the borrower. Alternatively, the

commenter stated, the counselor should

be required to inform the borrower that

they should seek financial or legal

advice to understand the suitability and

consequences of the HECM.

HUD Response: HUD disagrees with

these comments. HUD believes HECM

Roster Counselors are qualified and

fully capable, based on their training

and continuing education, to thoroughly

educate clients on reverse mortgages.

Furthermore, HECM Roster Counselors

must follow a strict protocol when

providing counseling to potential HECM

Borrowers. The protocol, found in

Appendix 2 of HUD Handbook 7610.1,

Rev.5, requires HECM Counselors to

educate clients on the financial

implications of obtaining a HECM, the

effect of obtaining a HECM or other

reverse mortgage product on public

benefits and on borrower and non-

borrower spouse post-closing

obligations for items, including, but not

limited to, repairs, payment of taxes and

insurance and loan re-payment when

the loan becomes due and payable.

HUD believes that the proper role of

a HECM Counselor is to educate clients

on the features of reverse mortgages and

on the appropriateness of a reverse

mortgage or other financial options to

meet the client’s needs. HUD further

believes that it is not the role of the

HECM Counselor to advise the client

whether to proceed with a reverse

mortgage, or which reverse mortgage

product to use, but to provide guidance

and resources to enable the client to

make an informed decision. HUD

disagrees that HECM Counselors should

be required to inform clients that they

should seek financial or legal advice to

understand the suitability and

consequences of the HECM. As with

forward mortgages, it is the consumers’

decision whether or not to seek

financial or legal advice before entering

into a loan transaction.

Comment: Counselors should not

explicitly tell borrowers to shop for

loans or that they can get certain terms

such as a zero origination fee. One

commenter stated that the role of the

counselor should be strictly limited to

providing counseling on how the

program works and not to give the

borrower advice.

HUD Response: A thorough HECM

counseling session includes a

presentation of all the alternatives to a

HECM. Counselors may recommend that

the borrower shop around for better

priced products as part of such a

session, but are not permitted to direct

a client to any specific lender or provide

lender price comparisons.

Comment: HUD should clarify to what

‘‘electronic database’’ the counselor

needs to upload the counseling

certificate. One commenter asked

whether an electronically uploaded

certificate would waive the requirement

for an original borrower signature on the

counseling certificate. Another

commenter asked for clarification on

this point. The commenter also stated

that HUD should give seniors and

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mortgagees the option to receive a hard

copy of the counseling certificate.

HUD Response: Upon further

consideration to require HECM

counselors to upload the certificate to

an ‘‘electronic database,’’ HUD is no

longer pursuing this option as it would

impose a financial burden upon

borrowers to send a signed and dated

copy of the certificate back to the

counselor and difficult for the counselor

to manage the process.

Comment: Non-borrowing spouses

should not have an additional

counseling component. The commenter

stated that such a requirement would

cause an unnecessary increase of fees as

well as delay time to begin the HECM

financing process. The commenter also

stated that HUD would need to address

the problem of educating all HECM

counselors and updating the

information they provide to borrowers

and non-borrowing spouses.

HUD Response: Non-borrowing

spouses have been required to receive

counseling since 2009. HECM

counselors make every effort to counsel

both borrowers and non-borrowing

spouses jointly unless extenuating

circumstances exist that prevent this.

This is part of the guidance to

counselors in the HECM protocol.

HECM counselors are also encouraged

to include family members in a

counseling session. The clients have the

ultimate decision as to who to include

in these sessions, and this may include

legal counsel, financial advisors, etc.

Comment: HUD should clarify that

mortgagees may denote on the HECM

mandated counseling disclosure that

the borrower is required to undergo

face-to-face counseling or be counseled

by a counselor or counseling agency

that is ‘‘domiciled’’ within a particular

state. The commenter also suggested

that HUD indicate which counseling

agencies can provide such face-to-face

counseling or is domiciled within a

state. The commenter stated that several

states have face-to-face counseling

requirements or requirements that the

senior be counseled by a counselor or

counseling agency that is ‘‘domiciled’’

in a particular state.

HUD Response: HUD will consider

this recommendation as part of the

current HECM counseling protocol

revisions.

Comment: HUD should require

information about suitability to be

provided to prospective borrowers prior

to the counseling session. One

commenter suggested that HUD refer to

California Civil Code Section 1923.5 as

a guide for providing the potential

borrower such information.

HUD Response: HUD will consider

these suggestions as part of the current

HECM counseling protocol revisions.

Comment: Counseling should be in-

person or face-to-face electronically and

should be digitally recorded and broken

up into two sessions. The commenter

also suggested that the counseling

should include all members of the

household in a discussion on inter-

family loans and provide clear

information on where to turn for help if

the borrower later has problems with

the reverse mortgage.

HUD Response: HUD will consider

these suggestions as part of the current

HECM counseling protocol revisions.

Comment: HUD should not restrict

financial professionals from helping

borrowers seek professional money

management advice. The commenter

stated that HUD should not ask the

homeowner if they plan to use the

HECM proceeds to purchase life or

annuity products. The commenter also

stated that almost all HECM lenders are

trying to tie the product more closely

with the financial and estate planning

communities.

HUD Response: The language in the

rule is consistent with the statutory

requirement in § 255(d)(11) of the NHA.

31. Maximum Closing Costs Allowed on

Sale of Property

Question 1: Is 11 percent a reasonable

cap? HUD chose this percentage based

on the policy for sale of its REO

inventory, which allows for payment of

6 percent sales commission and 5

percent for other closing costs, but is

interested in comments to indicate

whether the amount should be higher or

lower, and why the commenter believes

the adjustment is appropriate.

Comment: The maximum closing

costs allowed should be based on a

sliding scale so that the expenses are

limited to the greater of $15,000 or 11

percent of the sales price of the

property. The commenter stated that

strictly limiting such charges to 11

percent for properties that sell for small

dollar amounts may not even cover the

actual expenses incurred by the

mortgagee.

HUD Response: The final rule now

states that closing costs shall not exceed

the greater of: (a) 11 percent of the sales

price; or (b) a fixed dollar amount as

determined by the Commissioner. The

amount as determined by the

Commissioner will be issued through

Federal Register notice.

Comment: The schedule of allowable

costs under the 11 percent cap should

include lien payoff, cleaning, and

repairs. The commenter stated that the

economics of a HECM short sale often

lead to property maintenance issues.

The commenter also stated that

allowable closing costs need to be

clearly communicated to servicers.

HUD Response: Due to the non-

recourse nature of HECM loans, short

sales represent a risk to the FHA MMIF

through claims. Furthermore, short sales

do not allow the borrower or seller to

retain any funds and the sales price is

based on the ‘‘as is’’ appraised value.

Therefore, it is not necessary for the

borrower to make extensive repairs.

Comment: This amount is unworkable

for lower balance home values, unless

there is a tiered approach. One

commenter stated that this limitation

can result in a shortage of closing costs

when selling lower value homes

because many of the costs are fixed and

unrelated to the sale price of the

property.

HUD Response: The final rule states

that closing costs shall not exceed the

greater of: (a) 11 percent of the sales

price; or (b) a fixed dollar amount as

determined by the Commissioner. The

amount as determined by the

Commissioner will be issued through

Federal Register notice.

Question 2: Should HUD implement a

tiered approach to the maximum

percent of closing costs in relation to

sales price? For example, should a

property selling for under $100,000 be

allowed a higher percentage of closing

costs than a property selling for over

$100,000?

Comment: HUD should adopt a tiered

approach to take into account that 11

percent may not be sufficient for lower

balance home values. One commenter

stated that a greater percentage should

be assigned to lower sales prices.

HUD Response: The final rule now

states that closing costs shall not exceed

the greater of: (a) 11 percent of the sales

price; or (b) a fixed dollar amount as

determined by the Commissioner. The

amount as determined by the

Commissioner will be issued through

Federal Register notice.

Question 3: Should HUD implement a

tiered approach to the maximum dollar

amount of closing costs in relation to

the sales prices? For example, should a

property selling for under $100,000 be

allowed a different dollar amount than

a property selling for over $100,000?

Comment: HUD should set a

minimum dollar amount for lower

balance home values.

HUD Response: The final rule now

states that closing costs shall not exceed

the greater of: (a) 11 percent of the sales

price; or (b) a fixed dollar amount as

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determined by the Commissioner. The

amount as determined by the

Commissioner will be issued through

Federal Register notice.

Comment: A fixed closing costs dollar

amount limitation in line with

customary costs would be more

appropriate if closing costs are to be

capped. The commenter volunteered to

work with HUD to establish customary

costs based on the commenter’s data

and experience.

HUD Response: The final rule now

states that closing costs shall not exceed

the greater of: (a) 11 percent of the sales

price; or (b) a fixed dollar amount as

determined by the Commissioner. The

amount as determined by the

Commissioner will be issued through

Federal Register notice.

32. Non-Borrowing Spouse

Communication

Question 1: What difficulties have Non-

Borrowing Spouses, heirs, and

successors in interest had in obtaining

information about HECMs and

understanding and exercising their

rights?

Comment: HUD should create a

written guide for the heirs that is to be

delivered by the servicer with the initial

letter of repayment. The commenter

opined that it would be very beneficial

for all parties, including FHA’s MMIF,

if a standard guide was created to

outline the steps the heirs should be

taking, and that it would result in faster

repayment, more participation in the

Cash for Keys initiative, and fewer

foreclosures. The commenter suggested

alternatively that the guide could be

created by a group chosen by NRMLA.

HUD Response: HUD will take this

suggestion under consideration for

future policy guidance.

Comment: Many servicers are not

properly communicating about how

someone can qualify as an Eligible Non-

Borrowing Spouse. Commenters stated

that servicers provide conflicting and

inaccurate information, reject

paperwork for unexplained reasons, and

lose paperwork. One commenter

suggested that HUD develop a

standardized letter to contact non-

borrowing spouses or heirs that is

written in simple, clear language.

HUD Response: HUD expects

mortgagees to comply with the

regulatory requirements of

§ 206.125(a)(2), which specifies the

information required to be provided to

the borrower’s estate or heirs. HUD does

not intend to develop a standardized

letter.

Comment: Heirs have had great

difficulty getting information from the

servicer about options and steps

required at the time of loan repayment.

HUD Response: HUD has clarified in

the final rule that mortgagees must

request that HECM borrowers designate

a point of contact that mortgagees would

be required to use in the event a

problem arises or in the event of the

borrower’s death or incapacitation.

Accordingly, HUD has revised

§ 206.40(c) to clarify that the contact

person is not acting as an agent and that

the mortgagee will be required to

request the designation, but that the

borrower is not required to designate

such a contact person.

Question 2: What adjustments could

HUD make to this rule to address the

identified difficulties and facilitate

communication with Non-Borrowing

Spouses, heirs, and successors in

interest?

Comment: HUD should encourage

servicers to request that borrowers

designate family members or others who

are authorized to speak with them about

a loan on behalf of a borrower or

following the death of a borrower.

HUD Response: HUD has clarified in

the final rule that mortgagees must

request that HECM borrowers designate

a point of contact that mortgagees would

be required to use in the event a

problem arises or in the event of the

borrower’s death or incapacitation.

Accordingly, HUD has revised

§ 206.40(c) to clarify that the contact

person is not acting as an agent and that

the mortgagee will be required to

request the designation, but that the

borrower is not required to designate

such a contact person. The mortgagee

shall communicate with an alternate

individual if one has been designated by

the borrower.

Comment: HUD should produce and

require collateral material regarding

what happens when the loan is due and

payable. The commenter stated that the

material should be available to the non-

borrowing spouse and the borrower’s

heirs, and should be available on HUD’s

Web site.

HUD Response: HUD will take this

suggestion under consideration for

future policy guidance.

Comment: HUD should create a

template certification packet for all

servicers to use for surviving non-

borrowing spouse situations.

HUD Response: HUD certification

language requirements for NBS are

contained in ML 14–07 and ML 15–02.

Comment: HUD should require

servicers to provide at least the loan

balance and standard information about

options for repayment to anyone who

can prove an heir interest in the

property, or who is an executor of the

estate. The commenter stated that the

borrower should also be encouraged to

designate who should have access to

detailed information about the account.

HUD Response: HUD has clarified in

the final rule that mortgagees must

request that HECM borrowers designate

an alternate individual that mortgagees

would be required to use in the event

a problem arises or in the event of the

borrower’s death or incapacitation.

Accordingly, HUD has revised

§ 206.40(c) to clarify that the alternate

individual is not acting as an agent and

that the mortgagee will be required to

request the designation, but that the

borrower is not required to designate

such an individual. If the borrower has

designated an alternate individual,

mortgagees would be required to contact

the designated individual if they cannot

reach the borrower directly in the event

a problem arises or in the event of the

borrower’s death or incapacitation. HUD

currently has procedures for

communicating with the borrower’s

estate upon the death of the last

borrower.

33. Benefits & Costs

Comment: The estimated $1.9 billion

cut in endorsements is very conservative

if the changes to the HECM program are

made as proposed. The commenter

stated that the impact on endorsement

volume of the financial assessment is

not yet fully understood. The

commenter also stated that the post-

closing inspection requirement and

including utilities as a property charge

will drive away many of the affluent

borrowers that are more common after

the establishment of the financial

assessment. The commenter also

pointed to the super lien issue as a

change that could cause an immediate

drop in endorsement volume of $1.9

billion on its own.

HUD Response: FHA appreciates your

comments and will defer implementing

this policy to allow further research and

analysis to be conducted.

Comment: The RIA fails to quantify

how disqualification of otherwise

eligible HECM borrowers residing in

community associations in association

lien priority jurisdictions balances

HUD’s duty to protect taxpayers and

ensure access to credit. The commenter

stated that HUD did not demonstrate it

considered less damaging but effective

policy alternatives than their proposal

on first lien status in the 22 jurisdictions

with association lien priority statutes

from the HECM program.

HUD Response: HUD appreciates your

comments and will defer implementing

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this policy to allow further research and

analysis to be conducted.

34. Mortgagee Letter 2015–11

Comment: HUD should add an

additional factor under the critical

circumstances for the ‘‘at risk’’ loss

mitigation option: a diagnosis of

Alzheimer’s or other dementia of family

member receiving care at the residence.

Comment: HUD should extend the

repayment period for property charge

advances and extend the foreclosure

time frames for ‘‘at risk’’ homeowners.

HUD Response: These two comments

reference a mortgagee letter outside the

scope of this proposed rule. The

proposed rule states, and the final rule

continues to state, at § 206.205(e)(2)(ii)

that ‘‘the mortgagee may provide any

permissible loss mitigation made

available by the Commissioner through

notice.’’ Specific discretionary loss

mitigation options are provided through

mortgagee letters, not the regulations,

and HUD will consider these comments

in the development of such future

policy guidance.

35. Other Comments & Suggestions

Comment: The limit on HECMs

should be raised from $625,000. One

commenter stated that, due to the strong

housing recovery, many housing

markets have average appraised values

well over $625,000, and this limit

unduly discriminates against seniors, so

the cap should be raised to $1 million.

Another commenter suggested that the

cap should be raised to $1.5 million, or

at the least, should be indexed to

inflation.

HUD Response: HUD is unable to

adopt this suggestion because HECM

mortgage limits must comply with

current statutory requirements. The

private sector has the ability to develop

a market for larger reverse mortgages.

Comment: There should be a new

program using a fixed 5.06 percent that

will pay off all current liens on the

property up to 80 percent of the

appraisal value regardless of the age of

the youngest borrower. The current loan

programs do not properly cover upside-

down borrowers.

HUD Response: HUD continues to

evaluate and monitor risks to the

program and the MMIF. The current

principal limit factors have been set to

ensure the HECM program remains

financially sound and viable for current

and future senior borrowers.

Comment: HUD should work towards

reducing costs and improving the image

of its HECM program. One commenter

stated that HUD should start a public

relations campaign to highlight the

features and benefits of the program,

just as it does for forward loans. The

commenter also suggested that HUD

respond to all the false and misleading

comments made about the HECM

program. Another commenter stated that

HUD needs to improve consumer

awareness by confirming safeguards and

offering free education.

HUD Response: In addition to the

required counseling for prospective

HECM borrowers, HUD provides various

online resources for prospective

borrowers, HECM counselors, and

HECM lenders.

Comment: HUD should explain why

bridge loans are allowed with forward

loans but not with reverse mortgages.

HUD Response: HUD does not have

restrictions on the use of bridge loans

for the HECM program. However,

§ 206.32 states that in order for a

mortgage to be eligible for a HECM, a

borrower must establish to the

satisfaction of the mortgagee that after

the initial payment of loan proceeds

under § 206.25(a), there will be no

outstanding or unpaid obligations

incurred by the borrower in connection

with the mortgage transaction, except

for mortgage servicing charges permitted

under § 206.27(b) and any future Repair

Set Aside established pursuant to

§ 206.19(f)(1).

Comment: HUD should clarify what

constitutes ‘‘sufficient inquiry’’ for the

purposes under § 206.43. The

commenter also asked for clarification

that the mortgagee does not violate HUD

regulations if the mortgagee does not

make disbursements directly to the

estate planning firm if it is determined

that the borrower may have engaged

such an estate planning firm.

HUD Response: HUD will clarify the

meaning of ‘‘sufficient inquiry’’ through

guidance.

Comment: The IRS should make a

positive ruling to allow the carry-

forward status of the accrued interest

and MIP against retirement income.

HUD Response: The rulings of the IRS

are outside of the scope of this rule and

HUD’s authority in general.

Comment: HUD should emphasize the

value of placing the property in a living

trust with a durable power of attorney.

The commenter stated that many

borrowers may become incapacitated,

resulting in default, and that the

servicer would be unable to discuss

home retention or workout options

without anyone having legal authority.

HUD Response: Trusts are currently

eligible under the HECM program, but

the homeowner has the responsibility

for identifying the proper legal measures

that can be taken to oversee their

personal affairs if the homeowner

becomes incapacitated.

Comment: HUD should examine the

Property Assessed Clean Energy (PACE)

program to determine if there is

potential for default so that immediate

notification can be sent to the borrowers

warning them not to attach these liens

to their properties. The commenter

stated that PACE liens appear to be

superior to HECMs and that property

taxes may double or triple after the

placement of the liens.

HUD Response: This recommendation

is outside the scope of this rule. HUD’s

recent guidance on the PACE program

(ML 2016–11) states that properties with

PACE obligations are not eligible for an

FHA-insured HECM loan.

Comment: For all regulations and

mortgagee letters, HUD should create

accompanying template documents

which all lenders and servicers are

required to use. The commenter stated

that such consistent and clear guidance

would make it easier for HUD to have

oversight, regulatory control, and

enforcement capability.

HUD Response: HUD does not

provide templates for every regulation

and mortgagee letter because various

state laws govern specific information

that must be provided and because

minor changes would require HUD to

reissue multiple templates. Instead,

HUD prescribes what information must

be communicated and allows servicers

to apply their business practices in

creating the letters.

Comment: HUD should create or task

a unit such as the National Servicing

Center to help individual consumers

understand their rights and options,

provide immediate response to

consumers with urgent issues such as

foreclosure, and act as liaison between

consumer and servicer when necessary.

HUD Response: This comment falls

outside the scope of the proposed rule,

but HUD believes that the National

Servicing Center already provides many

of these services to HECM borrowers.

Comment: HUD should put a

moratorium on all tax and insurance

defaults until HUD has a structure and

system in place to review and enforce

consumer protections to ensure defaults

are compliant with consumer protection

regulations and valid.

HUD Response: This is outside the

scope of the proposed rule.

Comment: HUD should not allow

changes by the servicer to the HECM

contract.

HUD Response: This is outside the

scope of the proposed rule.

Comment: Force-placed insurance

premiums should not be a default

trigger.

HUD Response: Regulations at

§ 206.27(b) require the borrower to pay

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property charges, including insurance.

A borrower’s failure to obtain insurance

causes the mortgagee to force-place

insurance. A default occurs where there

are no HECM funds to pay for insurance

and a borrower fails to reimburse the

mortgagee for the funds advanced to pay

these charges.

Comment: There is concern over state

law developments that purport to

impose duties or limitations upon

HECM servicers. The commenter stated

that these state laws are viewed as

inconsistent with HECM regulations and

guidelines, conflicting with generally

accepted servicing principles, and

having the potential effect of harming

consumers and property values.

HUD Response: HUD provides

requirements that mortgagees must

comply with to file for claim benefits. It

is the mortgagee’s responsibility to

comply with both federal and state

requirements in order to obtain claim

benefits.

V. Findings and Certifications

Paperwork Reduction Act

The information collection

requirements contained in this proposed

have been approved by the Office of

Management and Budget (OMB) under

the Paperwork Reduction Act of 1995

(44 U.S.C. 3501–3520) and assigned

OMB Collection Numbers 2502–0524

and 2502–0611. In accordance with the

Paperwork Reduction Act, an agency

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.

Regulatory Planning and Review—

Executive Orders 12866 and 13563

Under Executive Order 12866

(Regulatory Planning and Review), a

determination must be made whether a

regulatory action is significant and,

therefore, subject to review by OMB in

accordance with the requirements of the

order. This rule was determined to be a

‘‘significant regulatory action,’’ as

defined in section 3(f) of Executive

Order 12866.

Executive Order 13563 (Improving

Regulations and Regulatory Review)

directs executive agencies to analyze

regulations that are outmoded,

ineffective, insufficient, or excessively

burdensome and to modify, streamline,

expand, or repeal them in accordance

with what has been learned. Executive

Order 13563 also directs that, where

relevant, feasible, and consistent with

regulatory objectives, and to the extent

permitted by law, agencies are to

identify and consider regulatory

approaches that reduce burdens and

maintain flexibility and freedom of

choice for the public. This rule reduces

burdens on mortgagees by codifying in

one place all the regulatory policy

related to the HECM program. Prior to

this rule, mortgagees had to deduce the

current program requirements by

determining which HECM regulations in

24 CFR part 206 were superseded by

HERA and RMSA mortgagee letters.

Regulatory Flexibility Act

The Regulatory Flexibility Act (5

U.S.C. 601 et seq.) generally requires an

agency to conduct a regulatory

flexibility analysis of any rule subject to

notice and comment rulemaking

requirements, unless the agency certifies

that the rule will not have a significant

economic impact on a substantial

number of small entities. Many of the

policies discussed in this rule, such as

the requirement that mortgagees

perform a Financial Assessment of

prospective HECM borrowers, the

requirements of the HECM for Purchase

program, the introduction of the Single

Lump Sum payment option, and the

limitation on disbursements during the

First 12-Month Disbursement Period,

have already been implemented by

mortgagees large and small. The

codification of these policies will not

impact large or small mortgagees, other

than easing burden by providing them

with one location to find all HECM

regulatory requirements.

The new policy changes in this rule

would address important concerns with

the HECM program, including the risk

the program has, in the past, posed to

the MMIF, as well as the continued

availability of this program for seniors.

Some of the new policy proposals are

expected to relieve burdens on all

mortgagees, large and small. For

example, the amendment to the

definition of ‘‘expected average

mortgage interest rate’’, providing the

mortgagee with the ability to lock in the

expected average mortgage interest rate

prior to the date of loan closing, will

align the provision with current

industry policy. Removing the

duplicative appraisal requirement and

creating a Cash for Keys incentive

structure will both relieve burden on

mortgagees. Other policies contained in

the rule may result in mortgagees

incurring additional costs. However, as

detailed in the regulatory impact

analysis for the rule, these costs are not

estimated to rise to the level of having

a significant impact on a substantial

number of small entities. Moreover,

HUD has attempted to mitigate the

economic impacts of these provisions.

One example is the requirement that all

mortgagees disclose all available HECM

program options. To minimize the effect

of this provision on all mortgagees, FHA

intends to create disclosure documents

listing all available options for

mortgagees to provide to prospective

borrowers. Another example is the

limitation on insurance claim

reimbursement for the mortgagee’s

payment of certain property charges.

Rather than limiting this reimbursement

based on the timing of the property

charges, requiring mortgagees to track

when each property charge occurred,

HUD is limiting the reimbursement to

two-thirds of all property charges,

consistent with how mortgagees are

reimbursed for foreclosure costs.

FHA believes that these policies are

reasonable and provide mitigating

features so that the FHA-approved

mortgagees, large and small, will not be

adversely affected by these policies.

Accordingly, the undersigned certifies

that this rule would not have a

significant economic impact on a

substantial number of small entities.

Environmental Impact

A Finding of No Significant Impact

(FONSI) with respect to the

environment has been made at the

proposed rule state in accordance with

HUD regulations in 24 CFR part 50,

which implemented section 102(2)(C) of

the National Environmental Policy Act

of 1969 (42 U.S.C. 4332(2)(C)). The

FONSI remains applicable to this final

rule and is available for public

inspection during regular business

hours in the Regulations Division,

Office of General Counsel, Department

of Housing and Urban Development,

451 7th Street SW., Room 10276,

Washington, DC 20410–0500. Due to

security measures at the HUD

Headquarters building, please schedule

an appointment to review the FONSI by

calling the Regulations Division at (202)

708–3055 (this is not a toll-free

number). Individuals with speech or

hearing impairments may access this

number via TTY by calling the Federal

Relay Service at (800) 877–8339.

Executive Order 13132, Federalism

Executive Order 13132 (entitled

‘‘Federalism’’) prohibits, to the extent

practicable and permitted by law, an

agency from promulgating a regulation

that has federalism implications and

either imposes substantial direct

compliance costs on state and local

governments and is not required by

statute, or preempts state law, unless the

relevant requirements of section 6 of the

executive order are met. This rule does

not have federalism implications and

does not impose substantial direct

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compliance costs on state and local

governments or preempt state law

within the meaning of the executive

order.

Catalog of Federal Domestic Assistance

The Catalog of Federal Domestic

Assistance number for Home Equity

Conversion Mortgages is 14.183.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates

Reform Act of 1995 (2 U.S.C. 1531–

1538) (UMRA) establishes requirements

for federal agencies to assess the effects

of their regulatory actions on state,

local, and tribal governments, and on

the private sector. This rule would not

impose any federal mandates on any

state, local, or tribal governments, or on

the private sector, within the meaning of

the UMRA.

List of Subjects

24 CFR Part 30

Administrative practice and

procedure, Grant programs—housing

and community development, Loan

programs—housing and community

development, Mortgage insurance,

Penalties.

24 CFR Part 206

Aged condominiums, Loan programs,

Housing and community development,

Mortgage insurance, Reporting and

recordkeeping requirements.

Accordingly, for the reasons stated in

the preamble, HUD amends 24 CFR

parts 30 and 206 to read as follows:

PART 30—CIVIL MONEY PENALTIES:

CERTAIN PROHIBITED CONDUCT

■ 1. The authority citation for part 30

continues to read as follows:

Authority: 12 U.S.C. 1701q–1; 1703, 1723i,

1735f–14, and 1735f–15; 15 U.S.C. 1717a; 28

U.S.C. 2461 note; 42 U.S.C. 1437z–1 and

3535(d).

■ 2. Revise paragraphs (a)(8) and (a)(10)

of § 30.35 to read as follows:

§ 30.35 Mortgagees and lenders.

(a) * * *

(8) Fails to timely submit documents

that are complete and accurate in

connection with a conveyance of a

property or a claim for insurance

benefits, in accordance with §§ 203.365,

203.366, or 203.368, or a claim for

insurance benefits in accordance with

§ 206.127 of this title;

* * * * *

(10) Fails to service FHA insured

mortgages, in accordance with the

requirements of 24 CFR parts 201, 203,

206, and 235;

* * * * *

■ 3. Revise part 206 to read as follows:

PART 206—HOME EQUITY

CONVERSION MORTGAGE

INSURANCE

Subpart A—General

Sec.

206.1 Purpose.

206.3 Definitions.

206.7 Effect of amendments.

206.8 Preemption.

Subpart B—Eligibility; Endorsement

206.9 Eligible mortgagees.

206.13 Disclosure of available HECM

program options.

206.15 Insurance.

Eligible Mortgages

206.17 Eligible mortgages: general.

206.19 Payment options.

206.21 Interest rate.

206.23 Shared appreciation.

206.25 Calculation of disbursements.

206.26 Change in payment option.

206.27 Mortgage provisions.

206.31 Allowable charges and fees.

206.32 No outstanding unpaid obligations.

Eligible Borrowers

206.33 Age of borrower.

206.34 Limitation on number of mortgages.

206.35 Title of property which is security

for HECM.

206.36 Seasoning requirements for existing

non-HECM liens.

206.37 Credit standing.

206.39 Principal residence.

206.40 Disclosure, verification and

certifications.

206.41 Counseling.

206.43 Information to borrower.

206.44 Monetary investment for HECM for

Purchase program.

Eligible Properties

206.45 Eligible properties.

206.47 Property standards; repair work.

206.51 Eligibility of mortgages involving a

dwelling unit in a condominium.

206.52 Eligible sale of property—HECM for

Purchase.

Refinancing of Existing Home Equity

Conversion Mortgages

206.53 Refinancing a HECM loan.

Deferral of Due and Payable Status

206.55 Deferral of due and payable status

for Eligible Non-Borrowing Spouses.

206.57 Cure provision enabling

reinstatement of Deferral Period.

206.59 Obligations of mortgagee.

206.61 HECM proceeds during a Deferral

Period.

Subpart C—Contract Rights and

Obligations

Sale, Assignment and Pledge

206.101 Sale, assignment and pledge of

insured mortgages.

206.102 Insurance Funds.

Mortgage Insurance Premiums

206.103 Payment of MIP.

206.105 Amount of MIP.

206.107 Mortgagee election of assignment

or shared premium option.

206.109 Amount of mortgagee share of

premium.

206.111 Due date of MIP.

206.113 Late charge and interest.

206.115 Insurance of mortgage.

206.116 Refunds.

HUD Responsibility to Borrowers

206.117 General.

206.119 [Reserved]

206.121 Commissioner authorized to make

payments.

Claim Procedure

206.123 Claim procedures in general.

206.125 Acquisition and sale of the

property.

206.127 Application for insurance benefits.

206.129 Payment of claim.

Condominiums

206.131 Contract rights and obligations for

mortgages on individual dwelling units

in a condominium.

Termination of Insurance Contract

206.133 Termination of insurance contract.

Additional Requirements

206.134 Partial release, addition or

substitution of security.

206.135 Application for insurance benefits

and fiscal data.

206.136 Conditions for assignment.

206.137 Effect of noncompliance with

regulations.

206.138 Mortgagee’s liability for certain

expenditures.

206.140 Inspection and preservation of

properties.

206.141 Property condition.

206.142 Adjustment for damage or neglect.

206.143 Certificate of property condition.

206.144 Final payment.

206.145 Items deducted from payment.

206.146 Debenture interest rate.

Subpart D—Servicing Responsibilities

206.201 Mortgage servicing generally;

sanctions.

206.203 Providing information.

206.205 Property charges.

206.207 Allowable charges and fees after

endorsement.

206.209 Prepayment.

206.211 Determination of principal

residence and contact information.

Subpart E—HECM Counselor Roster

206.300 General.

206.302 Establishment of the HECM

Counselor Roster.

206.304 Eligibility for placement on the

HECM Counselor Roster.

206.306 Removal from the HECM Counselor

Roster. 206.308 Continuing education

requirements of counselors listed on the

HECM Counselor Roster.

Authority: Authority: 12 U.S.C. 1715b,

1715z–20; 42 U.S.C. 3535(d).

Subpart A—General

§ 206.1 Purpose.

The purposes of the Home Equity

Conversion Mortgage (HECM) Insurance

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program are set out in section 255(a) of

the National Housing Act, Public Law

73–479, 48 Stat. 1246 (12 U.S.C. 1715z–

20) (‘‘NHA’’).

§ 206.3 Definitions.

As used in this part, the following

terms shall have the meaning indicated.

Bona fide tenant means a tenant of the

property who is not a mortgagor,

borrower, a spouse or child of a

mortgagor or borrower, or any other

member of a mortgagor’s or borrower’s

family.

Borrower means a mortgagor who is

an original borrower under the HECM

Loan Agreement and Note. The term

does not include successors or assigns

of a borrower.

Borrower’s Advance means the funds

advanced to the borrower at the closing

of a fixed interest rate HECM in

accordance with § 206.25.

CMT Index means the U.S. Constant

Maturity Treasury Index.

Commissioner means the Federal

Housing Commissioner or the

Commissioner’s authorized

representative.

Contract of insurance means the

agreement evidenced by the issuance of

a Mortgage Insurance Certificate or by

the endorsement of the Commissioner

upon the credit instrument given in

connection with an insured mortgage,

incorporating by reference the

regulations in subpart C of this part and

the applicable provisions of the

National Housing Act.

Day means calendar day, except

where the term business day is used.

Deferral Period means the period of

time following the death of the last

surviving borrower during which the

due and payable status of a HECM is

deferred for an Eligible Non-Borrowing

Spouse provided that the Qualifying

Attributes and all other FHA

requirements continue to be satisfied.

Eligible Non-Borrowing Spouse means

a Non-Borrowing Spouse who meets all

Qualifying Attributes for a Deferral

Period.

Estate planning service firm means an

individual or entity that is not a

mortgagee approved under part 202 of

this chapter or a participating agency

approved under subpart B of 24 CFR

part 214 and that charges a fee that is:

(1) Contingent on the prospective

borrower obtaining a mortgage loan

under this part, except the origination

fee authorized by § 206.31 or a fee

specifically authorized by the

Commissioner; or

(2) For information that borrowers

and Eligible and Ineligible Non-

Borrowing Spouses, if applicable, must

receive under § 206.41, except a fee by:

(i) A participating agency approved

under subpart B of 24 CFR part 214; or

(ii) An individual or company, such

as an attorney or accountant, in the

bona fide business of generally

providing tax or other legal or financial

advice; or

(3) For other services that the provider

of the services represents are, in whole

or in part, for the purpose of improving

a prospective borrower’s access to

mortgages covered by this part, except

where the fee is for services specifically

authorized by the Commissioner.

Expected average mortgage interest

rate means the interest rate used to

calculate the principal limit established

at closing. For fixed interest rate

HECMs, the expected average mortgage

interest rate is the same as the fixed

mortgage (Note) interest rate and is set

simultaneously with the fixed interest

rate. For adjustable interest rate HECMs,

it is either the sum of the mortgagee’s

margin plus the weekly average yield for

U.S. Treasury securities adjusted to a

constant maturity of 10 years, or it is the

sum of the mortgagee’s margin plus the

10-year LIBOR swap rate, depending on

which interest rate index is chosen by

the borrower. The margin is determined

by the mortgagee and is defined as the

amount that is added to the index value

to compute the expected average

mortgage interest rate. The index type

(CMT or LIBOR) used to calculate the

expected average mortgage interest rate

must be the same index type used to

calculate mortgage interest rate

adjustments—commingling of index

types is not allowed. The mortgagee’s

margin is the same margin used to

determine the initial interest rate and

the periodic adjustments to the interest

rate. Mortgagees, with the agreement of

the borrower, may simultaneously lock

in the expected average mortgage

interest rate and the mortgagee’s margin

prior to the date of loan closing or

simultaneously establish the expected

average mortgage interest rate and the

mortgagee’s margin on the date of loan

closing.

First 12-Month Disbursement Period

means the period beginning on the day

of loan closing and ending on the day

before the loan closing anniversary date.

When the day before the anniversary

date of loan closing falls on a Federally-

observed holiday, Saturday, or Sunday,

the end period will be on the next

business day after the Federally-

observed holiday, Saturday or Sunday.

HECM means a Home Equity

Conversion Mortgage.

HECM counselor means an

independent third party who is

currently active on FHA’s HECM

Counselor Roster and who is not, either

directly or indirectly, associated with or

compensated by, a party involved in

originating, servicing, or funding the

HECM, or the sale of annuities,

investments, long-term care insurance,

or any other type of financial or

insurance product who provides

statutorily required counseling to

prospective borrowers who may be

eligible for or interested in obtaining an

FHA-insured HECM. This counseling

assists elderly prospective borrowers

who seek to convert equity in their

homes into income that can be used to

pay for home improvements, medical

costs, living expenses, or other

expenses.

Ineligible Non-Borrowing Spouse

means a Non-Borrowing Spouse who

does not meet all Qualifying Attributes

for a Deferral Period.

Initial Disbursement Limit means the

maximum amount of funds that can be

advanced to a borrower of an adjustable

interest rate HECM allowed at loan

closing and during the First 12-Month

Disbursement Period in accordance with

§ 206.25.

Insured mortgage means a mortgage

which has been insured as evidenced by

the issuance of a Mortgage Insurance

Certificate.

LIBOR means the London Interbank

Offered Rate.

Loan documents mean the credit

instrument, or Note, secured by the lien,

and the loan agreement.

Mandatory Obligations are fees and

charges incurred in connection with the

origination of the HECM that are

requirements for loan approval and

which will be paid at closing or during

the First 12-Month Disbursement Period

in accordance with § 206.25.

Maximum claim amount means the

lesser of the appraised value of the

property, as determined by the appraisal

used in underwriting the loan; the sales

price of the property being purchased

for the sole purpose of being the

principal residence; or the national

mortgage limit for a one-family

residence under subsections 255(g) or

(m) of the National Housing Act (as

adjusted where applicable under section

214 of the National Housing Act) as of

the date of loan closing. The initial

mortgage insurance premium must not

be taken into account in the calculation

of the maximum claim amount. Closing

costs must not be taken into account in

determining appraised value.

MIP means the mortgage insurance

premium paid by the mortgagee to the

Commissioner in consideration of the

contract of insurance.

Mortgage means a first lien on real

estate under the laws of the jurisdiction

where the real estate is located. If the

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dwelling unit is in a condominium, the

term mortgage means a first lien

covering a fee interest or eligible

leasehold interest in a one-family unit

in a condominium project, together with

an undivided interest in the common

areas and facilities serving the project,

and such restricted common areas and

facilities as may be designated. The term

refers to a security instrument creating

a lien, whether called a mortgage, deed

of trust, security deed, or another term

used in a particular jurisdiction.

Mortgagee means original lender

under a mortgage and its successors and

assigns, as are approved by the

Commissioner.

Mortgagor means each original

mortgagor under a HECM mortgage and

his heirs, executors, administrators, and

assigns.

Non-Borrowing Spouse means the

spouse, as defined by the law of the

state in which the spouse and borrower

reside or the state of celebration, of the

HECM borrower at the time of closing

and who is also not a borrower.

Participating agency means all

housing counseling and intermediary

organizations participating in HUD’s

Housing Counseling program, including

HUD-approved agencies, and affiliates

and branches of HUD-approved

intermediaries, HUD-approved multi-

state organizations (MSOs), and state

housing finance agencies.

Principal limit means the maximum

amount calculated, taking into account

the age of the youngest borrower or

Eligible Non-Borrowing Spouse, the

expected average mortgage interest rate,

and the maximum claim amount. The

principal limit is calculated for the first

month that a mortgage could be

outstanding using factors provided by

the Commissioner. It increases each

month thereafter at a rate equal to one-

twelfth of the mortgage interest rate in

effect at that time, plus one-twelfth of

the annual mortgage insurance rate. For

an adjustable interest rate HECM, the

principal limit increase may be made

available to the borrower each month

thereafter except that the availability

during the First 12-Month Disbursement

Period may be restricted. Although the

principal limit of a fixed interest rate

HECM will continue to increase at the

rate provided by the Commissioner, no

further funds may be made available for

the borrower to draw against after

closing. The principal limit may

decrease because of insurance or

condemnation proceeds applied to the

outstanding loan balance under

§ 206.209(b).

Principal residence means the

dwelling where the borrower and, if

applicable, Non-Borrowing Spouse,

maintain their permanent place of

abode, and typically spend the majority

of the calendar year. A person may have

only one principal residence at any one

time. The property shall be considered

to be the principal residence of any

borrower who is temporarily in a health

care institution provided the borrower’s

residency in a health care institution

does not exceed twelve consecutive

months. The property shall be

considered to be the principal residence

of any Non-Borrowing Spouse, who is

temporarily in a health care institution,

as long as the property is the principal

residence of his or her borrower spouse,

who physically resides in the property.

During a Deferral Period, the property

shall continue to be considered to be the

principal residence of any Non-

Borrowing Spouse, who is temporarily

in a health care institution, provided he

or she qualified as an Eligible Non-

Borrowing Spouse and physically

occupied the property immediately

prior to entering the health care

institution and his or her residency in

a health care institution does not exceed

twelve consecutive months.

Property charges means, unless

otherwise specified, obligations of the

borrower that include property taxes,

hazard insurance premiums, any

applicable flood insurance premiums,

ground rents, condominium fees,

planned unit development fees,

homeowners’ association fees, and any

other special assessments that may be

levied by municipalities or state law.

Qualifying Attributes means the

requirements which must be met by a

Non-Borrowing Spouse in order to be an

Eligible Non-Borrowing Spouse.

§ 206.7 Effect of amendments.

The regulations in this part may be

amended by the Commissioner at any

time and from time to time, in whole or

in part, but amendments to subparts B

and C of this part will not adversely

affect the interests of a mortgagee on any

mortgage to be insured for which either

the Direct Endorsement mortgagee or

Lender Insurance mortgagee has

approved the borrower and all terms

and conditions of the mortgage, or the

Commissioner has made a commitment

to insure. Such amendments will not

adversely affect the interests of a

borrower in the case of a default by a

mortgagee where the Commissioner

makes payments to the borrower.

§ 206.8 Preemption.

(a) Lien priority. The full amount

secured by the mortgage shall have the

same priority over any other liens on the

property as if the full amount had been

disbursed on the date the initial

disbursement was made, regardless of

the actual date of any disbursement. The

amount secured by the mortgage shall

include all direct payments by the

mortgagee to the borrower and all other

loan advances permitted by the

mortgage for any purpose, including

loan advances for interest, property

charges, mortgage insurance premiums,

required repairs, servicing charges,

counseling charges, and costs of

collection, regardless of when the

payments or loan advances were made.

The priority provided by this section

shall apply notwithstanding any State

constitution, law, or regulation.

(b) Second mortgage. If the

Commissioner holds a second mortgage,

it shall have a priority subordinate only

to the first mortgage (and any senior

liens permitted by paragraph (a) of this

section).

Subpart B—Eligibility; Endorsement

§ 206.9 Eligible mortgagees.

(a) Statutory requirements. See

sections (b)(2), (c), and 255(d)(1) of the

NHA.

(b) HUD approved mortgagees. Any

mortgagee authorized under paragraph

(a) of this section and approved under

part 202 of this chapter, except an

investing mortgagee approved under

§ 202.9 of this chapter, is eligible to

apply for insurance. A mortgagee

approved under §§ 202.6, 202.7, 202.9

or 202.10 of this chapter may purchase,

hold and sell mortgages insured under

this part without additional approval.

§ 206.13 Disclosure of available HECM

program options.

At the time of initial contact, the

mortgagee shall inform the prospective

HECM borrower, in a manner acceptable

to the Commissioner, of all products,

features, and options of the HECM

program that FHA will insure under this

part, including: fixed interest rate

mortgages with the Single Lump Sum

payment option; adjustable interest rate

mortgages with tenure, term, and line of

credit disbursement options, or a

combination of these; any other FHA

insurable disbursement options; and

initial mortgage insurance premium

options, and how those affect the

availability of other mortgage and

disbursement options.

§ 206.15 Insurance.

Mortgages originated under this part

must be endorsed through the Direct

Endorsement program under § 203.5 of

this chapter, except that any references

to § 203.255 in § 203.5 shall mean

§ 206.115. The mortgagee shall submit

the information as described in

§ 206.115(b) for the Direct Endorsement

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program; the certificate of housing

counseling as described in § 206.41; a

copy of the title insurance commitment

satisfactory to the Commissioner (or

other acceptable title evidence if the

Commissioner has determined not to

require title insurance under

§ 206.45(a)); the mortgagee’s election of

either the assignment or shared

premium option under § 206.107; and

any other documentation required by

the Commissioner. If the mortgagee has

complied with the requirements of

§§ 203.3 and 203.5, except that any

reference to § 203.255 in these sections

shall mean § 206.115 for purposes of

this section, and other requirements of

this part, and the mortgage is

determined to be eligible, the

Commissioner will endorse the

mortgage for insurance by issuing a

Mortgage Insurance Certificate.

Eligible Mortgages

§ 206.17 Eligible mortgages: general.

(a) [Reserved]

(b) Interest rate and payment options.

A HECM shall provide for either fixed

or adjustable interest rates in

accordance with § 206.21.

(1) Fixed interest rate mortgages shall

use the Single Lump Sum payment

option (§ 206.19(e)).

(2) Adjustable interest rate mortgages

shall initially provide for the term

(§ 206.19(a)), the tenure (§ 206.19(b)),

the line of credit (§ 206.19(c)), or a

modified term or modified tenure

(§ 206.19(d)) payment option, subject to

a later change in accordance with

§ 206.26.

may provide for shared appreciation in

accordance with § 206.23.

§ 206.19 Payment options.

(a) Term payment option. Under the

term payment option, equal monthly

payments are made by the mortgagee to

the borrower for a fixed term of months

chosen by the borrower in accordance

with this section and § 206.25(e), unless

the mortgage is prepaid in full or

becomes due and payable earlier under

§ 206.27(c).

(b) Tenure payment option. Under the

tenure payment option, equal monthly

payments are made by the mortgagee to

the borrower in accordance with this

section and with § 206.25(f), unless the

mortgage is prepaid in full or becomes

due and payable under § 206.27(c).

Under the line of credit payment option,

payments are made by the mortgagee to

the borrower at times and in amounts

determined by the borrower as long as

the amounts do not exceed the payment

amounts permitted by § 206.25.

(d) Modified term or modified tenure

payment option. Under the modified

term or modified tenure payment

options, equal monthly payments are

made by the mortgagee and the

mortgagee shall set aside a portion of

the principal limit to be drawn down as

a line of credit as long as the amounts

do not exceed the payment amounts

permitted by § 206.25.

(e) Single Lump Sum payment option.

Under the Single Lump Sum payment

option, the Borrower’s Advance will be

made by the mortgagee to the borrower

in an amount that does not exceed the

payment amount permitted in § 206.25.

The Single Lump Sum payment option

will be available only for fixed interest

rate HECMs. Set asides requiring

disbursements after close may be offered

in accordance with paragraphs (f)(1)

through (3) of this section.

(f) Principal limit set asides—(1)

Repair Set Aside. When repairs required

by § 206.47 will be completed after

closing, the mortgagee shall set aside a

portion of the principal limit equal to

150 percent of the Commissioner’s

estimated cost of repairs, plus the repair

administration fee.

(2) Property Charge Set Aside—(i) Life

Expectancy Set Aside (LESA). When

required by § 206.205(b)(1) or selected

by the borrower under

§ 206.205(b)(2)(i)(B), the mortgagee shall

set aside a portion of the principal limit,

consistent with the requirements of

§ 206.205, for payment of the following

property charges: property taxes

including special assessments levied by

municipalities or state law, and flood

and hazard insurance premiums.

(ii) Borrower elects to have mortgagee

pay property charges—(A) First year

property charges. When required by

§ 206.205(d), the mortgagee shall set

aside a portion of the principal limit for

payment of the following property

charges that must be paid during the

First 12-Month Disbursement Period:

property taxes including special

assessments levied by municipalities or

state law, and flood and hazard

insurance premiums. The mortgagee’s

estimate of withholding amount shall be

based on the best information available

as to probable payments which will be

required to be made for property charges

in the coming year. The mortgagee may

not require the withholding of amounts

in excess of the current estimated total

annual requirement, unless expressly

requested by the borrower. Each

month’s withholding for property

charges shall equal one-twelfth of the

annual amounts as reasonably estimated

by the mortgagee.

(B) Property charges for subsequent

years. For subsequent year property

charges, the mortgagee’s estimate of

withholding amount shall be based on

the best information available as to

probable payments which will be

required to be made for property charges

in the coming year. If actual

disbursements during the preceding

year are used as the basis, the resulting

estimate may deviate from those

disbursements by as much as ten

percent. The mortgagee may not require

the withholding of amounts in excess of

the current estimated total annual

requirement, unless expressly requested

by the borrower. Each month’s

withholding for property charges shall

equal one-twelfth of the annual amounts

as reasonably estimated by the

mortgagee.

(3) Servicing Fee Set Aside. When

servicing charges will be made as

permitted by § 206.207(b), the mortgagee

shall set aside a portion of the principal

limit sufficient to cover charges through

a period equal to the payment term

which would be used to calculate tenure

payments under § 206.25(f).

(g) Interest accrual and repayment.

The interest charged on the outstanding

loan balance shall begin to accrue from

the funding date and shall be added to

the outstanding loan balance monthly as

provided in the mortgage. Under all

payment options, repayment of the

outstanding loan balance is deferred

until the mortgage becomes due and

payable under § 206.27(c).

(h) Disbursement limits. (1) For all

HECMs, no disbursements shall be

made under any of the payment options,

notwithstanding anything to the

contrary in this section or in § 206.25,

in an amount which shall cause the

outstanding loan balance after the

payment to exceed any maximum

mortgage amount stated in the security

instruments or to otherwise exceed the

amount secured by a first lien.

(2) For adjustable interest rate

HECMs:

(i) No disbursements shall be made

under any of the payment options

during the First 12-Month Disbursement

Period in excess of the Initial

Disbursement Limit.

(ii) If the borrower makes a partial

prepayment of the outstanding loan

balance during the First 12-Month

Disbursement Period, the mortgagee

shall apply the funds from the partial

prepayment in accordance with the

Note.

(3) For fixed interest rate HECMs, if

the borrower makes a partial

prepayment of the outstanding loan

balance any time after loan closing and

before the contract of insurance is

terminated, the mortgagee shall apply

the funds from the partial prepayment

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in accordance with the Note. Any

increase in the available principal limit

by the amount applied towards the

outstanding loan balance shall not be

available for the borrower to draw

against.

§ 206.21 Interest rate.

(a) Fixed interest rate. A fixed interest

rate is agreed upon by the borrower and

mortgagee.

(b) Adjustable interest rate. An initial

expected average mortgage interest rate,

which defines the mortgagee’s margin,

is agreed upon by the borrower and

mortgagee as of the date of loan closing,

or as of the date of rate lock-in, if the

expected average mortgage interest rate

was locked in prior to closing. The

interest rate shall be adjusted in one of

two ways depending on the option

selected by the borrower, in accordance

with paragraphs (b)(1) and (b)(2) of this

section. Whenever an interest rate is

adjusted, the new interest rate applies to

the entire loan balance. The difference

between the initial interest rate and the

index figure applicable when the firm

commitment is issued shall equal the

margin used to determine interest rate

adjustments. If the expected average

mortgage interest rate is locked in prior

to closing, the difference between the

expected average mortgage interest rate

and the value of the appropriate index

at the time of rate lock-in shall equal the

margin used to determine interest rate

adjustments.

(1) Annual adjustable interest rate

HECMs. A mortgagee offering an annual

adjustable interest rate shall offer a

mortgage with an interest rate cap

structure that limits the periodic interest

rate increases and decreases as follows:

(i) Types of mortgages insurable. The

types of adjustable interest rate

mortgages that are insurable are those

for which the interest rate may be

adjusted annually by the mortgagee,

beginning after one year from the date

of the closing.

(ii) Interest rate index. Changes in the

interest rate charged on an adjustable

interest rate mortgage must correspond

either to changes in the one-year LIBOR

or to changes in the weekly average

yield on U.S. Treasury securities,

adjusted to a constant maturity of one

year. Except as otherwise provided in

this section, each change in the

mortgage interest rate must correspond

to the upward and downward change in

the index.

(iii) Frequency of interest rate

changes. (A) The interest rate

adjustments must occur annually,

calculated from the date of the closing,

except that the first adjustment shall be

no sooner than 12 months or later than

18 months.

(B) To set the new interest rate, the

mortgagee will determine the change

between the initial (i.e., base) index

figure and the current index figure, or

will add a specific margin to the current

index figure. The initial index figure

shall be the most recent figure available

before the date of mortgage loan

origination. The current index figure

shall be the most recent index figure

available 30 days before the date of each

interest rate adjustment.

(iv) Magnitude of changes. The

adjustable interest rate mortgage initial

contract interest rate shall be agreed

upon by the mortgagee and the

borrower. The first adjustment to the

contract interest rate shall take place in

accordance with the schedule set forth

under paragraph (b)(1)(iii) of this

section. Thereafter, for all annual

adjustable interest rate mortgages, the

adjustment shall be made annually and

shall occur on the anniversary date of

the first adjustment, subject to the

following conditions and limitations:

(A) For all annual adjustable interest

rate HECMs, no single adjustment to the

interest rate shall result in a change in

either direction of more than two

percentage points from the interest rate

in effect for the period immediately

preceding that adjustment. Index

changes in excess of two percentage

points may not be carried over for

inclusion in an adjustment for a

subsequent year. Adjustments in the

effective rate of interest over the entire

term of the mortgage may not result in

a change in either direction of more

than five percentage points from the

initial contract interest rate.

(B) At each adjustment date for

annual adjustable interest rate HECMs,

changes in the index interest rate,

whether increases or decreases, must be

translated into the adjusted mortgage

interest rate, except that the mortgage

may provide for minimum interest rate

change limitations and for minimum

increments of interest rate changes.

(2) Monthly adjustable interest rate

HECMs. If a mortgage meeting the

requirements of paragraph (b)(1) of this

section is offered, the mortgagee may

also offer a mortgage which provides for

monthly adjustments to the interest rate

such that changes in the interest rate

charged on an adjustable interest rate

mortgage correspond either to changes

in the one-year LIBOR or to changes in

the weekly average yield on U.S.

Treasury securities, adjusted to a

constant maturity of one year (except as

otherwise provided in this section, each

change in the mortgage interest rate

must correspond to the upward and

downward change in the index), or to

the one-month CMT index or one-month

LIBOR index, and which sets a

maximum interest rate that can be

charged.

the mortgagee provides the borrower

with a loan application, a mortgagee

shall provide a borrower with a written

explanation of all adjustable interest

rate features of a mortgage. The

explanation must include the following

items:

(i) The circumstances under which

the rate may increase;

(ii) Any limitations on the increase;

and

(iii) The effect of an increase.

(2) Compliance with pre-loan

disclosure provisions of 12 CFR part

1026 (Truth in Lending) shall constitute

full compliance with paragraph (c)(1) of

this section.

(d) Post-loan disclosure. At least 25

days before any adjustment to the

interest rate may occur, the mortgagee

must advise the borrower of the

following:

(1) The current index amount;

(2) The date of publication of the

index; and

(3) The new interest rate.

§ 206.23 Shared appreciation.

(a) Additional interest based on net

appreciated value. Any mortgage for

which the mortgagee has chosen the

shared premium option (§ 206.107) may

provide for shared appreciation. At the

time the mortgage becomes due and

payable or is paid in full, whichever

occurs first, the borrower shall pay an

additional amount of interest equal to a

percentage of any net appreciated value

of the property during the life of the

mortgage. The percentage of net

appreciated value to be paid to the

mortgagee, referred to as the

appreciation margin, shall be no more

than twenty-five percent, subject to an

effective interest rate cap of no more

than twenty percent.

(b) Computation of mortgagee share.

The mortgagee’s share of net

appreciated value is computed as

follows:

(1) If the outstanding loan balance at

the time the mortgagee’s share of net

appreciated value becomes payable is

less than the appraised value of the

property at the time of loan origination,

the mortgagee’s share is calculated by

subtracting the appraised value at the

time of loan origination from the

adjusted sales proceeds (i.e., sales

proceeds less transfer costs and capital

improvement costs incurred by the

borrower, but excluding any liens) and

multiplying by the appreciation margin.

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(2) If the outstanding loan balance is

greater than the appraised value at the

time of loan origination but less than the

adjusted proceeds, the mortgagee’s share

is calculated by subtracting the

outstanding loan balance from the

adjusted sales proceeds and multiplying

by the appreciation margin.

(3) If the outstanding loan balance is

greater than the adjusted sales proceeds,

the net appreciated value is zero.

(4) If there has been no sale or transfer

involving satisfaction of the mortgage at

the time the mortgagee’s share of net

appreciated value becomes payable,

sales proceeds for purposes of this

section shall be the appraised value as

determined in accordance with

procedures approved by the

Commissioner.

determine the effective interest rate, the

amount of interest which accrued in the

twelve months prior to the sale of the

property or the prepayment is added to

the mortgagee’s share of the net

appreciated value. The sum of the

mortgagee’s share of the net appreciated

value and the interest, when divided by

the sum of the outstanding loan balance

at the beginning of the twelve-month

period prior to sale or prepayment plus

the payments to or on behalf of the

borrower (but not including interest) in

the twelve months prior to the sale or

prepayment, shall not exceed an

effective interest rate of twenty percent.

(d) Disclosure. At the time the

mortgagee provides the borrower with a

loan application for a mortgage with

shared appreciation, the mortgagee shall

disclose to the borrower the principal

limit, payments and interest rate which

are applicable to a comparable mortgage

offered by the mortgagee without shared

appreciation.

§ 206.25 Calculation of disbursements.

(a) Initial disbursements—(1) Initial

Disbursement Limit—Adjustable

Interest Rate HECMs: for term, tenure,

line of credit, modified term, and

modified tenure payment options:

(i) The mortgagee is responsible for

determining the maximum Initial

Disbursement Limit.

(ii) The maximum disbursement

allowed at closing and during the First

12-Month Disbursement Period is the

lesser of:

(A) The greater of an amount

established by the Commissioner

through notice which shall not be less

than 50 percent of the principal limit; or

the sum of Mandatory Obligations and

a percentage of the principal limit

established by the Commissioner

through notice which shall not be less

than 10 percent; or

(B) The principal limit less the sum of

the funds in the LESA for payment

beyond the First 12-Month

Disbursement Period and the Servicing

Fee Set Aside.

(iii) The amount in the First 12-Month

Disbursement Period or at any point in

time may not exceed the principal limit.

(iv) Mortgagees shall monitor and

track all disbursements that occur at

loan closing and during the First 12-

Month Disbursement Period; the total

amount of disbursements shall not

exceed the maximum Initial

Disbursement Limit.

(v) The borrower shall notify the

mortgagee at loan closing of the amount

of the additional percentage of the

principal limit beyond Mandatory

Obligations that the borrower will draw

or that will remain available to be

drawn during the First 12-Month

Disbursement Period. The borrower may

not increase or decrease this election

after closing.

(2) Borrower’s Advance—Fixed

Interest Rate HECMs: for the Single

Lump Sum payment option:

(i) The mortgagee is responsible for

determining the maximum Borrower’s

Advance.

(ii) The disbursement shall only be

taken at the time of closing and the

maximum disbursement shall not

exceed the lesser of:

(A) The greater of an amount

established by the Commissioner

through notice which shall not be less

than 50 percent of the principal limit; or

the sum of Mandatory Obligations and

a percentage of the principal limit

established by the Commissioner

through notice which shall not be less

than 10 percent; or

(B) The principal limit less the sum of

the funds in the LESA for payment

beyond the First 12-Month

Disbursement Period and the Servicing

Fee Set Aside.

(iii) The borrower shall notify the

mortgagee at loan closing of the amount

of the additional percentage of the

principal limit beyond Mandatory

Obligations that the borrower will draw.

The borrower may not increase or

decrease this election after closing.

(b) Mandatory Obligations for

traditional and refinance transactions

include:

(1) Initial MIP under § 206.105(a);

(2) Loan origination fee;

(3) HECM counseling fee;

(4) Reasonable and customary

amounts, but not more than the amount

actually paid by the mortgagee for any

of the following items:

(i) Recording fees and recording taxes,

or other charges incident to the

recordation of the insured mortgage;

(ii) Credit report;

(iii) Survey, if required by the

mortgagee or the borrower;

(iv) Title examination;

(v) Mortgagee’s title insurance;

(vi) Fees paid to an appraiser for the

initial appraisal of the property; and

(vii) Flood certifications.

(5) Repair Set Asides;

(6) Repair administration fee;

(7) Delinquent Federal debt;

(8) Amounts required to discharge any

existing liens on the property;

(9) Customary fees and charges for

warranties, inspections, surveys, and

engineer certifications;

(10) Funds to pay contractors who

performed repairs as a condition of

closing, in accordance with standard

FHA requirements for repairs required

by the appraiser;

(11) Property tax and flood and

hazard insurance payments required by

the mortgagee to be paid at loan closing;

(12) Property charges not included in

paragraph (b)(11) of this section and

which are scheduled for payment

during the First 12-Month Disbursement

Period, as follows:

(i) Adjustable Interest Rate HECMs.

(A) The total amount of property charge

payments scheduled for payment from

the borrower authorized option under

§ 206.205(d) during the First 12-Month

Disbursement Period;

(B) The total amount of semi-annual

disbursements scheduled to be made

during the First 12-Month Disbursement

Period to the borrower from a Partially-

Funded LESA; or

charges scheduled for payment during

the First 12-Month Disbursement Period

from a Fully-Funded LESA.

(D) Mortgagees shall use the actual

insurance premium and actual tax

amount; if a new tax bill has not been

issued, the mortgagee must use the prior

year’s amount multiplied by 1.04 or an

amount set by the Commissioner

through notice.

(ii) Fixed Interest Rate HECMs. (A)

The total amount of property charges

scheduled for payment during the First

12-Month Disbursement Period from a

Fully-Funded LESA.

(B) Mortgagees shall use the actual

insurance premium and actual tax

amount; if a new tax bill has not been

issued, the mortgagee must use the prior

year’s amount multiplied by 1.04 or an

amount set by the Commissioner

through notice;

(13) Required pay-off of debt not

secured by the property, as defined by

the Commissioner through Federal

(14) Other charges as authorized by

the Commissioner through notice.

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for Purchase transactions include:

(1) Initial MIP under § 206.105(a);

(2) Loan origination fee;

(3) HECM counseling fee:

(4) Reasonable and customary

amounts, but not more than the amount

actually paid by the mortgagee for any

of the following items:

(i) Recording fees and recording taxes,

or other charges incident to the

recordation of the insured mortgage;

(ii) Credit report;

(iii) Survey, if required by the

mortgagee or the borrower;

(iv) Title examination;

(v) Mortgagee’s title insurance;

(vi) Fees paid to an appraiser for the

initial appraisal of the property; and

(vii) Flood certifications.

(5) Delinquent Federal debt;

(6) Fees and charges for real estate

purchase contracts, warranties,

inspections, surveys, and engineer

certifications;

(7) The amount of the principal that

is advanced towards the purchase price

of the subject property;

(8) Property tax and flood and hazard

insurance payments required by the

mortgagee to be paid at loan closing;

(9) Property charges not included in

paragraph (c)(8) of this section and

which are scheduled for payment

during the First 12-Month Disbursement

Period, as follows:

(i) Adjustable Interest Rate HECMs.

(A) The total amount of property charge

payments scheduled for payment from

the borrower authorized option under

§ 206.205(d) during the First 12-Month

Disbursement Period;

(B) The total amount of semi-annual

disbursements scheduled to be made

during the First 12-Month Disbursement

Period to the borrower from a Partially-

Funded LESA; or

charges scheduled for payment during

the First 12-Month Disbursement Period

from a Fully-Funded LESA.

(D) Mortgagees shall use the actual

insurance premium and actual tax

amount; if a new tax bill has not been

issued, the mortgagee must use the prior

year’s amount multiplied by 1.04 or an

amount set by the Commissioner

through notice.

(ii) Fixed Interest Rate HECMs. (A)

The total amount of property charges

scheduled for payment during the First

12-Month Disbursement Period from a

Fully-Funded LESA.

(B) Mortgagees shall use the actual

insurance premium and actual tax

amount; if a new tax bill has not been

issued, the mortgagee must use the prior

year’s amount multiplied by 1.04 or an

amount set by the Commissioner

through notice;

(10) Required pay-off of debt not

secured by the property, as defined by

the Commissioner through Federal

(11) Other charges as authorized by

the Commissioner through notice.

(d) Timing of disbursements.

Mortgage proceeds may not be

disbursed until after the expiration of

the 3-day rescission period under 12

CFR part 1026, if applicable.

(e) Monthly disbursements—term

option. (1) Using factors provided by the

Commissioner, the mortgagee shall

calculate the monthly disbursement so

that the sum of paragraphs (e)(1)(i) or

(e)(1)(ii) of this section added to

paragraphs (e)(1)(iii), (e)(1)(iv), and

(e)(1)(v) of this section shall be equal to

the principal limit at the end of the

payment term.

(i) An initial disbursement under

paragraph (a) of this section plus any

initial servicing charge set aside under

§ 206.19(f)(3); or

(ii) The outstanding loan balance at

the time of a change in payment option

in accordance with § 206.26, plus any

remaining servicing charge set aside

under § 206.19(f)(3); and

(iii) The amount of the principal limit

set aside in accordance with § 206.19(f)

which is not included in the amount set

aside in paragraphs (e)(1)(i) or (e)(1)(ii)

of this section;

(iv) All MIP or monthly charges due

to the Commissioner in lieu of mortgage

insurance premiums due through the

payment term; and

(v) All interest through the remainder

of the payment term. The expected

average mortgage interest rate shall be

used for this purpose.

(2) The mortgagee shall make all

monthly disbursements through the

payment term even if the outstanding

loan balance exceeds the principal limit

because the actual average mortgage

interest rate exceeds the expected

average mortgage interest rate unless the

HECM becomes due and payable under

§ 206.27(c). In the event of a deferral of

due and payable status in accordance

with § 206.27(c)(3), disbursements shall

cease immediately upon the death of the

borrower and no further disbursements

are permissible.

(3) Mortgagees shall ensure that term

monthly disbursements made to the

borrower during the First 12-Month

Disbursement Period do not exceed the

Initial Disbursement Limit. If the sum of

disbursements made during the First 12-

Month Disbursement Period would

exceed the Initial Disbursement Limit

for that time period, the mortgagee shall

decrease the monthly disbursements

during the First 12-Month Disbursement

Period to conform with the Initial

Disbursement Limit; upon conclusion of

the First 12-Month Disbursement

Period, the borrower may request a

payment plan recalculation.

(4) If the borrower makes a partial

prepayment of the outstanding loan

balance during the First 12-Month

Disbursement Period, the mortgagee

shall apply the funds from the partial

prepayment in accordance with the

Note.

(5) If the mortgagee receives

repayment from insurance or

condemnation proceeds after restoration

or repair of the damaged property, the

available principal limit and

outstanding loan balance shall be

reduced by the amount of such

payments.

(f) Monthly disbursements—tenure

option. (1) Monthly disbursements

under the tenure payment option shall

be calculated as if the number of months

in the payment term equals 100 minus

the lesser of the age of the youngest

borrower or 95, multiplied by 12, but

payments shall continue until the

mortgage becomes due and payable

under § 206.27(c), except that in the

event that payments would exceed any

maximum mortgage amount stated in

the security instrument or would

otherwise exceed the amount secured by

the first lien, in accordance with

§ 206.19(h) payments will cease

immediately; payments may be

reinstated only in the event a new Note

and mortgage are executed in

accordance with § 206.27(b)(10); and in

the event of a deferral of due and

payable status in accordance with

§ 206.27(c)(3) payments will cease

immediately upon the death of the

borrower.

(2) Mortgagees shall ensure that

tenure monthly disbursements made to

the borrower during the First 12-Month

Disbursement Period do not exceed the

Initial Disbursement Limit. If the sum of

disbursements made during the First 12-

Month Disbursement Period would

exceed the Initial Disbursement Limit

for that time period, the mortgagee shall

decrease the monthly disbursements

during the First 12-Month Disbursement

Period to conform with the maximum

Initial Disbursement Limit; upon

conclusion of the First 12-Month

Disbursement Period, the borrower may

request a payment plan recalculation.

(3) If the borrower makes a partial

prepayment of the outstanding loan

balance during the First 12-Month

Disbursement Period, the mortgagee

shall apply the funds from the partial

prepayment in accordance with the

Note.

(4) If the mortgagee receives

repayment from insurance or

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condemnation proceeds after restoration

or repair of the damaged property, the

available principal limit and

outstanding loan balance shall be

reduced by the amount of such

payments.

(g) Line of credit separately or with

monthly disbursements. If the borrower

has a line of credit, separately or

combined with the term or tenure

payment option, the principal limit is

divided into an amount set aside for

servicing charges under § 206.19(f)(3),

an amount equal to the line of credit

(including any portion of the principal

limit set aside for repairs or property

charges under § 206.19(f)(1) or (2)), and

the remaining amount of the principal

limit (if any). The line of credit amount

increases at the same rate as the total

principal limit increases under § 206.3.

The sum of disbursements made during

the First 12-Month Disbursement Period

shall not exceed the Initial

Disbursement Limit. If a requested

disbursement would exceed the Initial

Disbursement Limit, the mortgagee may

make a partial disbursement to the

borrower for the amount that will not

exceed the limit. Upon the conclusion

of the First 12-Month Disbursement

Period, the borrower may request

subsequent disbursements up to the

available principal limit.

(h) Single Lump Sum payment option.

(1) Under the Single Lump Sum

payment option, the Borrower’s

Advance shall be made by the

mortgagee to the borrower in an amount

that does not exceed the maximum

allowable Borrower’s Advance under

paragraph (a)(2) of this section.

(2) If the borrower makes a partial

prepayment of the outstanding loan

balance any time after loan closing and

before the contract of insurance is

terminated, the mortgagee shall apply

the funds from the partial prepayment

in accordance with the Note.

(i) Payment of MIP and interest. At

the end of each month, including the

first month, interest accrued during that

month shall be added to the outstanding

loan balance. Where the first month is

a partial month, a prorated amount of

interest shall be added. Monthly MIP,

which will accrue from the closing date,

shall be added to the outstanding loan

balance beginning with the first day of

the second month after closing when

paid to the Commissioner.

(j) Mortgagee late charge. The

mortgagee shall pay a late charge to the

borrower for any late disbursement. If

the mortgagee does not mail or

electronically transfer a scheduled

monthly disbursement to the borrower

on the first business day of the month

or make a line of credit disbursement

within 5 business days of the date the

mortgagee received the request, the late

charge shall be 10 percent of the entire

amount that should have been paid to

the borrower for that month or as a

result of that request. In no event shall

the total late charge exceed five hundred

dollars. For each additional day that the

borrower does not receive payment, the

mortgagee shall pay interest at the

mortgage interest rate on the late

payment. Any late charge and interest

shall be paid from the mortgagee’s funds

and shall not be added to the

outstanding loan balance.

(k) No minimum payments. A

mortgagee shall not require, as a

condition of providing a loan secured by

a mortgage insured under this part, that

the monthly payments under the term or

tenure payment option or draws under

the line of credit payment option exceed

a minimum amount established by the

mortgagee.

§ 206.26 Change in payment option.

(a) General. The payment option may

be changed as provided in this section.

(b) Borrower request for payment plan

change—(1) Adjustable Interest Rate

HECMs. (i) During the First 12-Month

Disbursement Period, no payment plan

change shall cause disbursements to

exceed the Initial Disbursement Limit.

(ii) After the First 12-Month

Disbursement Period, as long as the

outstanding loan balance is less than the

principal limit, a borrower may request

a recalculation of the current payment

option, a change from any payment

option to another available payment

option or a disbursement of any amount

(not to exceed the difference between

the principal limit and the sum of the

outstanding loan balance and any set

asides for repairs, servicing charges or

property charges). A mortgage will

continue to bear interest at an adjustable

interest rate as agreed between the

mortgagee and the borrower at loan

origination. The mortgagee shall

recalculate any future monthly

payments in accordance with § 206.25.

(iii) Fee for change in payment. The

mortgagee may charge a fee, not to

exceed an amount determined by the

Commissioner, whenever there is a

payment plan change or whenever

payments are recalculated.

(iv) Limitations. The Commissioner

may, through notice, establish

limitations on the frequency of payment

plan changes, a minimum notice period

that a borrower must provide in order to

make a request under paragraph

(b)(1)(ii) of this section, or other

limitations on payment plan change

requests by the borrower.

(2) Fixed Interest Rate HECMs.

Borrowers may not request a change in

payment option.

When initial repairs after closing under

§ 206.47 are required using a Repair Set

Aside, mortgagees shall comply with the

following:

(1) Adjustable Interest Rate HECMs.

(i) If repairs after closing under § 206.47

are completed without using all of the

funds set aside for repairs, the

mortgagee shall transfer the remaining

amount to a line of credit, modified

term, or modified tenure payment

option and inform the borrower of the

sum available to be drawn.

(ii) If repairs after closing under

§ 206.47 cannot be completed with the

funds set aside for repairs, the

mortgagee may advance additional

funds to complete repairs from an

existing line of credit. If a line of credit

is not sufficient to make the advance or

if no line of credit exists, future monthly

disbursements shall be recalculated for

use as a line of credit in accordance

with § 206.25.

(iii) If repairs are not completed when

required by the mortgage, the mortgagee

shall stop monthly payments and the

mortgage shall convert to the line of

credit payment option. Until the repairs

are completed, the mortgagee shall make

no line of credit disbursements except

as needed to pay for repairs required by

the mortgage.

(2) Fixed Interest Rate HECMs. No

unused set aside funds shall be made

available to the borrower, except that a

borrower may be reimbursed for the cost

of repair materials (not including labor),

in accordance with § 206.47, under

conditions established by the

Commissioner.

§ 206.27 Mortgage provisions.

(a) Form. The mortgage shall be in a

form meeting the requirements of the

Commissioner.

(b) Provisions. The terms of the

mortgage shall contain an explanation of

how payments will be made to the

borrower, how interest will be charged,

and when the mortgage will be due and

payable. The mortgage shall include a

provision deferring the due and payable

status that occurs because of the death

of the last surviving borrower for an

Eligible Non-Borrowing Spouse. It shall

also contain provisions designed to

ensure compliance with this part and

provisions on the following additional

matters:

(1) Disbursements by the mortgagee

under the term or tenure payment

options shall be mailed to the borrower

or electronically transferred to an

account of the borrower on the first

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business day of each month beginning

with the first month after closing.

Disbursements under the line of credit

payment option shall be mailed to the

borrower or electronically transferred to

an account of the borrower within five

business days after the mortgagee has

received a written request for

disbursement by the borrower. In

accordance with § 206.55, in no event

may disbursements continue during a

Deferral Period.

(2) The borrower shall insure all

improvements on the property that

serves as collateral for the HECM

whether in existence at the time of

origination or subsequently erected,

against any hazards, casualties, and

contingencies, including but not limited

to fire and flood, for which the

mortgagee requires insurance. Such

insurance shall be maintained in the

amount and for the period of time that

is necessary to protect the mortgagee’s

investment. Whether or not the

mortgagee imposes a flood insurance

requirement, the borrower shall at a

minimum insure all improvements on

the property, whether in existence at the

time of origination or subsequently

erected, against loss by floods to the

extent required by the Commissioner. If

the mortgagee imposes insurance

requirements, all insurance shall be

carried with companies acceptable to

the mortgagee, and the insurance

policies and any renewals shall be held

by the mortgagee and shall include loss

payable clauses in favor of and in a form

acceptable to the mortgagee.

(3) The borrower shall not participate

in a real estate tax deferral program or

permit any liens to be recorded against

the property, unless such liens are

subordinate to the insured mortgage

and, if applicable, any second mortgage

held by the Commissioner.

(4) A mortgage may be prepaid in full

or in part in accordance with § 206.209.

(5) The borrower must keep the

property in good repair.

(6) The borrower must provide for the

payment of property charges in

accordance with § 206.205.

(7) The payment of monthly MIP may

be added to the outstanding principal

balance.

(8) The borrower shall have no

personal liability for payment of the

outstanding loan balance. The

mortgagee shall enforce the debt only

through sale of the property. The

mortgagee shall not be permitted to

obtain a deficiency judgment against the

borrower if the mortgage is foreclosed.

(9) If the mortgage is assigned to the

Commissioner under § 206.121(b), the

borrower shall not be liable for any

difference between the insurance

benefits paid to the mortgagee and the

outstanding loan balance including

accrued interest, owed by the borrower

at the time of the assignment.

(10) If State law limits the first lien

status of the mortgage as originally

executed and recorded to a maximum

amount of debt or a maximum number

of years, the borrower shall agree to

execute any additional documents

required by the mortgagee and approved

by the Commissioner to extend the first

lien status to an additional amount of

debt and an additional number of years

and to cause any other liens to be

removed or subordinated.

payable. (1) The mortgage shall state

that the outstanding loan balance will

be due and payable in full if a borrower

dies and the property is not the

principal residence of at least one

surviving borrower, except that the due

and payable status shall be deferred in

accordance with paragraph (c)(3) of this

section if the requirements of the

Deferral Period are met; or if a borrower

conveys all of his or her title in the

property and no other borrower retains

title to the property. For purposes of the

preceding sentence, a borrower retains

title in the property if the borrower

continues to hold title to any part of the

property in fee simple, as a leasehold

interest as set forth in § 206.45(a), or as

a life estate.

(2) The mortgage shall state that the

outstanding loan balance shall be due

and payable in full, upon approval of

the Commissioner, if any of the

following occur:

(i) The property ceases to be the

principal residence of a borrower for

reasons other than death and the

property is not the principal residence

of at least one other borrower;

(ii) For a period of longer than 12

consecutive months, a borrower fails to

occupy the property because of physical

or mental illness and the property is not

the principal residence of at least one

other borrower;

(iii) The borrower does not provide

for the payment of property charges in

accordance with § 206.205; or

(iv) An obligation of the borrower

under the mortgage is not performed.

(3) Deferral of due and payable status.

The mortgage documents shall contain a

provision deferring due and payable

status, called the Deferral Period, for an

Eligible Non-Borrowing Spouse until

the death of the last Eligible Non-

Borrowing Spouse or the requirements

of the Deferral Period in § 206.55 cease

to be met and have not been cured as

provided for in § 206.57.

(d) Second mortgage to

Commissioner. Unless otherwise

provided by the Commissioner, a

second mortgage to secure any

payments by the Commissioner as

provided in § 206.121(c) must be given

to the Commissioner before a Mortgage

Insurance Certificate is issued for the

mortgage. If the Commissioner does not

require a second mortgage to be given to

the Commissioner prior to the issuance

of a Mortgage Insurance Certificate, the

Commissioner may require a second

mortgage to be given to the

Commissioner at a later day in order to

secure payments by the Commissioner

as provided in § 206.121(c).

§ 206.31 Allowable charges and fees.

(a) Fees at closing. The mortgagee may

collect, either in cash at the time of

closing or through an initial payment

under the mortgage, the following

charges and fees incurred in connection

with the origination, processing, and

closing of the mortgage loan:

(1) Loan Origination Fee. Mortgagees

may charge a loan origination fee and

may use such fee to pay for services

performed by a sponsored third-party

originator. The loan origination fee limit

shall be the greater of $2,500 or two

percent of the maximum claim amount

of $200,000, plus one percent of any

portion of the maximum claim amount

that is greater than $200,000.

Mortgagees may accept a lower

origination fee. Mortgagees may pay fees

for services performed by a sponsored

third-party originator and these fees

may be included as part of the loan

origination fee. The total amount of the

loan origination fee may not exceed

$6,000, except that the Commissioner

may through notice adjust the maximum

limit in accordance with the annual

percentage increase in the Consumer

Price Index of the Bureau of Labor

Statistics of the Department of Labor in

increments of $500 only when the

percentage increase in such index, when

applied to the maximum origination fee,

produces dollar increases that exceed

$500. The loan origination fee may be

fully financed with the mortgage.

(2) Reasonable and customary

amounts. Reasonable and customary

amounts, but not more than the amount

actually paid by the mortgagee, for any

of the following items:

(i) Recording fees and recording taxes,

or other charges incident to the

recordation of the insured mortgage;

(ii) Credit report;

(iii) Survey, if required by the

mortgagee or the borrower;

(iv) Title examination;

(v) Mortgagee’s title insurance;

(vi) Fees paid to an appraiser for the

initial appraisal of the property;

(vii) Flood certifications; and

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(viii) Such other charges as may be

authorized by the Commissioner.

(b) Repair administration fee. If the

property requires repairs after closing in

order to meet FHA requirements, the

mortgagee may collect a fee for each

occurrence as compensation for

administrative duties relating to repair

work pursuant to § 206.47(c) and (d),

not to exceed the greater of one and one-

half percent of the amount advanced for

the repairs or fifty dollars. The

mortgagee shall collect the repair fee by

adding it to the outstanding loan

balance.

§ 206.32 No outstanding unpaid

obligations.

In order for a mortgage to be eligible

under this part, a borrower must

establish to the satisfaction of the

mortgagee that after the initial payment

of loan proceeds under § 206.25(a), there

will be no outstanding or unpaid

obligations incurred by the borrower in

connection with the mortgage

transaction, except for mortgage

servicing charges permitted under

§ 206.207(b) and any future Repair Set

Aside established pursuant to

§ 206.19(f)(1); and the initial

disbursement will not be used for any

payment to or on behalf of an estate

planning service firm.

Eligible Borrowers

§ 206.33 Age of borrower.

The youngest borrower shall be 62

years of age or older at the time of loan

closing.

§ 206.34 Limitation on number of

mortgages.

(a) Once a borrower has obtained an

insured mortgage under this part, the

borrower is eligible to obtain future

insured HECM loan financing if the

existing HECM is satisfied prior to or at

the closing of the new HECM, or the

borrower provides legal documentation,

in a manner acceptable to the

Commissioner, evidencing release of the

borrower’s financial obligation to satisfy

the existing HECM.

(b) Current HECM borrowers that plan

to sell their existing residence and use

the HECM for Purchase program to

obtain a new principal residence must

pay off the existing FHA-insured

mortgage before the HECM for Purchase

mortgage can be insured.

§ 206.35 Title of property which is security

for HECM.

(a) A mortgagor is not required to be

a borrower; however, any borrower is

required to be on title to the property

which serves as collateral for the HECM,

and is therefore, by definition, also a

mortgagor.

(b) The mortgagor shall hold title to

the entire property which is the security

for the mortgage. If there are multiple

mortgagors, all the mortgagors must

collectively hold title to the entire

property which is the security for the

mortgage. If one or more mortgagors

hold a life estate in the property, for

purposes of this section only, the term

‘‘mortgagor’’ shall include each holder

of a future interest in the property

(remainder or reversion) who has

executed the mortgage.

non-borrowing owners of the property

will continue to hold title to the

property which serves as collateral for

the HECM, such Non-Borrowing

Spouses and non-borrowing owners

must sign the mortgage as mortgagors,

evidencing their commitment of the

property as security for the mortgage.

(d) All Non-Borrowing Spouses and

non-borrowing owners shall sign a

certification that:

(1) Consents to their spouse or other

borrowing owner obtaining the HECM;

(2) Acknowledges the terms and

conditions of the mortgage; and

(3) Acknowledges that the property

will serve as collateral for the HECM as

evidenced by mortgage lien(s).

§ 206.36 Seasoning requirements for

existing non-HECM liens.

(a) The Commissioner may establish,

through notice, seasoning requirements

for existing non-HECM liens. Such

seasoning requirements shall not

prohibit the payoff of existing non-

HECM liens using HECM proceeds if the

liens have been in place for longer than

12 months prior to the HECM closing or

if the liens have resulted in cash to the

borrower in an amount of $500 or less,

whether at closing or through

cumulative draws prior to the date of

the HECM closing.

(b) Mortgagees must provide

documentation satisfactory to the

Commissioner as established by notice

that the seasoning requirement was met.

borrower may pay off, at closing, a

Home Equity Line of Credit (HELOC)

that does not meet seasoning

requirements from borrower funds, the

HECM funds, or a combination of HECM

funds and borrower funds, as long as the

draw from HECM funds does not exceed

the percentage approved by the

Commissioner under the authority of

§ 206.25(a).

§ 206.37 Credit standing.

(a) Each borrower shall have a general

credit standing satisfactory to the

Commissioner.

(b) Required Financial Assessment—

(1) Requirement for Financial

Assessment prior to loan approval. Prior

to loan approval, the mortgagee shall

assess the financial capacity of the

borrower to comply with the terms of

the mortgage and evaluate whether the

HECM is a sustainable solution for the

borrower, in accordance with

instructions established by the

Commissioner through notice. The

Financial Assessment shall consider the

borrower’s credit history, cash flow and

residual income, extenuating

circumstances, and compensating

factors.

(i) Credit history. In accordance with

FHA guidelines in existence at the time

of FHA Case Number assignment,

mortgagees shall conduct an in-depth

credit history analysis to determine if

the borrower has demonstrated the

willingness to meet his or her financial

obligations.

(ii) Cash flow and residual income

analysis. In accordance with FHA

guidelines in existence at the time of

FHA Case Number assignment,

mortgagees shall conduct a cash flow

and residual income analysis to

determine the capacity of the borrower

to meet his or her documented financial

obligations with his or her documented

income.

(iii) Extenuating circumstances.

Where the borrower’s credit history

does not meet the criteria set by the

mortgagee based on FHA guidelines in

existence at the time of FHA Case

Number assignment, mortgagees shall

consider and document, as part of the

Financial Assessment, extenuating

circumstances that led to the credit

issues.

(iv) Compensating factors. The

mortgagee shall document and identify

in the Financial Assessment any

considered compensating factors.

(2) Completion and approval of

Financial Assessment. The Financial

Assessment shall be completed and

approved by a DE Underwriter

registered in HUD’s system of record by

the underwriting mortgagee.

(3) Nondiscrimination. (i) The

Financial Assessment shall be

conducted in a uniform manner that

shall not discriminate because of race,

color, religion, sex, national origin,

familial status, disability, marital status,

actual or perceived sexual orientation,

gender identity, source of income of the

borrower, location of the property, or

because the applicant has in good faith

exercised any right under the Consumer

Credit Protection Act (15 U.S.C. 1601 et

seq.).

(ii) The Financial Assessment shall be

conducted in compliance with all

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applicable laws and regulations,

including but not limited to, the

following:

(A) Fair Housing Act (42 U.S.C. 3601

et seq.);

(B) Fair Credit Reporting Act (15

U.S.C. 1681 et seq.);

U.S.C. 1691 et seq.); and

(D) Regulation B (12 CFR part 1002).

§ 206.39 Principal residence.

(a) The property must be the principal

residence of each borrower, and if

applicable, Eligible Non-Borrowing

Spouse, at closing.

(b) HECM for Purchase. For HECM for

Purchase transactions, each borrower,

and if applicable, Eligible Non-

Borrowing Spouse, must occupy the

property within 60 days from the date

of closing.

§ 206.40 Disclosure, verification and

certifications.

(a) Disclosure and certification of

Social Security and Employer

Identification Numbers—(1) Borrower.

The borrower must meet the

requirements for the disclosure and

verification of Social Security and

Employer Identification Numbers, as

provided by part 200, subpart U, of this

chapter.

(2) Eligible Non-Borrowing Spouse.

The Eligible Non-Borrowing Spouse

shall comply with the requirements for

disclosure and verification of Social

Security and Employer Identification

Numbers by borrowers in paragraph

(a)(1) of this section.

(b) Certifications. Each borrower and

each Non-Borrowing Spouse shall

provide all required certifications to

HUD and the mortgagee, as required by

the Commissioner.

individual. At the time of origination,

the mortgagee shall request that the

borrower designate an alternate

individual for the purpose of

communicating with the mortgagee if

the mortgagee has not been able to reach

the borrower. The designation of the

alternate individual is at the discretion

of the borrower. If the mortgagee is

unable to make contact or communicate

with the borrower for any reason,

including death or incapacitation, the

mortgagee shall communicate with the

alternate individual, if one has been

designated by the borrower.

§ 206.41 Counseling.

(a) List provided. At the time of the

initial contact with the prospective

borrower, the mortgagee shall give the

borrower a list of the names, addresses,

and telephone numbers of HECM

counselors and their employing

agencies, which have been approved by

the Commissioner, in accordance with

subpart E of this part, as qualified and

able to provide the information

described in paragraph (b) of this

section. The borrower, any Eligible or

Ineligible Non-Borrowing Spouse, and

any non-borrowing owner must receive

counseling.

(b) Information to be provided. (1) A

HECM counselor must discuss with the

borrower:

(i) The information required by

section 255(f) of the NHA;

(ii) Whether the borrower has signed

a contract or agreement with an estate

planning service firm that requires, or

purports to require, the borrower to pay

a fee on or after closing that may exceed

amounts permitted by the

Commissioner or this part;

(iii) If such a contract has been signed

under paragraph (b)(1)(ii) of this section,

the extent to which services under the

contract may not be needed or may be

available at nominal or no cost from

other sources, including the mortgagee;

and

(iv) Any other requirements

determined by the Commissioner.

(2) If the HECM borrower has an

Eligible Non-Borrowing Spouse, in

addition to meeting the requirements of

paragraph (b)(1) of this section, a HECM

counselor shall discuss with the

borrower and Eligible Non-Borrowing

Spouse:

(i) The requirement that the Eligible

Non-Borrowing Spouse must obtain

ownership of the property or other legal

right to remain in the property for life,

upon the death of the last surviving

borrower;

(ii) A failure to obtain ownership or

other legal right to remain in the

property for life will result in the HECM

becoming due and payable and the

Eligible Non-Borrowing Spouse will not

receive the benefit of the Deferral

Period;

(iii) The requirement that the property

must be the principal residence of the

Eligible Non-Borrowing Spouse prior to

and after the death of the borrowing

spouse;

(iv) The requirement that the Eligible

Non-Borrowing Spouse fulfills all

obligations of the mortgage, including

the payment of property charges and

upkeep of the property; and

(v) Any other requirements

determined by the Commissioner.

(3) If the HECM borrower has an

Ineligible Non-Borrowing Spouse, in

addition to meeting the requirements of

paragraph (b)(1) of this section, a HECM

counselor shall discuss with the

borrower and Ineligible Non-Borrowing

Spouse:

(i) The Deferral Period will not be

applicable;

(ii) The HECM will become due and

payable upon the death of the last

surviving borrower; and

(iii) Any other requirements

determined by the Commissioner.

will provide the borrower with a

certificate stating that the borrower,

Non-Borrowing Spouse, and non-

borrowing owner, as applicable, has

received counseling. The borrower shall

provide the mortgagee with a physical

copy of the certificate.

§ 206.43 Information to borrower.

(a) Disclosure of costs of obtaining

mortgage. The mortgagee shall ensure

that the borrower has received full

disclosure of all costs of obtaining the

mortgage. The mortgagee shall ask the

borrower about any costs or other

obligations that the borrower has

incurred to obtain the mortgage, as

defined by the Commissioner, in

addition to providing any disclosures

required by law. The mortgagee shall

clearly state to the borrower which

charges are required to obtain the

mortgage and which are not required to

obtain the mortgage.

(b) Lump sum disbursement. (1) If the

borrower requests that at least 25

percent of the principal limit amount

(after deducting amounts excluded in

the following sentence) be disbursed at

closing to the borrower (or as otherwise

permitted by § 206.25), the mortgagee

must make sufficient inquiry at closing

to confirm that the borrower will not

use any part of the amount disbursed for

payments to or on behalf of an estate

planning service firm, with an

explanation of § 206.32 as necessary or

appropriate.

(2) This paragraph does not apply to

any part of the principal limit used for

the following:

(i) Initial MIP under § 206.105(a) or

fees and charges allowed under

§ 206.31(a) paid by the mortgagee from

mortgage proceeds instead of by the

borrower in cash; and

(ii) Amounts set aside in accordance

with § 206.19(f) for repairs under

§ 206.47, for property charges under

§ 206.205, or for servicing charges under

§ 206.207(b).

§ 206.44 Monetary investment for HECM

for Purchase program.

(a) Monetary investment. At closing,

HECM for Purchase borrowers shall

provide a monetary investment that will

be applied to satisfy the difference

between the principal limit and the sale

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price for the property, plus any HECM

loan-related fees that are not financed

into the loan, minus the amount of the

earnest deposit.

(b) Funding sources. To satisfy the

required monetary investment,

borrowers may use:

(1) Cash on hand;

(2) Cash from the sale or liquidation

of the borrower’s assets;

(3) HECM mortgage proceeds; or

(4) Other approved funding sources as

determined by the Commissioner

through notice.

The following interested party

contributions are permissible:

(i) Fees required to be paid by a seller

under state or local law;

(ii) Fees customarily paid by a seller

in the subject property locality; and

(iii) The purchase of the Home

Warranty policy by the seller.

(2) The Commissioner may define

additional permissible interested party

contributions and impose requirements

for permissible interested party

contributions through a notice in the

Federal Register.

Eligible Properties

§ 206.45 Eligible properties.

(a) Title. A mortgage must be on real

estate held in fee simple; or on a

leasehold that is under a lease with a

duration lasting until the later of: 99

years, if such lease is renewable; or the

actuarial life expectancy of the

mortgagor plus a number of years

specified by the Commissioner, which

shall not be more than 99 years. The

mortgagee shall obtain a title insurance

policy satisfactory to the Commissioner.

If the Commissioner determines that

title insurance for reverse mortgages is

not available for reasonable rates in a

state, then the Commissioner may

specify other acceptable forms of title

evidence in lieu of title insurance.

(b) Type of property. The property

shall include a dwelling designed

principally as a residence for one family

or such additional families as the

Commissioner shall determine. A

condominium unit designed for one-

family occupancy shall also be an

eligible property.

requirement for maintaining flood

insurance coverage. (1) During such

time as the mortgage is insured, the

borrower and mortgagee shall be

obligated, by a special condition to be

included in the mortgage commitment,

to obtain and to maintain National

Flood Insurance Program (NFIP) flood

insurance coverage on the property

improvements (dwelling and related

structures/equipment essential to the

value of the property and subject to

flood damage) if NFIP flood insurance is

available with respect to the property

improvements that:

(i) Are located in an area designated

by the Federal Emergency Management

Agency (FEMA) as a floodplain area

having special flood hazards; or

(ii) Are otherwise determined by the

Commissioner to be subject to a flood

hazard.

(2) No mortgage may be insured that

covers property improvements located

in an area that has been identified by

FEMA as an area having special flood

hazards, unless the community in

which the area is situated is

participating in the NFIP and such

insurance is obtained by the borrower.

Such requirement for flood insurance

shall be effective one year after the date

of notification by FEMA to the chief

executive officer of a flood prone

community that such community has

been identified as having special flood

hazards.

(3) The flood insurance must be

maintained during such time as the

mortgage is insured in an amount at

least equal to the lowest of the

following:

(i) 100 percent replacement cost of the

insurable value of the improvements,

which consists of the development or

project cost less estimated land cost; or

(ii) The maximum amount of the NFIP

insurance available with respect to the

particular type of the property; or

(iii) The outstanding principal

balance of the loan.

(d) Lead-based paint poisoning

prevention. If the appraiser of a

dwelling constructed prior to 1978 finds

defective paint surfaces, 24 CFR

200.810(d) shall apply unless the

borrower certifies that no child who is

less than six years of age resides or is

expected to reside in the dwelling,

except that any reference to ‘‘mortgagor’’

in 24 CFR 200.810(d) shall mean

‘‘borrower’’ for purposes of this

paragraph.

(e) Restrictions on conveyance. The

property must be freely marketable.

Conveyance of the property may only be

restricted as permitted under 24 CFR

203.41 or 24 CFR 234.66 and this part,

except that a right of first refusal to

purchase a unit in a condominium

project is permitted if the right is held

by the condominium association for the

project.

(f) Location of property. The

mortgaged property shall be located

within the United States, Puerto Rico,

Guam, the Virgin Islands, the

Commonwealth of the Northern Mariana

Islands, and American Samoa. The

mortgaged property, if otherwise

acceptable to the Commissioner, may be

located in any location where the

housing standards meet the

requirements of the Commissioner.

(g) HECM for Purchase. (1) A HECM

for Purchase transaction is where title to

the property is transferred to the HECM

borrower and, at the time of closing, the

HECM first and second liens, if

applicable, will be the only liens against

the property.

(2) Properties are eligible for FHA

insurance under the HECM for Purchase

program when construction is

completed and the property is habitable,

as evidenced by the issuance of a

Certificate of Occupancy or its

equivalent, by the local jurisdiction.

§ 206.47 Property standards; repair work.

(a) Need for repairs. Properties must

meet the applicable property

requirements of the Commissioner in

order to be eligible. Properties that do

not meet the property requirements

must be repaired in order to ensure that

the repaired property will serve as

adequate security for the insured

mortgage.

(b) Assurance that repairs are made.

The mortgage may be closed before the

repair work is completed if the

Commissioner estimates that the cost of

the remaining repair work will not

exceed 15 percent of the maximum

claim amount and the mortgage contains

provisions approved by the

Commissioner concerning payment for

the repairs.

When repair work is completed after

closing by a contractor, the mortgagee

shall cause one or more inspections of

the property to be made by an inspector

or other qualified individual acceptable

to the Commissioner in order to ensure

that the repair work is satisfactory, and

prior to the release of funds from the

Repair Set Aside. The mortgagee shall

hold back a portion of the contract price

attributable to the work done before

each interim release of funds, and the

total of the hold backs will be released

after the final inspection and approval

of the release by the mortgagee. The

mortgagee shall ensure that all

mechanics’ and materialmen’s liens are

released of record.

(d) Reimbursement to borrower. The

mortgagee shall not reimburse the

borrower for any labor the borrower

performed. The mortgagee may

reimburse the borrower for the actual

cost of repair materials from the Repair

Set Aside, provided that the mortgagee

causes one or more inspections of the

property by an inspector or other

qualified individual acceptable to the

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Commissioner and meets all

reimbursement requirements

established by the Commissioner.

(e) HECM for Purchase. For HECM for

Purchase transactions, where major

property deficiencies threaten the health

and safety of the homeowner or

jeopardize the soundness and security

of the property, all repairs must be

completed by the seller prior to closing.

Appraisers shall complete the appraisal

report as ‘‘Subject To’’ the completion of

the repairs.

§ 206.51 Eligibility of mortgages involving

a dwelling unit in a condominium.

If the mortgage involves a dwelling

unit in a condominium, the project in

which the unit is located shall have

been committed to a plan of

condominium ownership by deed, or

other recorded instrument, that is

acceptable to the Commissioner.

§ 206.52 Eligible sale of property–HECM

for Purchase.

(a) Sale by owner of record—(1)

Owner of record requirement. To be

eligible for a mortgage insured by FHA,

the property must be purchased from

the owner of record and the transaction

may not involve any sale or assignment

of the sales contract.

(2) Supporting documentation. The

mortgagee shall obtain documentation

verifying that the seller is the owner of

record and must submit this

documentation to FHA as part of the

application for mortgage insurance, in

accordance with §§ 206.15 and

206.115(b)(9).

(b) Time restrictions on re-sales—(1)

General. The eligibility of a property for

a mortgage insured by FHA is

dependent on the time that has elapsed

between the date the seller acquired the

property (based upon the date of

settlement) and the date of execution of

the sales contract that will result in the

FHA mortgage insurance (the re-sale

date). The mortgagee shall obtain

documentation verifying compliance

with the time restrictions described in

this paragraph and must submit this

documentation to FHA as part of the

application for mortgage insurance, in

accordance with § 206.115(b).

(2) Re-sales occurring 90 days or less

following acquisition. If the re-sale date

is 90 days or less following the date of

acquisition by the seller, the property is

not eligible for a mortgage to be insured

by FHA.

(3) Re-sales occurring between 91

days and 180 days following

acquisition. (i) If the re-sale date is

between 91 days and 180 days following

acquisition by the seller, the property is

generally eligible for a mortgage insured

by FHA.

(ii) However, FHA will require that

the mortgagee obtain additional

documentation if the re-sale price is 100

percent over the purchase price. Such

documentation must include an

appraisal from another appraiser. The

mortgagee may also document its loan

file to support the increased value by

establishing that the increased value

results from the rehabilitation of the

property.

(iii) FHA may revise the level at

which additional documentation is

required under paragraph (b)(3) of this

section at 50 to 150 percent over the

original purchase price. FHA will revise

this level by Federal Register notice

with a 30 day delayed effective date.

(4) Authority to address property

flipping for re-sales occurring between

91 days and 12 months following

acquisition. (i) If the re-sale date is more

than 90 days after the date of acquisition

by the seller, but before the end of the

twelfth month after the date of

acquisition, the property is eligible for

a mortgage to be insured by FHA.

(ii) However, FHA may require that

the mortgagee provide additional

documentation to support the re-sale

value of the property if the re-sale price

is 5 percent or greater than the lowest

sales price of the property during the

preceding 12 months (as evidenced by

the contract of sale). At FHA’s

discretion, such documentation must

include, but is not limited to, an

appraisal from another appraiser. FHA

may exclude re-sales of less than a

specific dollar amount from the

additional value documentation

requirements.

(iii) If the additional value

documentation supports a value of the

property that is more than 5 percent

lower than the value supported by the

first appraisal, the lower value will be

used to calculate the maximum claim

amount. Otherwise, the value supported

by the first appraisal will be used to

calculate the maximum claim amount.

(iv) FHA will announce its

determination to require additional

value documentation through issuance

of a Federal Register notice. The

requirement for additional value

documentation may be established

either on a nationwide or regional basis.

Further, the Federal Register notice will

specify the percentage increase in the

re-sale price that will trigger the need

for additional documentation, and will

specify the acceptable types of

documentation. The Federal Register

notice may also exclude re-sales of less

than a specific dollar amount from the

additional value documentation

requirements. Any such Federal

revisions, will be issued at least thirty

days before taking effect.

(v) The level at which additional

documentation is required under

paragraph (b)(4) of this section shall

supersede that under paragraph (b)(3) of

this section.

(5) Re-sales occurring more than 12

months following acquisition. If the re-

sale date is more than 12 months

following the date of acquisition by the

seller, the property is eligible for a

mortgage insured by FHA.

on sales. The time restrictions on sales

described in paragraph (b) of this

section do not apply to:

(1) Sales by HUD of Real Estate-

Owned (REO) properties under 24 CFR

part 291 and of single family assets in

revitalization areas pursuant to section

204 of the NHA (12 U.S.C. 1710);

(2) Sales by another agency of the

United States Government of REO single

family properties pursuant to programs

operated by these agencies;

(3) Sales of properties by nonprofit

organizations approved to purchase

HUD REO single family properties at a

discount with resale restrictions;

(4) Sales of properties that were

acquired by the sellers by inheritance;

(5) Sales of properties purchased by

an employer or relocation agency in

connection with the relocation of an

employee;

(6) Sales of properties by state- and

federally-chartered financial institutions

and government-sponsored enterprises

(GSEs);

(7) Sales of properties by local and

state government agencies; and

(8) Only upon announcement by FHA

through issuance of a notice, sales of

properties located in areas designated

by the President as federal disaster

areas. The notice will specify how long

the exception will be in effect.

(d) Sanctions and indemnification.

Failure of a mortgagee to comply with

the requirements of this section may

result in HUD requesting

indemnification of the mortgage loan, or

seeking other appropriate remedies

under 24 CFR part 25.

Refinancing of Existing Home Equity

Conversion Mortgages

§ 206.53 Refinancing a HECM loan.

(a) General. Except as otherwise

provided in this section, all

requirements applicable to the

insurance of HECMs under this part

apply to the insurance of refinanced

HECMs. FHA may, upon application by

a mortgagee, insure any mortgage given

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to refinance an existing HECM insured

under this part, including loans

assigned to the Commissioner as

described in § 206.107(a)(1) and

§ 206.121(b).

(b) Definition of ‘‘total cost of the

refinancing’’. For purposes of

paragraphs (d) and (e) of this section,

the term ‘‘total cost of the refinancing’’

means the sum of the allowable charges

and fees permitted under § 206.31 and

the initial MIP described in § 206.105(a)

and paragraph (c) of this section.

MIP paid by the mortgagee pursuant to

§ 206.105(a) shall not exceed the

difference between: three percent of the

increase in the maximum claim amount

for the new HECM, minus the amount

of the initial MIP already charged and

paid by the borrower for the existing

HECM that is being refinanced. No

refunds will be given if the initial MIP

paid on the existing HECM exceeds the

initial MIP due on the new HECM.

(2) The HECM refinance authority is

only applicable when the property that

serves as collateral for the FHA-insured

mortgage remains the same.

(3) Existing HECM borrowers

refinancing an existing HECM are

eligible for a MIP reduction under the

conditions of this section, but existing

HECM borrowers who participate in a

HECM for Purchase transaction are

ineligible for a reduction in the initial

MIP.

(d) Anti-churning disclosure—(1)

Contents of anti-churning disclosure. In

addition to providing the required

disclosures under § 206.43, the

mortgagee shall provide to the borrower

its best estimate of:

(i) The total cost of the refinancing to

the borrower; and

(ii) The increase in the borrower’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 under this section.

(2) Timing of anti-churning

disclosure. The mortgagee shall provide

the anti-churning disclosure

concurrently with the disclosures

required under § 206.43.

(e) Waiver of counseling requirement.

The borrower and any Non-Borrowing

Spouse may elect not to receive

counseling under § 206.41, but only if:

(1) The original HECM was assigned

a Case Number on or after August 4,

2014, and the borrower and Non-

Borrowing Spouse, if applicable,

received counseling required under

§ 206.41; or where the original HECM

was assigned a Case Number prior to

August 4, 2014, and there is no

applicable Non-Borrowing Spouse.

(2) The borrower has received the

anti-churning disclosure required under

paragraph (d) of this section.

(3) The increase in the borrower’s

principal limit (as provided in the anti-

churning disclosure) exceeds the total

cost of the refinancing by an amount

established by the Commissioner

through Federal Register notice. FHA

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.

(4) The time between the date of the

closing on the original HECM and the

date of the application for refinancing

under this section does not exceed five

years (even if less than five years have

passed since a previous refinancing

under this section).

Deferral of Due and Payable Status

§ 206.55 Deferral of due and payable

status for Eligible Non-Borrowing Spouses.

(a) Deferral Period. If the last

surviving borrower predeceases an

Eligible Non-Borrowing Spouse, and if

the requirements of paragraph (d) of this

section are satisfied, the due and

payable status will be deferred for as

long as the Eligible Non-Borrowing

Spouse continues to meet the Qualifying

Attributes in paragraph (c) of this

section and the requirements of

paragraphs (d) and (e) of this section.

(b) End of Deferral Period. (1) If a

Deferral Period ceases or becomes

unavailable because a Non-Borrowing

Spouse no longer satisfies the

Qualifying Attributes and has become

an Ineligible Non-Borrowing Spouse, a

mortgagee may not provide an

opportunity to cure the default, and the

HECM will become immediately due

and payable as a result of the death of

the last surviving borrower.

(2) If a Deferral Period ceases but the

Eligible Non-Borrowing Spouse

continues to meet the Qualifying

Attributes, the mortgagee must provide

an Eligible Non-Borrowing Spouse with

30 days to cure the default, in

accordance with § 206.57.

to qualify as an Eligible Non-Borrowing

Spouse, the Non-Borrowing Spouse

must:

(i) Have been the spouse of a HECM

borrower at the time of loan closing and

remained the spouse of such HECM

borrower for the duration of the HECM

borrower’s lifetime;

(ii) Have been properly disclosed to

the mortgagee at origination and

specifically named as an Eligible Non-

Borrowing Spouse in the HECM

mortgage and loan documents;

(iii) Have occupied, and continue to

occupy, the property securing the

HECM as his or her principal residence;

and

(iv) Meet any other requirements as

the Commissioner may prescribe by

Federal Register notice for comment.

(2) A Non-Borrowing Spouse who

meets the Qualifying Attributes in

paragraph (c)(1) of this section at

origination is an Eligible Non-Borrowing

Spouse and may not elect to be

ineligible for the Deferral Period. A

Non-Borrowing Spouse that is ineligible

for the Deferral Period at the time of

loan origination because he or she failed

to satisfy the Qualifying Attributes

requirements in paragraph (c)(1) of this

section is not subsequently eligible for

a Deferral Period when the borrowing

spouse dies or moves out of the home.

(3) An Eligible Non-Borrowing Spouse

shall become an Ineligible Non-

Borrowing Spouse should any of the

Qualifying Attributes requirements in

paragraph (c)(1) of this section cease to

be met.

(d) Additional requirements for

Deferral Period. An Eligible Non-

Borrowing Spouse must satisfy and

continue to satisfy the following

requirements:

(1) Within 90 days from the death of

the last surviving HECM borrower,

establish legal ownership or other

ongoing legal right to remain for life in

the property securing the HECM;

(2) After the death of the last

surviving borrower, ensure all other

obligations of the HECM borrower(s)

contained in the loan documents

continue to be satisfied; and

(3) After the death of the last

surviving borrower, ensure that the

HECM does not become eligible to be

called due and payable for any other

reason.

(e) Unaffected terms of HECM. All

applicable terms and conditions of the

mortgage and loan documents, and all

FHA requirements, continue to apply

and must be satisfied.

(f) Nothing in this section may be

construed as interrupting or interfering

with the ability of the borrower’s estate

or heir(s) to dispose of the property if

they are otherwise legally entitled to do

so.

§ 206.57 Cure provision enabling

reinstatement of Deferral Period.

(a) When the mortgagee is required by

§ 206.55(b)(2) to provide an Eligible

Non-Borrowing Spouse with 30 days to

cure the default, this section shall

apply.

(b) If the default is cured within the

30-day timeframe, the Deferral Period

shall be reinstated, unless:

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(1) The mortgagee has reinstated the

Deferral Period within the past two

years immediately preceding the current

notification to the Eligible Non-

Borrowing Spouse that the mortgage is

due and payable;

(2) The reinstatement of the Deferral

Period will preclude foreclosure if the

mortgage becomes due and payable at a

later date; or

(3) The reinstatement of the Deferral

Period will adversely affect the priority

of the mortgage lien.

the 30-day timeframe, the mortgagee

shall proceed in accordance with the

established timeframes to initiate

foreclosure and reasonable diligence in

prosecuting foreclosure.

(d) Even after a foreclosure

proceeding has been initiated, the

mortgagee shall permit an Eligible Non-

Borrowing Spouse to cure the condition

which resulted in the Deferral Period

ceasing, consistent with § 206.55(b)(2),

and to reinstate the mortgage and

Deferral Period, and the mortgage

insurance shall continue in effect. The

mortgagee may require the Eligible Non-

Borrowing Spouse to pay any costs that

the mortgagee incurred to reinstate the

mortgage, including foreclosure costs

and reasonable attorney’s fees. Such

costs may not be added to the

outstanding loan balance and shall be

paid from some other source of funds.

The mortgagee shall reinstate the

Deferral Period unless:

(1) The mortgagee has reinstated the

Deferral Period within the past two

years immediately preceding the latest

notification to the Eligible Non-

Borrowing Spouse that the mortgage is

due and payable;

(2) The reinstatement of the Deferral

Period will preclude foreclosure if the

mortgage becomes due and payable at a

later date; or

(3) The reinstatement of the Deferral

Period will adversely affect the priority

of the mortgage lien.

§ 206.59 Obligations of mortgagee.

(a) Certifications and disclosures at

closing. At closing, the mortgagee shall

obtain the appropriate certification from

each borrower identified as married as

well as from each identified Non-

Borrowing Spouse. When a HECM

borrower has identified an Ineligible

Non-Borrowing Spouse, the mortgagee

shall also disclose the amount of

mortgage proceeds that would have

been available under the HECM if he or

she were an Eligible Non-Borrowing

Spouse.

(b) Divorce. In the event of a divorce

between the HECM borrower and

Eligible Non-Borrowing Spouse, a

mortgagee shall obtain a copy of the

final divorce decree and shall not

require the now Ineligible Non-

Borrowing Spouse to fulfill any further

requirements.

of being notified of the death of the

borrower, the mortgagee shall:

(1) Obtain all certifications, as

required by the Commissioner, from the

Eligible Non-Borrowing Spouse, and

continue to obtain the required

certifications no less than annually

thereafter for the duration of the

Deferral Period; and

(2) Notify any Eligible Non-Borrowing

Spouse that the due and payable status

of the loan is in a Deferral Period only

for the amount of time that such Eligible

Non-Borrowing Spouse continues to

meet all requirements established by the

Commissioner.

(d) Non-compliance with

requirements. If the Eligible Non-

Borrowing Spouse ceases to meet any

requirements established by the

Commissioner, the mortgagee shall

notify the Eligible Non-Borrowing

Spouse within 30 days that the Deferral

Period has ended and the HECM is

immediately due and payable, unless

the Deferral Period is reinstated in

accordance with § 206.57. The

mortgagee shall obtain documentation

validating the reason for the cessation of

the Deferral Period and, if applicable,

the reason for reinstatement of the

Deferral Period.

§ 206.61 HECM proceeds during a Deferral

Period.

(a) The HECM is not assumable.

HECM proceeds may not be disbursed to

any party during a Deferral Period,

except as determined by the

Commissioner through notice.

(b) If a Repair Set Aside was

established as a condition of the HECM,

funds may be disbursed from the Repair

Set Aside during a Deferral Period for

the sole purpose of paying the cost of

those repairs that were specifically

identified prior to origination as

necessary to the insurance of the HECM.

Repairs under this paragraph shall only

be paid for using funds from the Repair

Set Aside if the repairs are satisfactorily

completed during the time period

established in the Repair Rider or such

additional time as provided by the

Commissioner. Unused funds remaining

beyond the established time period shall

not be disbursed.

Subpart C—Contract Rights and

Obligations

Sale, Assignment and Pledge

§ 206.101 Sale, assignment and pledge of

insured mortgages.

(a) Sale of interests in insured

mortgages. No mortgagee may sell or

otherwise dispose of any mortgage

insured under this part, or group of

mortgages insured under this part, or

any partial interest in such mortgage or

mortgages by means of any agreement,

arrangement or device except pursuant

to this subpart.

(b) Sale of insured mortgage to

approved mortgagee. A mortgage

insured under this part may be sold to

another approved mortgagee. The seller

shall notify the Commissioner of the

sale within 15 calendar days, on a form

prescribed by the Commissioner and

acknowledged by the buyer.

When a mortgage insured under this

part is sold to another approved

mortgagee, the buyer shall thereupon

succeed to all the rights and become

bound by all the obligations of the seller

under the contract of insurance and the

seller shall be released from its

obligations under the contract, provided

that the seller shall not be relieved of its

obligation to pay mortgage insurance

premiums until the notice required by

§ 206.101(b) is received by the

Commissioner.

(d) Assignments, pledges and

transfers by approved mortgagee. (1) An

assignment, pledge, or transfer of a

mortgage or group of mortgages insured

under this part, not constituting a final

sale, may be made by an approved

mortgagee to another approved

mortgagee provided the following

requirements are met:

(i) The assignor, pledgor or transferor

shall remain the mortgagee of record.

(ii) The Commissioner shall have no

obligation to recognize or deal with any

party other than the mortgagee of record

with respect to the rights, benefits and

obligations of the mortgagee under the

contract of insurance.

(2) An assignment or transfer of an

insured mortgage or group of insured

mortgages may be made by an approved

mortgagee to other than an approved

mortgagee provided the requirements

under paragraphs (d)(1)(i) and (d)(1)(ii)

of this section are met and the following

additional requirements are met:

(i) The assignee or transferee shall be

a corporation, trust or organization

(including but not limited to any

pension trust or profit-sharing plan)

which certifies to the approved

mortgagee that:

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(A) It has assets of $100,000 or more;

and

(B) It has lawful authority to hold an

insured mortgage or group of insured

mortgages.

(ii) The assignment or transfer shall be

made pursuant to an agreement under

which the transferor or assignor is

obligated to take one of the following

alternate courses of action within 1 year

from the date of the assignment or

within such additional period of time as

may be approved by the Commissioner:

(A) The transferor or assignor shall

repurchase and accept a reassignment of

such mortgage or group of mortgages.

(B) The transferor or assignor shall

obtain a sale and transfer of such

mortgage or group of mortgages to an

approved mortgagee.

(3) Notice to or approval of the

Commissioner is not required in

connection with assignments, pledges or

transfers pursuant to this section.

(e) Declaration of trust. A sale of a

beneficial interest in a group of

mortgages insured under this part,

where the interest to be acquired is

related to all of the mortgages as an

entirety, rather than an interest in a

specific mortgage, shall be made only

pursuant to a declaration of trust, which

has been approved by the Commissioner

prior to any such sale.

(f) Transfers of partial interests. A

partial interest in a mortgage insured

under this part may be transferred under

a participation agreement without

obtaining the approval of the

Commissioner, if the following

conditions are met:

(1) Principal mortgagee. The insured

mortgage shall be held by an approved

mortgagee which, for the purposes of

this section, shall be referred to as the

principal mortgagee.

(2) Interest of principal mortgagee.

The principal mortgagee shall retain and

hold for its own account a financial

interest in the insured mortgage.

(3) Qualification for holding partial

interest. A partial interest in an insured

mortgage shall be issued to and held

only by:

(i) A mortgagee approved by the

Commissioner; or

(ii) A corporation, trust or

organization (including, but not limited

to any pension fund, pension trust, or

profit-sharing plan) which certifies to

the principal mortgagee that:

(A) It has assets of $100,000 or more;

and

(B) It has lawful authority to acquire

a partial interest in an insured mortgage.

(4) Participation agreement

provisions. The participation agreement

shall include provisions that:

(i) The principal mortgagee shall

retain title to the mortgage and remain

the mortgagee of record under the

contract of mortgage insurance.

(ii) The Commissioner shall have no

obligation to recognize or deal with

anyone other than the principal

mortgagee with respect to the rights,

benefits and obligations of the

mortgagee under the contract of

insurance.

(iii) The mortgage and loan

documents shall remain in the custody

of the principal mortgagee.

(iv) The responsibility for servicing

the insured mortgages shall remain with

the principal mortgagee.

§ 206.102 Insurance Funds.

Loans endorsed for insurance under

this part, prior to October 1, 2008, shall

be obligations of the General Insurance

Fund. Loans endorsed for insurance

under this part, on or after October 1,

2008, shall be obligations of the MMIF.

Mortgage Insurance Premiums

§ 206.103 Payment of MIP.

(a) The payment of any MIP due

under this subpart shall be made to the

Commissioner by the mortgagee in cash

until an event described in paragraph

(b) or (c) of this section occurs.

(b) Payment of the mortgage. The MIP

shall no longer be remitted if the

mortgage is paid in full.

mortgagee or a party other than the

mortgagee acquires title at a foreclosure

sale, or the mortgagee acquires title by

a deed in lieu of foreclosure, and the

mortgagee notifies the Commissioner

that a claim for the payment of the

insurance benefits will not be presented,

the MIP shall no longer be remitted.

(2) If the mortgagee or a party other

than the mortgagee acquires title at a

foreclosure sale or the mortgagee

acquires title by a deed in lieu of

foreclosure, or where the property is

sold in accordance with § 206.125(c),

and a claim for the payment of the

insurance benefits will be presented, the

MIP shall no longer be remitted as of the

date of the foreclosure sale, the date the

deed in lieu of foreclosure is recorded,

or the date in which the sale in

accordance with § 206.125(c) is

completed, as applicable.

§ 206.105 Amount of MIP.

(a) Initial MIP. The mortgagee shall

pay to the Commissioner an initial MIP

that does not exceed three percent of the

maximum claim amount.

(b) Monthly MIP. The Commissioner

may establish and collect a monthly

MIP, which will accrue daily from the

closing date, at a rate not to exceed 1.50

percent of the remaining insured

principal balance, or up to 1.55 percent

for any mortgage involving an original

principal obligation that is greater than

95 percent of appraised value of the

property. A mortgagee may only add the

monthly MIP to the loan balance when

paid to the Commissioner.

mortgagee shall calculate the initial MIP

based on the amount of funds the

borrower has elected to be made

available during the First 12-Month

Disbursement Period, except that the

calculation shall not include any funds

set aside in the Servicing Fee Set Aside,

if applicable. The initial MIP calculation

shall be determined based on the sum

of the following amounts:

(1) For adjustable interest rate

HECMs, the amount of Mandatory

Obligations, the amount disbursed to

the borrower at loan closing, and the

amount of the available Initial

Disbursement Limit not taken by the

borrower at loan closing that the

borrower selects to remain available

during the First 12-Month Disbursement

Period.

(2) For fixed interest rate HECMs, the

amount of Mandatory Obligations and

the amount disbursed to the borrower at

loan closing.

(d) Adjustments to initial or monthly

MIP. The Commissioner may adjust the

amount of any initial or monthly MIP

through notice. Such notice shall

establish the effective date of any

premium adjustment therein.

§ 206.107 Mortgagee election of

assignment or shared premium option.

(a) Election of option. Before the

mortgage is submitted for insurance

endorsement, the mortgagee shall elect

either the assignment option or the

shared premium option.

(1) Under the assignment option, the

mortgagee shall have the option of

assigning the mortgage to the

Commissioner if the outstanding loan

balance is equal to or greater than 98

percent of the maximum claim amount,

regardless of the deferral status, or the

borrower has requested a payment

which exceeds the difference between

the maximum claim amount and the

outstanding loan balance and:

(i) The mortgagee is current in making

the required payments under the

mortgage to the borrower;

(ii) The mortgagee is current in its

payment of the MIP (and late charges

and interest on the MIP, if any) to the

Commissioner;

(iii) The mortgage is not due and

payable under § 206.27(c)(1), or, if due

and payable under § 206.27(c)(1), its due

and payable status has been deferred

pursuant to a Deferral Period;

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(iv) An event described in

§ 206.27(c)(2) has not occurred, or the

Commissioner has been so informed but

has denied approval for the mortgage to

be due and payable. At the mortgagee’s

option, the mortgagee may forgo

assignment of the mortgage and file a

claim under any of the circumstances

described in § 206.123(a)(3)–(5); and

(v) The mortgage is a first lien of

record and title to the property securing

the mortgage is good and marketable.

The provisions of § 206.136 pertaining

to mortgagee certifications also apply.

(2) Under the shared premium option,

the mortgagee may not assign a

mortgage to the Commissioner unless

the mortgagee fails to make payments

and the Commissioner demands

assignment (§ 206.123(a)(2)), but the

mortgagee shall only be required to

remit a reduced monthly MIP to the

Commissioner. The mortgagee shall

collect from the borrower the full

amount of the monthly MIP provided in

§ 206.105(b) but shall retain a portion of

the monthly MIP paid by the borrower

as compensation for the default risk

assumed by the mortgagee. The portion

of the MIP to be retained by a mortgagee

shall be determined by the

Commissioner as calculated in

§ 206.109. For a particular mortgage, the

applicable portion shall be determined

as of the date of the commitment. The

mortgagee retains the right to file a

claim under any of the circumstances

described in § 206.123(a)(2)–(5).

(b) No election for shared

appreciation. Shared appreciation

mortgages shall be insured by the

Commissioner only under the shared

premium option.

§ 206.109 Amount of mortgagee share of

premium.

Using the factors provided by the

Commissioner, the amount of the

mortgagee share of the premium shall be

determined for each mortgage based

upon the age of the youngest borrower

or Eligible Non-Borrowing Spouse and

the expected average mortgage interest

rate.

§ 206.111 Due date of MIP.

(a) Initial MIP. The mortgagee shall

pay the initial MIP to the Commissioner

within fifteen days of closing and as a

condition to the endorsement of the

mortgage for insurance.

(b) Monthly MIP. Each monthly MIP

shall be due to the Commissioner on the

first business day of each month except

the month in which the mortgage is

closed.

§ 206.113 Late charge and interest.

(a) Late charge. Initial MIP remitted to

the Commissioner more than 5 days

after the payment date in § 206.111(a)

and monthly MIP remitted to the

Commissioner more than 5 days after

the payment date in § 206.111(b) shall

include a late charge of four percent of

the amount owed.

(b) Interest. In addition to any late

charge provided in paragraph (a) of this

section, the mortgagee shall pay interest

on any initial MIP remitted to the

Commissioner more than 20 days after

closing, and interest on any monthly

MIP remitted to the Commissioner more

than 5 days after the payment date

prescribed in § 206.111(b). Such interest

rate shall be paid at a rate set in

conformity with the Treasury Financial

Manual.

and interest owed may not be added to

the outstanding loan balance and must

be paid by the mortgagee.

§ 206.115 Insurance of mortgage.

(a) Mortgages with firm commitments.

For applications for insurance involving

mortgages not eligible to be originated

under the Direct Endorsement program

under § 203.5 (any reference to

§ 203.255 in § 203.5 shall mean

§ 206.115 for purposes of this section),

the Commissioner will endorse the

mortgage for insurance by issuing a

Mortgage Insurance Certificate.

(b) Endorsement with Direct

Endorsement processing. For

applications for insurance involving

mortgages originated under the Direct

Endorsement program under § 203.5

(any reference to § 203.255 in § 203.5

shall mean § 206.115 for purposes of

this section), the mortgagee shall submit

to the Commissioner, within 60 days

after the date of closing of the loan or

such additional time as permitted by the

Commissioner, properly completed

documentation and certifications as

listed in this paragraph (b):

(1) Property appraisal upon a form

meeting the requirements of the

Commissioner (including, if required,

any additional documentation

supporting the appraised value of the

property under § 206.52), and a HUD

conditional commitment, or a Lender’s

Notice of Value issued by the Lender

Appraisal Processing Program (LAPP)

approved lender when the appraisal was

originally completed for use in a VA

application, but only if the appraiser

was also on the FHA roster as of the

effective date of the appraisal, and all

accompanying documents required by

the Commissioner;

(2) An application for insurance of the

mortgage in a form prescribed by the

Commissioner;

(3) A certified copy of the mortgage

and loan documents executed upon

forms which meet the requirements of

the Commissioner;

(4) An underwriter certification, on a

form prescribed by the Commissioner,

stating that the underwriter has

personally reviewed the appraisal report

and credit application (including the

analysis performed on the worksheets)

and that the proposed mortgage

complies with FHA underwriting

requirements, and incorporates each of

the underwriter certification items that

apply to the mortgage submitted for

endorsement, as set forth in the

applicable handbook or similar

publication that is distributed to all

Direct Endorsement mortgagees, except

that if FHA makes the TOTAL Mortgage

Scorecard available to HECM

mortgagees by setting out requirements

applicable for the use of the TOTAL

Mortgage Scorecard in a Federal

may follow such procedures and meet

such requirements in lieu of providing

the underwriter certification;

(5) Where applicable, a certificate

under oath and contract regarding use of

the dwelling for transient or hotel

purposes;

(6) Where an individual water or

sewer system is being used, an approval

letter from the local health authority

indicating approval of the system in

accordance with § 200.926d(f);

(7) A mortgage certification on a form

prescribed by the Commissioner, stating

that the authorized representative of the

mortgagee who is making the

certification has personally reviewed

the mortgage documents and the

application for insurance endorsement,

and certifying that the mortgage

complies with the requirements of

paragraph (b) of this section. The

certification shall incorporate each of

the mortgagee certification items that

apply to the mortgage loan submitted for

endorsement, as set forth in the

applicable handbook or similar

publication that is distributed to all

Direct Endorsement mortgagees;

(8) Documents required by § 206.15;

(9) Documentation providing that the

seller is the owner of record in

accordance with § 206.52(a) and the

time restriction requirements of

§ 206.52(b) are met;

(10) For HECM for Purchase

transactions, a Certificate of Occupancy,

or its equivalent, if required for new

construction; and

(11) Such other documents as the

Commissioner may require.

Endorsement. (1) Upon submission by

an approved mortgagee of the

documents required by paragraph (b) of

this section, the Commissioner will

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review the documents and determine

that:

(i) The mortgage is executed on a form

which meets the requirements of the

Commissioner;

(ii) The mortgage maturity meets the

requirements of the applicable program;

(iii) The stated mortgage amount does

not exceed 150 percent of the maximum

claim amount;

(iv) All documents required by

paragraph (b) of this section are

submitted;

(v) All necessary certifications are

made in accordance with paragraph (b)

of this section;

(vi) There is no mortgage insurance

premium, late charge or interest due to

the Commissioner; and

(vii) The mortgage was not in default

when submitted for insurance or, if

submitted for insurance more than 60

days after closing, the mortgagee

certifies that the borrower is current in

paying all property charges or is

otherwise in compliance with all the

terms and conditions of the mortgage

documents.

(2) The Commissioner is authorized to

determine if there is any information

indicating that any certification or

required document is false, misleading,

or constitutes fraud or

misrepresentation on the part of any

party, or that the mortgage fails to meet

a statutory or regulatory requirement. If,

following this review, the mortgage is

determined to be eligible, the

Commissioner will endorse the

mortgage for insurance by issuance of a

Mortgage Insurance Certificate. If the

mortgage is determined to be ineligible,

the Commissioner will inform the

mortgagee in writing of this

determination, and include the reasons

for the determination and any corrective

actions that may be taken.

(d) Submission by mortgagee other

than originating mortgagee. If the

originating mortgagee assigns the

mortgage to another approved mortgagee

before pre-endorsement review under

paragraph (c) of this section, the

assignee may submit the required

documents for pre-endorsement review

in the name of the originating

mortgagee. All certifications must be

executed by the originating mortgagee

(or its underwriter, if appropriate). The

purchasing mortgagee may pay any

required mortgage insurance premium,

late charge and interest.

(e) Post-Endorsement review for Direct

Endorsement. Following endorsement

for insurance, the Commissioner may

review all documents required by

paragraph (b) of this section. If,

following this review, the Commissioner

determines that the mortgage does not

satisfy the requirements of the Direct

Endorsement program, the

Commissioner may place the mortgagee

on Direct Endorsement probation, or

terminate the authority of the mortgagee

to participate in the Direct Endorsement

program pursuant to § 206.15, or refer

the matter to the Mortgagee Review

Board for action pursuant to part 25 of

this title.

(f) Creation of the contract. The

mortgage shall be an insured mortgage

from the date of the issuance of a

Mortgage Insurance Certificate, from the

date of the endorsement of the credit

instrument, or from the date of FHA’s

electronic acknowledgement to the

mortgagee that the mortgage is insured,

as applicable. The Commissioner and

the mortgagee are thereafter bound by

the regulations in this subpart with the

same force and to the same extent as if

a separate contract had been executed

relating to the insured mortgage,

including the provisions of the

regulations in this subpart and of the

National Housing Act.

§ 206.116 Refunds.

No amount of the initial MIP shall be

refundable except as authorized by the

Commissioner.

HUD Responsibility to Borrowers

§ 206.117 General.

The Commissioner is required by

statute to take any action necessary to

provide a borrower with funds to which

the borrower is entitled under the

mortgage and which the borrower does

not receive because of the default of the

mortgagee. The Commissioner may hold

a second mortgage to secure repayment

by the borrower under § 206.27(d).

Where the Commissioner does not hold

a second mortgage, but makes a

payment to the borrower, and such

payment is not reimbursed by the

mortgagee, the Commissioner shall

accept assignment of the first mortgage.

§ 206.119 [Reserved]

§ 206.121 Commissioner authorized to

make payments.

(a) Investigation. The Commissioner

will investigate all complaints by a

borrower concerning late payments. If

the Commissioner determines that the

mortgagee is unable or unwilling to

make all payments required under the

mortgage, including late charges, the

Commissioner shall pay such payments

and late charges to the borrower.

(b) Reimbursement or assignment.

The Commissioner may demand that

within 30 days from the demand, the

mortgagee reimburse the Commissioner,

with interest from the date of payment

by the Commissioner, or assign the

insured mortgage to the Commissioner.

Interest shall be paid at a rate set in

conformity with the Treasury Financial

Manual. If the mortgagee complies with

the reimbursement demand, then the

contract of insurance shall not be

affected. If the mortgagee complies by

assigning the mortgage for record within

30 days of the demand, then the

Commissioner shall pay an insurance

claim as provided in § 206.129(e)(3) and

assume all responsibilities of the

mortgagee under the first mortgage. If

the mortgagee fails to comply with the

demand within 30 days, the contract of

insurance will terminate as provided in

§ 206.133(c).

insurance is terminated as provided in

§ 206.133(c), all payments to the

borrower by the Commissioner will be

secured by the second mortgage, unless

otherwise provided by the

Commissioner. Payments will be due

and payable in the same manner as

under the insured first mortgage. The

liability of the borrower under the first

mortgage shall be limited to payments

actually made by the mortgagee to or on

behalf of the borrower (including prior

recoupment of the MIP remitted by the

mortgagee and billed to the borrower),

and shall exclude accrued interest,

whether or not it has been included in

the outstanding loan balance, and

shared appreciation, if any. Interest will

stop accruing on the first mortgage

when the Commissioner begins to make

payments under the second mortgage.

The first mortgage will not be due and

payable until the second mortgage is

due and payable.

Claim Procedure

§ 206.123 Claim procedures in general.

(a) Claims. Mortgagees may submit

claims for the payment of the mortgage

insurance benefits if:

(1) The conditions of § 206.107(a)(1)

pertaining to the optional assignment of

the mortgage by the mortgagee have

been met and the mortgagee assigns the

mortgage to the Commissioner;

(2) The mortgagee is unable or

unwilling to make the payments under

the mortgage and assigns the mortgage

to the Commissioner pursuant to the

Commissioner’s demand, as provided in

§ 206.121(b);

(3) The borrower or other permissible

party sells the property for less than the

outstanding loan balance and the

mortgagee releases the mortgage of

record to facilitate the sale, as provided

in § 206.125(c);

(4) The mortgagee acquires title to the

property by foreclosure or a deed in lieu

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of foreclosure and sells the property as

provided in § 206.125(g) for an amount

which does not satisfy the outstanding

loan balance or fails to sell the property

as provided in § 206.127(a)(2); or

(5) The mortgagee forecloses and a

bidder other than the mortgagee

purchases the property for an amount

that is not sufficient to satisfy the

outstanding loan balance, as provided in

§ 206.125(e).

(b) [Reserved]

§ 206.125 Acquisition and sale of the

property.

(a) Initial action by the mortgagee. (1)

The mortgagee shall notify the

Commissioner within 60 days of the

mortgage becoming due and payable

when the conditions stated in the

mortgage, as required by § 206.27(c)(1)

have occurred or when the Deferral

Period ends. The mortgagee shall notify

the Commissioner within 30 days when

one of the conditions stated in the

mortgage, as required by § 206.27(c)(2),

has occurred.

(2) After notifying and receiving

approval of the Commissioner when

needed, the mortgagee shall notify the

borrower, Eligible Non-Borrowing

Spouse, borrower’s estate, and

borrower’s heir(s), as applicable, within

30 days of the later of notifying the

Commissioner or receiving approval, if

needed, that the mortgage is due and

payable. The mortgagee shall give the

applicable party 30 days from the date

of notice to engage in the following

actions:

(i) Pay the outstanding loan balance,

including any accrued interest, MIP,

and mortgagee advances in full;

(ii) Sell the property for an amount

not to be less than the amount

determined by the Commissioner

through notice, which shall not exceed

95 percent of the appraised value as

determined under § 206.125(b), with the

net proceeds of the sale to be applied

towards the outstanding loan balance.

Closing costs shall not exceed the

greater of: 11 percent of the sales price;

or a fixed dollar amount as determined

by the Commissioner through Federal

section, sell includes the transfer of title

by operation of law;

(iii) Provide the mortgagee with a

deed in lieu of foreclosure;

(iv) Correct the condition which

resulted in the mortgage coming due

and payable for reasons other than the

death of the last surviving borrower;

(v) For an Eligible Non-Borrowing

Spouse, correct the condition which

resulted in an end to the Deferral Period

in accordance with § 206.57; or

(vi) Such other actions as permitted

by the Commissioner through notice.

(3) For a borrower, even after a

foreclosure proceeding is begun, the

mortgagee shall permit the borrower to

correct the condition which resulted in

the mortgage coming due and payable

and to reinstate the mortgage, and the

mortgage insurance shall continue in

effect. The mortgagee may require the

borrower to pay any costs that the

mortgagee incurred to reinstate the

borrower, including foreclosure costs

and reasonable attorney’s fees. Such

costs shall be paid by adding them to

the outstanding loan balance. The

mortgagee may refuse reinstatement by

the borrower if:

(i) The mortgagee has accepted

reinstatement of the mortgage within the

past two years immediately preceding

the current notification to the borrower

that the mortgage is due and payable;

(ii) Reinstatement will preclude

foreclosure if the mortgage becomes due

and payable at a later date; or

(iii) Reinstatement will adversely

affect the priority of the mortgage lien.

(4) For an Eligible Non-Borrowing

Spouse, even after a foreclosure

proceeding is begun, the mortgagee shall

permit the Eligible Non-Borrowing

Spouse to cure the condition which

resulted in the Deferral Period ceasing,

in accordance with § 206.57(d).

(b) Appraisal. The mortgagee shall

have the property appraised by an

appraiser on the FHA roster, or other

appraiser acceptable to, and identified

by, the Commissioner through Federal

after receipt of the request by an

applicable party in connection with a

potential property sale. The property

shall be appraised before a foreclosure

sale and have an effective appraisal date

that is no more than 30 days before such

sale. The appraisal shall be at the

requesting party’s expense unless the

mortgage is due and payable. If the

mortgage is due and payable, the

appraisal shall be at the mortgagee’s

expense but the mortgagee shall have a

right to be reimbursed out of the

proceeds of any sale by the borrower or

other permissible party. The

Commissioner may, through Federal

acceptable types of valuation for

establishing the value of HECMs for the

purpose of sale.

permissible party. Where the HECM is

not due and payable, the borrower or an

authorized representative of the

borrower may sell the property for at

least the lesser of the outstanding loan

balance or the appraised value. Where

the HECM is due and payable at the

time the contract for sale is executed,

the borrower or other party with legal

right to dispose of the property may sell

the property in accordance with the

amount established by

§ 206.125(a)(2)(ii). The mortgagee shall

satisfy the mortgage of record (and the

Commissioner will satisfy any second

mortgage required by the Commissioner

under § 206.27(d) of record) in order to

facilitate the sale, provided that there

are no junior liens (except the mortgage

to secure payments by the

Commissioner if required under

§ 206.27(d)) and all the net proceeds

from the sale are paid to the mortgagee.

(d) Initiation of foreclosure. (1) The

mortgagee shall commence foreclosure

of the mortgage within six months of the

due date defined in § 206.129(d)(1), or

within such additional time as may be

approved by the Commissioner.

(2) If the laws of the State, city, or

municipality or other political

subdivision in which the mortgaged

property is located or if Federal

bankruptcy law does not permit the

commencement of the foreclosure in

accordance with § 206.125(d)(1), the

mortgagee shall commence foreclosure

within six months after the expiration of

the time during which such foreclosure

is prohibited by such laws.

(3) The mortgagee shall give written

notice to the Commissioner within 30

days after the initiation of foreclosure

proceedings, and shall exercise

reasonable diligence in prosecuting the

foreclosure proceedings to completion

and in acquiring title to and possession

of the property. A time frame that is

determined by the Commissioner to

constitute ‘‘reasonable diligence’’ for

each State is made available to

mortgagees.

(4) The mortgagee shall bid at the

foreclosure sale an amount at least equal

to the lesser of the sum of the

outstanding loan balance and any and

all other incurred expenses, or the

current appraised value of the property.

Such a bid by any party other than the

mortgagee, for the full loan balance and

all associated expenses, will result in a

full payoff of the loan and no claim for

insurance benefits being presented to

FHA.

(e) Other bidders at foreclosure sale.

If a party other than the mortgagee is the

successful bidder at the foreclosure sale,

the net proceeds of the sale shall be

applied to the outstanding loan balance.

(f) Deed in lieu of foreclosure. (1)(i) In

order to avoid delays and additional

expense as a result of instituting and

completing a foreclosure action, the

mortgagee shall accept a deed in lieu of

foreclosure from the borrower or other

party with legal right to dispose of the

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property provided it is filed for

recording within 9 months of the due

date and the mortgagee is able to obtain

good and marketable title.

(ii) Cash for Keys. The Commissioner

may provide a financial incentive, in an

amount to be determined by the

Commissioner, to be paid by the

mortgagee and reimbursed through any

subsequent claim where a borrower or

other party with a legal right to do so

deeds the property within 6 months of

the due date.

(2) In exchange for the executed and

delivered deed, the mortgagee shall

cancel the credit instrument and deliver

it to the borrower and satisfy the

mortgage of record. If applicable, the

mortgagee shall request that the

Commissioner cancel the credit

instrument and deliver it to the

borrower and satisfy the mortgage of

record.

(g) Sale of the acquired property. (1)

Upon acquisition of the property by

foreclosure or deed in lieu of

foreclosure, the mortgagee shall take

possession of, preserve, and repair the

property and shall make diligent efforts

to sell the property within six months

from the date the mortgagee acquired

the property, or such additional time as

provided by the Commissioner. The

mortgagee shall sell the property for an

amount not less than the appraised

value (as provided under paragraph (b)

of this section) unless the mortgagee

does not file an application for

insurance benefits or written permission

is obtained from the Commissioner

authorizing a sale at a lower price.

(2) Repairs shall not exceed those

required by local law, or the

requirements of the Commissioner or

the Secretary of Veterans Affairs if the

sale of the property is financed with a

mortgage insured by the Commissioner

or guaranteed, insured, or taken by the

Secretary of Veterans Affairs. No other

repairs shall be made without the

specific advance approval of the

Commissioner.

(3) The mortgagee shall not enter into

a contract for the preservation, repair, or

sale of the property with any officer,

employee, or owner of ten percent or

more interest in the mortgagee or with

any other person or organization having

an identity of interest with the

mortgagee or with any relative of such

officer, employee, owner, or person.

(4) The Commissioner may provide

financial incentive, in an amount to be

determined by the Commissioner, to be

paid by the mortgagee and reimbursed

through a subsequent claim when a

bona fide tenant vacates the property

prior to an eviction being initiated by

the mortgagee.

§ 206.127 Application for insurance

benefits.

(a) Mortgagee acquires title. (1) The

mortgagee shall apply for the payment

of the insurance benefits within 30 days

after the sale of the property by the

mortgagee or within such additional

time as approved by the Commissioner.

Application shall be made by notifying

the Commissioner of the sale of the

property, the sale price, and income and

expenses incurred in connection with

the acquisition, repair, and sale of the

property.

(2) If the property will not be sold

within six months from the foreclosure

sale date where the mortgagee is the

successful bidder, the mortgagee shall

apply for the insurance benefit not later

than 30 days after the end of the six-

month period, substituting the

appraised value, using a valid appraisal,

for the sale price. The mortgagee may

add the cost of the appraisal to the claim

amount.

(b) Party other than the mortgagee

acquires title. The mortgagee shall apply

for the payment of the insurance

benefits within 30 days after a party

other than the mortgagee acquires title

to the property. Application shall be

made by notifying the Commissioner of

the sale of the property and the sale

price. Transferring a portfolio that

includes REO properties to another

entity does not constitute a ‘‘sale’’ under

this section.

The mortgagee shall file its claim for the

payment of insurance benefits within 15

days after the date the assignment of the

mortgage to the Commissioner is filed

for recording. The application for the

payment of the insurance benefits shall

include the items listed in § 206.135(a)

and the certification required under

§ 206.136.

(d) Contract of insurance not

terminated. Mortgagees may only file an

application for insurance benefits

provided the contract of insurance has

not terminated.

§ 206.129 Payment of claim.

(a) General. If the claim for the

payment of the insurance benefits is

acceptable to the Commissioner,

payment shall be made in cash in the

amount determined under this section.

(b) Limit on claim amount. (1) For

HECMs assigned Case Numbers prior to

September 19, 2017, in no case may the

claim paid under this subpart exceed

the maximum claim amount. The

interest allowance provided in

paragraphs (d)(3)(x), (e)(2), and (f)(2)(i)

of this section shall not be included in

determining the limit on the claim

amount.

(2) For HECMs assigned Case

Numbers on or after September 19,

2017, in no case may the claim paid

under this subpart exceed the maximum

claim amount, as defined in § 206.3. The

interest allowance provided in

paragraphs (d)(3)(x), (e)(2) and (f)(2)(ii)

of this section shall be made in cash in

the amount determined under this

section and shall be included in

determining the limit on the claim

amount.

The terms loan balance and accrued

interest as used in this section do not

include interest attributable to the

mortgagee’s share of the appreciated

value of the property.

(d) Amount of payment—mortgagee

acquires title or is unsuccessful bidder.

This paragraph describes the amount of

payment if the mortgagee acquires title

by purchase, foreclosure, or deed in lieu

of foreclosure, or when a party other

than the mortgagee is the successful

bidder at the foreclosure sale.

(1) Due and payable date means the

date when the mortgagee notifies or

should have notified the Commissioner

that the mortgage is due and payable

under the conditions stated in the

mortgage, as required by § 206.27(c)(1)

or the date that the Deferral Period, as

provided for in the mortgage by

§ 206.27(c)(3), ends; or the date the

Commissioner approved a due and

payable request as provided for in the

mortgage by § 206.27(c)(2).

(2) The amount of the claim shall be

computed by:

(i) Totaling the outstanding loan

balance and any accrued interest and

servicing fees which have not been

added to the outstanding loan balance

as of the due and payable date, and

allowances for items set forth in

paragraph (d)(3) of this section; and

(ii) Subtracting from that total the

amount for which the property was sold

(or the appraised value determined

under § 206.127(a)(2)) and the items set

forth in paragraph (d)(4) of this section.

(3) The claim shall include items

listed in paragraphs (d)(3)(i) through

(xiv) of this section. For HECMs with

Case Numbers assigned on or after

September 19, 2017, the inclusion of

items listed in paragraphs (d)(3)(i), (ii),

and (iii) of this section shall be limited

to two-thirds of advances made by the

mortgagee on such expenses.

(i) Taxes, ground rents, water rates,

and utility charges that are liens prior to

the mortgage;

(ii) Special assessments, which are

noted on the application for insurance

or which become liens after the

insurance of the mortgage;

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(iii) Hazard and flood insurance

premiums on the mortgaged property

not in excess of a reasonable rate;

(A) For purposes of this section,

reasonable rate means a rate that is not

in excess of the rate or advisory rate set

by the principal State-licensed rating

organization for essential property

insurance in the voluntary market, or if

coverage is available under a FAIR Plan,

the FAIR Plan rate;

(B) If a State has neither a FAIR Plan

nor a State-licensed rating organization

for essential property insurance in the

voluntary market, the mortgagee must

provide to the Home Ownership Center

(HOC) having jurisdiction, information

concerning the lowest rates available

from an insurer for the types of coverage

involved, with a request for a

determination of whether the rate is

reasonable. FHA will determine the rate

to be reasonable if it approximates the

rate assessed for comparable insurance

coverage applicable to similarly situated

properties in a State that offers a FAIR

Plan or maintains a State-licensed rating

organization;

(iv) Taxes imposed upon any deeds or

other instruments by which said

property was acquired by the mortgagee

pursuant to § 206.125;

(v) Reasonable payments made by the

mortgagee, with the approval of the

Commissioner, for the purpose of

protecting, operating, or preserving the

property, or removing debris from the

property;

(vi) Reasonable costs for performing

property inspections required by

§ 206.140 and to determine if the

property is vacant or abandoned are

considered to be costs of protecting,

operating or preserving the property;

(vii) Charges for the administration,

operation, maintenance, or repair of

community-owned property or the

maintenance or repair of the mortgaged

property, paid by the mortgagee for the

purpose of discharging an obligation

arising out of a covenant filed for record

prior to the issuance of the mortgage;

and charges for the repair or

maintenance of the mortgaged property

required by, and in an amount approved

by, the Commissioner under § 206.142;

(viii) Reasonable costs of the title

search ordered by the mortgagee, in

accordance with procedures prescribed

by FHA, to determine if the criteria for

approval of the mortgagee’s acceptance

of a deed in lieu of foreclosure or to

determine clear title to complete a pre-

foreclosure sale;

(ix) Foreclosure costs or costs of

acquiring the property in accordance

with such conditions as the

Commissioner shall prescribe;

(x) An amount equal to the interest

allowance which would have been

earned, from the due and payable date

to the date when payment of the claim

is made, if the claim had been paid in

debentures, except that when the

mortgagee fails to meet any one of the

applicable requirements of §§ 206.125

and 206.127 of this subpart within the

specified time, and in a manner

satisfactory to the Commissioner (or

within such further time as the

Commissioner may approve in writing),

the interest allowance in such cash

payment shall be computed only to the

date on which the particular required

action should have been taken or to

which it was extended.

(A) Debenture interest rate. The

debenture interest rate provided for in

§ 206.146 shall be used.

(B) Maturity of debentures.

Debentures shall mature 20 years from

the date of issue.

Debentures shall be registered as to

principal and interest.

(D) Form and amounts of debentures.

Debentures issued under this part shall

be in such form and amounts; and shall

be subject to such terms and conditions;

and shall include such provisions for

redemption, if any, as may be prescribed

by the Commissioner, with the approval

of the Secretary of the Treasury; and

may be in book entry or certificated

registered form, or such other form as

the Commissioner by regulation may

prescribe.

(E) Redemption of debentures.

Debentures shall, at the option of the

Commissioner and with the approval of

the Secretary of the Treasury, be

redeemable at par plus accrued interest

on any semiannual interest payment

date on three months’ notice of

redemption given in such manner as the

Commissioner shall prescribe. The

debenture interest on the debentures

called for redemption shall cease on the

semiannual interest payment date

designated in the call notice. The

Commissioner may include with the

notice of redemption an offer to

purchase the debentures at par plus

accrued interest at any time during the

period between the notice of

redemption and the redemption date. If

the debentures are purchased by the

Commissioner after such call and prior

to the named redemption date, the

debenture interest shall cease on the

date of purchase.

(F) Issue date of debentures. The issue

date of debentures is determined by the

due and payable date as defined in

paragraph (d)(1) of this section.

(G) Cash adjustment. Any difference

of less than $50 between the amount of

debentures to be issued to the mortgagee

and the total amount of the mortgagee’s

claim, as approved by the

Commissioner, may be adjusted by the

issuance of a check in payment thereof;

(xi) Any amount of incentive paid by

the mortgagee in accordance with

§ 206.125(f)(1)(ii) or § 206.125(g)(4);

(xii) Costs of any appraisal under

§§ 206.125 or 206.127, provided that the

property was appraised after the

mortgage became due and payable and

that the mortgagee is not otherwise

reimbursed for such costs;

(xiii) Reasonable payments made by

the mortgagee for:

(A) Preservation and maintenance of

the property;

(B) Repairs necessary to meet the

objectives of the property standards

required for mortgages insured by the

Commissioner, those required by local

law, and such additional repairs as may

be specifically approved in advance by

the Commissioner; and

sale of the property including a sales

commission at the rate customarily paid

in the community and, if the sale to the

buyer involves a mortgage insured by

the Commissioner or guaranteed by the

Secretary of Veterans Affairs, a discount

at a rate not to exceed the maximum

allowable by the Commissioner, as of

the date of execution of the discounted

loan. Closing costs shall not exceed the

greater of: 11 percent of the sales price;

or a fixed dollar amount as determined

by the Commissioner through Federal

(xiv) A certification that the property

is undamaged in accordance with

§ 206.143.

(4) There shall be deducted from the

amount computed in paragraph (d)(2)(i)

of this section:

(i) The items listed in § 206.145; and

(ii) Any adjustment for damage or

neglect to the property pursuant to

§§ 206.140, 206.141, and 206.142.

(e) Amount of payment—assigned

mortgages. This paragraph describes the

amount of payment if the mortgagee

assigns a mortgage to the Commissioner

under § 206.107(a)(1) or § 206.121(b).

(1) When a mortgagee assigns a

mortgage which is eligible for

assignment under § 206.107(a)(1), the

amount of payment shall be computed

by subtracting from the outstanding loan

balance on the date of assignment all

cash retained by the mortgagee,

including amounts held or deposited for

the account of the borrower or to which

it is entitled under the mortgage

transaction that have not been applied

in reduction of the principal mortgage

indebtedness, and any adjustments for

damage or neglect to the property

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pursuant to §§ 206.140, 206.141 and

206.142.

(2) The claim shall also include:

(i) Reimbursement for such costs and

attorney’s fees as the Commissioner

finds were properly incurred in

connection with the assignment of the

mortgage to the Commissioner; and

(ii) An amount equivalent to the

interest allowance which will have been

earned from the date the mortgage was

assigned to the Commissioner to the

date the claim is paid, if the claim had

been paid in debentures, except that if

the mortgagee fails to meet any of the

requirements of § 206.127(c), or

§ 206.131 if applicable, within the

specified time and in a manner

satisfactory to the Commissioner (or

within such further time as the

Commissioner may approve in writing),

the interest allowance in the payment of

the claim shall be computed only to the

date on which the particular required

action should have been taken or to

which it was extended. The provisions

of paragraphs (d)(3)(x)(A)-(G) of this

section pertaining to debentures are

applicable except that the issue date of

the debentures shall be the date the

mortgage was assigned to the

Commissioner.

(3) When a mortgagee assigns a

mortgage under § 206.121(b) after

demand by the Commissioner, the

mortgagee will not receive the entire

claim payment as contained in

paragraphs (e)(1) and (2) of this section.

The amount of the claim shall be

computed by totaling the payments

made by the mortgagee to the borrower

or for the benefit of the borrower, and

subtracting from the total the cash

retained by the mortgagee, including

amounts held or deposited for the

account of the borrower or to which it

is entitled under the mortgage

transaction that have not been applied

in reduction of the principal mortgage

indebtedness, and any adjustments for

damage or neglect to the property

pursuant to §§ 206.141 and 206.142. The

claim shall also be reduced by an

amount determined by the

Commissioner to reimburse the

Commissioner for administrative

expenses incurred in assuming the

mortgagee’s responsibility under the

mortgage, which may include expenses

for staff time. If more than one mortgage

is assigned to the Commissioner, the

administrative expenses incurred for all

the mortgages assigned shall be

allocated among the mortgages as

determined by the Commissioner. The

claim shall not include accrued interest

whether or not it has been included in

the loan balance.

(f) Amount of payment-borrower sells

the property. This paragraph describes

the amount of payment if the property

is sold in accordance with § 206.125(c)

to one other than the mortgagee for less

than the outstanding loan balance, and

the mortgagee releases the mortgage to

facilitate the sale.

(1)(i) For HECMs assigned Case

Numbers prior to September 19, 2017,

the amount of the claim shall be

computed by totaling the outstanding

loan balance and any accrued interest

and servicing fees which have not been

added to the outstanding loan balance

on the date the deed is recorded, and an

allowance for items set forth in

paragraphs (d)(3)(i)—(vii) and (d)(3)(xii)

of this section, and subtracting from the

total the amount for which the property

was sold.

(ii) For HECMs assigned Case

Numbers on or after September 19,

2017, the following provisions apply:

(A) When the loan is not in due and

payable status. The amount of the claim

shall be computed by totaling the

outstanding loan balance and any

accrued interest and servicing fees

which have not been added to the

outstanding loan balance on the date the

deed is recorded, and an allowance for

items set forth in paragraph

(d)(3)(xiii)(C) of this section, and

subtracting from the total the amount for

which the property was sold.

(B) When the loan is in due and

payable status. The amount of the claim

shall be computed by totaling the

outstanding loan balance and any

accrued interest and servicing fees

which have not been added to the

outstanding loan balance as of the due

date, the items set forth in paragraph

(d)(3) of this section, and subtracting

from the total the amount for which the

property was sold.

(2)(i) For HECMs assigned Case

Numbers prior to September 19, 2017,

the claim shall also include an amount

equivalent to the interest allowance

which would have been earned from the

date the deed is recorded to the date

when payment of the claim is made, if

the claim had been paid in debentures,

and in a manner satisfactory to the

Commissioner; the interest allowance in

such cash payment shall be computed

only to the date on which the particular

action should have been taken or to

which it was extended. The provisions

of paragraphs (d)(3)(x)(A)-(G) of this

section pertaining to debentures apply

except that the issue date of the

debentures is the date the deed is

recorded instead of the due date.

(ii) For HECMs assigned Case

Numbers on or after September 19,

2017, the following provisions apply:

(A) When the loan is not in due and

payable status. The claim shall also

include an amount equivalent to the

interest allowance which would have

been earned from the date the deed is

recorded to the date when payment of

the claim is made, if the claim had been

paid in debentures, and in a manner

satisfactory to the Commissioner; the

interest allowance in such cash payment

shall be computed only to the date on

which the particular action should have

been taken or to which it was extended.

The provisions of paragraphs

(d)(3)(x)(A)-(G) of this section pertaining

to debentures apply except that the

issue date of the debentures shall be the

date the deed is recorded.

(B) When the loan is in due and

payable status. The claim shall also

include an amount equivalent to the

interest allowance which would have

been earned from the due and payable

date to the date when payment of the

claim is made, if the claim had been

paid in debentures, except that when

the mortgagee fails to meet any of the

applicable requirements of §§ 206.125

and 206.127 within the specified time

determined by the due and payable

date, as defined in paragraph (d)(1) of

this section (or within such further time

as the Commissioner may approve in

writing), and in a manner satisfactory to

the Commissioner; the interest

allowance in such cash payment shall

be computed only to the date on which

the particular action should have been

taken or to which it was extended. The

provisions of paragraphs (d)(3)(x)(A)-(G)

of this section pertaining to debentures

apply.

Condominiums

§ 206.131 Contract rights and obligations

for mortgages on individual dwelling units

in a condominium.

(a) Additional requirements. The

requirements of this subpart shall be

applicable to mortgages on individual

dwelling units in a condominium,

except as modified by this section.

(b) References. The term property as

used in this subpart shall be construed

to include the individual dwelling unit

and the undivided interest in the

common areas and facilities as may be

designated.

mortgagee assigns the mortgage on the

individual dwelling unit to the

Commissioner, the mortgagee shall

certify:

(1) To any changes in the plan of

apartment ownership including the

administration of the property;

(2) That as of the date the assignment

is filed for record, the family unit is

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assessed and subject to assessment for

taxes pertaining only to that unit; and

(3) To the condition of the property as

of the date the assignment is filed for

record. Section 234.275 of this chapter

concerning the certification of condition

is incorporated by reference.

(d) Condition of the multifamily

structure. The provisions of § 234.270

(a) and (b) of this chapter concerning the

condition of the multifamily structure in

which the property is located shall be

applicable to mortgages insured under

this part which are assigned to the

Commissioner.

Termination of Insurance Contract

§ 206.133 Termination of insurance

contract.

(a) Payment of the mortgage. The

contract of insurance shall be

terminated if the mortgage is paid in

full.

(b) Acquisition of title. (1) If the

mortgagee or a party other than the

mortgagee acquires title at a foreclosure

sale, or the mortgagee acquires title by

a deed in lieu of foreclosure, and the

mortgagee notifies the Commissioner

that a claim for the payment of the

insurance benefits will not be presented,

the contract of insurance shall be

terminated.

(2) For HECMs with Case Numbers

assigned on or after September 19, 2017,

if the mortgagee or a party other than

the mortgagee acquires title at a

foreclosure sale or the mortgagee

acquires title by a deed in lieu of

foreclosure and a claim for the payment

of the insurance benefits will be

presented, the contract of insurance

shall be terminated as of claim payment.

If the mortgagee fails to make the

payments to the borrower as required

under the mortgage, and does not

reimburse the Commissioner or assign

the mortgage to the Commissioner

within 30 days from the demand by the

Commissioner for reimbursement or

assignment, the contract of insurance

shall automatically terminate. The

Commissioner may later reinstate the

contract of insurance, which shall

continue in force as if no termination

had occurred, upon reimbursement with

interest as provided in § 206.121. Upon

reinstatement, the mortgagee shall be

liable for all MIP which would have

been due if no termination had

occurred, including late charge and

interest as provided in § 206.113.

(d) Notice of termination. The

mortgagee shall give written notice to

the Commissioner, or other notice

acceptable to the Commissioner, within

15 days of the occurrence of an event

under paragraphs (a) and (b) of this

section. No contract of insurance shall

be terminated under paragraphs (a) or

(b) of this section unless such notice is

given.

(e) Voluntary termination. The

mortgagor and the mortgagee may

jointly request the Commissioner to

approve the voluntary termination of

the mortgage insurance contract. Prior to

approval, the Commissioner shall make

certain that the borrower is aware of the

consequences which could arise out of

the voluntary termination of the

contract of insurance. The mortgagee

shall cancel the insurance endorsement

on the Mortgage Insurance Certificate or

Note upon receipt of notice from the

Commissioner that the contract of

insurance is terminated.

Notwithstanding any provision in a

mortgage instrument, there shall be no

voluntary termination charge due the

Commissioner on account of the

voluntary termination of any mortgage

insurance contract where the request for

termination is received by the

Commissioner.

(f) Effect of termination. When the

insurance contract is terminated, all

rights of the mortgagee shall terminate,

including the right to file a claim for

insurance benefits. All obligations of the

Commissioner shall also cease

immediately.

Additional Requirements

§ 206.134 Partial release, addition or

substitution of security.

(a) A mortgagee shall not release the

security or any part thereof, while the

mortgage is insured, without the prior

consent of the Commissioner.

(b) A mortgagee may, with the prior

consent of the Commissioner, accept an

addition to, or substitution of, security

for the purpose of removing the

dwelling to a new lot or replacing the

dwelling with a similar or like kind on

the existing lot under the following

conditions:

(1) The mortgagee obtains a good and

valid first lien on the property to which

the dwelling is removed or the existing

lot upon which the dwelling is rebuilt;

(2) All damages to the structure are

repaired or all rebuilding of the

structure is completed without cost to

FHA; and

(3) The property to which the

dwelling is removed or rebuilt is in an

area known to be reasonably free from

natural hazards or, if in a flood zone, the

borrower will insure or reinsure under

the National Flood Insurance Program.

prior consent of the Commissioner,

accept an addition to, or substitution of,

security for the purpose of removing the

dwelling to a new lot under the

following conditions:

(1) The dwelling has survived an

earthquake or other disaster with little

damage, but continued location on the

property might be hazardous;

(2) The conditions stated in paragraph

(b) of this section exist; and

(3) Immediately following the

emergency removal the mortgagee

notifies the Commissioner of the reasons

for removal.

§ 206.135 Application for insurance

benefits and fiscal data.

(a) On the date the application for

assignment is filed, the mortgagee shall

submit to the Commissioner:

(1) Credit and security instrument.

The original credit and security

instruments assigned without recourse

or warranty, except that no act or

omission of the mortgagee shall have

impaired the validity and priority of the

mortgage.

(2) Proposed assignment instrument.

A copy of the proposed assignment of

mortgage.

(3) Hazard and flood insurance. All

hazard and flood insurance (if

applicable) policies held in connection

with the mortgaged property, together

with a copy of the mortgagee’s

notification to the carrier authorizing

the amendment of the loss payable

clause substituting the Commissioner as

the mortgagee.

(4) Rights and interests. An

assignment of all rights and interests

arising under the mortgage, and all

claims of the mortgagee against the

borrower or others arising out of the

mortgage transaction.

(5) Property. All property of the

borrower held by the mortgagee or to

which it is entitled (other than the cash

items which are to be retained by the

mortgagee).

(6) Records and accounts. All records,

ledger cards, documents, books, papers

and accounts relating to the mortgage

transaction.

(7) Additional information. Any

additional information or data which

the Commissioner may require.

(8) Title evidence. All title evidence

held by the mortgagee. It need not be

extended to include the recordation of

the assignment. The title insurance

policy shall be endorsed from the

mortgage insurance company up to the

point of assignment. At the point of

assignment, the Commissioner shall be

named insured under such policy.

(b) All documents required in

paragraph (a) of this section must be

submitted and approved before a claim

for assignment may be submitted.

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The original of the recorded assignment

of mortgage shall be forwarded to the

Commissioner as soon as received by

the mortgagee, but in no case shall it be

longer than 12 months after recordation.

If the original of the assignment is not

available, a copy shall be furnished and

the original forwarded as soon as

possible.

§ 206.136 Conditions for assignment.

(a) In order for a HECM to be eligible

for assignment, the following must be

met:

(1) Priority of mortgage to liens. The

mortgage is prior to all mechanics’ and

materialmen’s liens, regardless of when

such liens attach, and prior to all liens

and encumbrances, or defects which

may arise based on any act or omission

by the mortgagee except such liens or

other matters as may have been

approved by the Commissioner.

(2) Amount due. The amount stated in

the instrument of assignment is actually

due and owing under the mortgage.

(3) Offsets or counterclaims. There are

no offsets or counterclaims thereto and

the mortgagee has a good right to assign.

(b) The mortgagee shall certify that

the conditions of paragraph (a) have

been met.

§ 206.137 Effect of noncompliance with

regulations.

If, for any reason, the mortgagee fails

to comply with the regulations in this

subpart, the Commissioner may hold

processing of the application for

insurance benefits in abeyance for a

reasonable time in order to permit the

mortgagee to comply. In the alternative

to holding processing in abeyance, the

Commissioner may reconvey title to the

property or reassign the mortgage to the

mortgagee, in which event the

application for insurance benefits shall

be considered as cancelled and the

mortgagee shall refund the insurance

benefits to the Commissioner as well as

other funds required by § 206.138. The

mortgagee may reapply for insurance

benefits at a subsequent date; provided,

however, that the mortgagee may not be

reimbursed for any expenses incurred in

connection with the property after it has

been reconveyed or the mortgage

reassigned by the Commissioner, or paid

any debenture interest accrued after the

date of initial conveyance, whichever is

earlier, and there will be deducted from

the insurance benefits any reduction in

the Commissioner’s estimate of the

value of the property occurring from the

time of reconveyance or mortgage

reassignment to the time of

reapplication.

§ 206.138 Mortgagee’s liability for certain

expenditures.

Where the Commissioner accepts an

assignment, acquires a property after

accepting an assignment of a mortgage,

or otherwise pays a claim for insurance

benefits and thereafter it becomes

necessary for the Commissioner to

either reconvey the property or reassign

the mortgage to the mortgagee due to the

mortgagee’s noncompliance with these

regulations, the mortgagee shall

reimburse the Commissioner for all

expenses incurred in connection with

such acquisition and reconveyance or

reassignment. The reimbursement shall

include interest on the amount of

insurance benefits refunded by the

mortgagee from the date the insurance

benefits were paid to the date of refund

at an interest rate set in conformity with

the Treasury Fiscal Requirements

Manual, and the Commissioner’s cost of

holding the property or servicing the

mortgage, accruing on a daily basis,

from the date of assignment or claim

payment to the date of reconveyance or

reassignment. These costs are based on

the Commissioner’s estimate of the

taxes, maintenance and operating

expenses of the property, and

administrative expenses. Appropriate

adjustments shall be made by the

Commissioner on account of any

income received from the property.

§ 206.140 Inspection and preservation of

properties.

The mortgagee, upon learning that a

property subject to a mortgage insured

under this part is vacant or abandoned,

shall be responsible for the inspection of

such property at least monthly, if the

loan is in a due and payable status.

When a mortgage is in due and payable

status and efforts to reach the borrower

or applicable party by telephone within

that period have been unsuccessful, the

mortgagee shall be responsible for a

visual inspection of the security

property to determine whether the

property is vacant. The mortgagee shall

take reasonable action to protect and

preserve such security property when it

is determined or should have been

determined to be vacant or abandoned

until assigned to the Commissioner or

an application for insurance benefits is

filed, if such action does not constitute

an illegal trespass. ‘‘Reasonable action’’

includes the commencement of

foreclosure within the time required by

§ 206.125.

§ 206.141 Property condition.

(a) Condition at time of transfer.

When the mortgage is assigned to the

Commissioner or the property is sold by

the mortgagee, the property shall be

undamaged by fire, earthquake, flood, or

tornado, except as set forth in this

subpart.

(b) Damage to property by waste. The

mortgagee shall not be liable for damage

to the property by waste committed by

the borrower, its heirs, successors or

assigns in connection with mortgage

insurance claims.

mortgagee shall be responsible for:

(1) Damage by fire, flood, earthquake,

hurricane, or tornado; and

(2) Damage to or destruction of

security properties on which the loans

are in default and which properties are

vacant or abandoned, when such

damage or destruction is due to the

mortgagee’s failure to take reasonable

action to inspect, protect and preserve

such properties as required by

§ 206.140.

(d) Limitation. The mortgagee’s

responsibility for property damage shall

not exceed the amount of its insurance

claim as to a particular property.

§ 206.142 Adjustment for damage or

neglect.

(a) Except as provided for in

paragraphs (a)(1) and (a)(2) of this

section: if the property has been

damaged by fire, flood, earthquake,

hurricane, or tornado, the damage must

be repaired before assignment of the

mortgage to the Commissioner; if the

property has suffered damage because of

the mortgagee’s failure to take action as

required by § 206.140, the damage must

be repaired before the mortgagee sells

the property.

(1) If the prior approval of the

Commissioner is obtained, there will be

deducted from the insurance benefits

the Commissioner’s estimate of the cost

of repairing the damage or any

insurance recovery received by the

mortgagee, whichever is greater.

(2) If the property has been damaged

by fire and was not covered by fire

insurance at the time of the damage, or

the amount of insurance coverage was

inadequate to repair fully the damage,

only the amount of insurance recovery

received by the mortgagee, if any, will

be deducted from the insurance

benefits, provided the mortgagee

certifies, at the time that a claim is filed

for insurance benefits, that:

(i) At the time the mortgage was

insured, the property was covered by

fire insurance in an amount at least

equal to the lesser of 100 percent of the

insurable value of the improvements, or

the principal loan balance of the

mortgage;

(ii) The insurer later cancelled this

coverage or refused to renew it for

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reasons other than nonpayment of

premium;

(iii) The mortgagee made diligent

though unsuccessful efforts within 30

days of any cancellation or non-renewal

of hazard insurance, and at least

annually thereafter, to secure other

coverage or coverage under a FAIR Plan,

in an amount described in paragraph

(a)(2)(i) of this section, or if coverage to

such an extent was unavailable at a

reasonable rate, the greatest extent of

coverage that was available at a

reasonable rate;

(iv) The extent of coverage obtained

by the mortgagee in accordance with

paragraph (a)(2)(iii) of this section was

the greatest available at a reasonable

rate, or if the mortgagee was unable to

obtain insurance, none was available at

a reasonable rate; and

(v) The mortgagee took the actions

required by § 206.140.

(b) If the property has been damaged

during the time of the mortgagee’s

possession by events other than fire,

flood, earthquake, hurricane, or tornado,

or if it was damaged notwithstanding

reasonable action by the mortgagee as

required by § 206.140, the mortgagee

must provide notice of such damage to

the Commissioner and may not sell the

property until directed to do so by the

Commissioner. The Commissioner will

either:

(1) Allow the mortgagee to sell the

property damaged; or

(2) Require the mortgagee to repair the

damage before sale, and the

Commissioner will reimburse the

mortgagee for reasonable payments not

in excess of the Commissioner’s

estimate of the cost of repair, less any

insurance recovery.

§ 206.143 Certificate of property condition.

(a) The mortgagee shall certify that as

of the date the mortgagee sold the

property in accordance with

§ 206.125(g) or assignment of the

mortgage to the Commissioner, the

property was:

(1) Undamaged by fire, flood,

earthquake, hurricane or tornado; and

(2) Undamaged due to failure of the

mortgagee to take action as required by

§ 206.140; and

(3) Undamaged while the property

was in the possession of the mortgagee.

(b) In the absence of evidence to the

contrary, the mortgagee’s certificate or

description of the damage shall be

accepted by the Commissioner as

establishing the condition of the

property, as of the date of mortgagee

sale or assignment of the mortgage to the

Commissioner.

§ 206.144 Final payment.

The mortgagee may not file any

supplemental claims to its mortgage

insurance claim after six months from

settlement by the Commissioner of the

claim payment except where the

Commissioner determines it appropriate

and expressly authorizes an extension of

time for supplemental claim filings.

§ 206.145 Items deducted from payment.

(a) There shall be deducted from the

total of the added items in § 206.129 the

following cash items:

(1) All amounts received by the

mortgagee on account of the mortgage

after the institution of foreclosure

proceedings or the acquisition of the

property or otherwise after due and

payable.

(2) All amounts received by the

mortgagee from any source relating to

the property on account of rent or other

income after deducting reasonable

expenses incurred in handling the

property.

(3) All cash retained by the mortgagee

including amounts held or deposited for

the account of the borrower or to which

it is entitled under the mortgage

transaction that have not been applied

in reduction of the outstanding loan

balance.

(4) With regard to claims filed

pursuant to successful short sales, all

amounts received by the mortgagee

relating to the sale of the property.

(b) [Reserved]

§ 206.146 Debenture interest rate.

(a) Debentures shall bear interest from

the date of issue, payable semiannually

on the first day of January and the first

day of July of each year at the rate in

effect as of the day the commitment was

issued, or as of the date the mortgage

was endorsed for insurance, whichever

rate is higher. For applications

involving mortgages originated under

the single family Direct Endorsement

program, debentures shall bear interest

from the date of issue, payable

semiannually on the first day of January

and on the first day of July of each year

at the rate in effect as of the date the

mortgage was endorsed for insurance;

(b) For mortgages endorsed for

insurance after January 23, 2004, if an

insurance claim is paid in cash, the

debenture interest rate for purposes of

calculating such a claim shall be the

monthly average yield, for the month in

which the default on the mortgage

occurred, on United States Treasury

Securities adjusted to a constant

maturity of 10 years.

Subpart D—Servicing Responsibilities

§ 206.201 Mortgage servicing generally;

sanctions.

(a) General. This subpart identifies

servicing practices that the

Commissioner considers acceptable

mortgage servicing practices of lending

institutions servicing mortgages insured

by the Commissioner. Failure to comply

with this subpart shall not be a basis for

denial of the insurance benefits, but a

pattern of refusal or failure to comply

will be cause for withdrawal of FHA

mortgagee approval.

(b) Importance of timely payments.

The paramount servicing responsibility

is to make timely payments in full as

required by the mortgage. Any failure of

a mortgagee to make all payments

required by the mortgage in a timely

manner will be grounds for

administrative sanctions authorized by

regulations, including 2 CFR part 2424

(Debarment, Suspension, and Limited

Denial of Participation), and 24 CFR

part 25 (Mortgagee Review Board).

Servicing of insured mortgages must be

performed by a mortgagee that is

approved by FHA to service insured

mortgages. The servicer must fully

discharge the servicing responsibilities

of the mortgagee as outlined in this part.

The mortgagee shall remain fully

responsible to the Commissioner for

proper servicing, and the actions of its

servicer shall be considered to be the

actions of the mortgagee. The servicer

also shall be fully responsible to the

Commissioner for its actions as a

servicer.

(2) Whenever servicing of any

mortgage is transferred from one

mortgagee or servicer to another, notice

of the transfer of service shall be

delivered:

(i) By the transferor mortgagee or

servicer to the borrower. The

notification shall be delivered not less

than 15 days before the effective date of

the transfer and shall contain the

information required in 12 CFR

1024.33(b)(4); and

(ii) By the transferee mortgagee or

servicer:

(A) To the borrower. The notification

shall be delivered not less than 15 days

before the effective date of the transfer

and shall contain the information

required in 12 CFR 1024.33(b)(4); and

(B) To the Commissioner. This

notification shall be delivered within 15

days of the transfer, in a format

prescribed by the Commissioner.

§ 206.203 Providing information.

(a) Statements of account activity. The

mortgagee shall provide to the borrower

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a monthly statement regarding the

activity of the mortgage for each month,

as well as for the calendar year. The

statement shall summarize the total

principal amount which has been paid

to the borrower under the mortgage

during that calendar year, the MIP paid

to the Commissioner and charged to the

borrower, the total amount of deferred

interest added to the outstanding loan

balance, the total outstanding loan

balance, and the current principal limit.

The mortgagee shall include an

accounting of all payments for property

charges. The statement shall be

provided to the borrower monthly until

the mortgage is paid in full by the

borrower. The mortgagee shall provide

the borrower with a new payment plan

every time it recalculates monthly

payments or the payment option is

changed. The statements shall be in a

format acceptable to the Commissioner.

(b) [Reserved]

(1) Mortgagees shall provide loan

information to borrowers and arrange

for individual loan consultation on

request. The mortgagee must establish

written procedures and controls to

assure prompt responses to inquiries.

One or more of the following means of

making information readily available to

borrowers is required:

(i) A servicing office staffed with

competent personnel located within 200

miles of the property, capable of

providing timely responses to requests

for information. Complete records need

not be maintained in such an office if

the staff is able to secure needed

information and pass it on to the

borrower.

(ii) Toll-free telephone service at an

office capable of providing needed

information.

(2)(i) All borrowers must be informed

of and reminded annually of the system

available for obtaining answers to loan

inquiries and the office from which

needed information may be obtained.

Toll-free telephone service need not be

provided to a borrower other than at the

office designated to serve the borrower

nor other than from the immediate

vicinity of the security property.

(ii) The mortgagee shall provide the

borrower with the telephone number

where the borrower may speak to

employee(s) specifically designated by

the mortgagee or its servicer to address

inquiries concerning mortgages insured

under this part. Such information shall

be provided annually and whenever the

servicer or the designated employee (or

employee group) changes.

(3) Mortgagees must respond to FHA

requests for information concerning

individual accounts.

§ 206.205 Property charges.

(a) General. (1) The borrower shall be

responsible for the payment of the

following property charges before or on

the due date: ground rents,

condominium fees, planned unit

development fees, and homeowners’

association fees.

(2) Payment of the following property

charges are obligations of the borrower

and shall be made through the LESA, by

the borrower, or by the mortgagee, in

accordance with paragraphs (b) through

(e) of this section on or before the due

date: property taxes, including any

special assessments levied by local or

State law, hazard insurance premiums,

and applicable flood insurance

premiums.

(b) Method of property charge

payment—(1) LESA required. For fixed

or adjustable interest rate HECMs, based

on the results of the Financial

Assessment, the mortgagee may require

the borrower to have a Fully-Funded

LESA for the payment of property

charges identified in paragraph (a)(2) of

this section. For adjustable interest rate

HECMs, based on the results of the

Financial Assessment, the mortgagee

may require the borrower to have a

Partially-Funded LESA for the payment

of property charges identified in

paragraph (a)(2) of this section.

(2) LESA not required. (i) If, based on

the results of the Financial Assessment,

the mortgagee does not require the

borrower to have a LESA, the borrower

shall elect one of the following at

closing, whereby an election of the

option in paragraph (b)(2)(i)(B) or (C) of

this section cannot be cancelled by the

borrower:

(A) Borrower is responsible for the

independent payment of all property

charges;

(B) Borrower elects to have a Fully-

Funded LESA for the payment of

property charges identified in paragraph

(a)(2) of this section; or

only, borrower elects to have the

mortgagee pay property charges listed in

paragraph (a)(2) of this section which

would have otherwise been required to

be paid by the borrower, in accordance

with paragraph (d) of this section.

(ii) Through Federal Register notice,

the Commissioner may establish an

incentive for voluntarily electing a

LESA under paragraph (b)(2)(i)(B) of

this section.

General. (i) For a Fully-Funded LESA,

the mortgagee shall:

(A) Make payments for property

charges identified in paragraph (a)(2) of

this section before bills become

delinquent and establish controls to

ensure that the information needed to

pay such bills is obtained on a timely

basis;

(B) Make early payments to take

advantage of a discount whenever it is

to the borrower’s advantage;

for late payments for property charges

unless it can be shown that the penalty

was the direct result of the borrower’s

error or omission;

(D) Ensure that LESA funds are not

held in an escrow account;

(E) Add payments for property

charges to the outstanding loan balance

when the mortgagee disburses funds to

the taxing authority or insurance carrier;

and

(F) Provide written notification to the

borrower and FHA within 30 days of the

mortgagee receiving notification that a

property charge payment is outstanding

when there are no funds or insufficient

funds remaining in the LESA, and

recommend that the borrower speak

with a HUD-Approved Housing

Counselor.

(ii) For a Partially-Funded LESA, the

mortgagee shall:

(A) Ensure that LESA funds are

disbursed to the borrower semi-

annually;

(B) Establish controls to ensure the

taxing authority, insurance carrier, or

both, received the borrower’s payment;

held in an escrow account;

(D) Add payments disbursed to the

borrower for the payment of property

charges identified in paragraph (a)(2) to

the outstanding loan balance when the

mortgagee disburses the funds; and

(E) Provide written notification to the

borrower and FHA within 30 days of the

mortgagee receiving notification that a

property charge payment is outstanding

when there are no funds or insufficient

funds remaining in the LESA, and

recommend that the borrower speak

with a HUD-Approved Housing

Counselor.

(2) Calculation of property charges. (i)

The projected cost of property charges

that will be required over the life

expectancy of the youngest borrower

shall be calculated based on a formula

established by the Commissioner.

(ii) The mortgagee shall not require

any LESA to be funded in excess of the

projected cost of property charges.

(iii) For a Fully-Funded LESA, the

amount withheld from the mortgage

proceeds shall equal the projected cost

of property charges.

(iv) For a Partially-Funded LESA, the

amount withheld from the mortgage

proceeds is based on a calculation of the

gap in residual income and may not

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exceed the projected cost of property

charges.

(v) Mortgagees shall use the HECM

Financial Assessment and Property

Charge Guide, or subsequent guide

issued by the Commissioner, to

determine whether a LESA is required;

view the formula for calculating the

projected costs of property charges; and

view the formulas for calculating the

Fully- and Partially-Funded LESA

amounts.

(3) Annual analysis of LESA.

Mortgagees shall perform an annual

analysis of the LESA to determine

whether the funds are sufficient to make

required distributions for the next year.

If funds are exhausted or there is an

insufficient balance determination, the

mortgagee shall notify the borrower, in

writing and within 15 calendar days of

the annual analysis of the

determination, that LESA funds are

exhausted or insufficient and the

borrower will be responsible for the

payment of property charges.

(4) Non-payment of property

charges—(i) Fully-Funded LESA for an

adjustable interest rate HECM with no

remaining funds. (A) If the LESA is

exhausted and the borrower fails to

make property charge payments, the

mortgagee shall use any available

principal limit to pay the outstanding

property charge amount in full and

charge the borrower’s account.

(B) The mortgagee shall provide the

borrower with a written notification

within 30 days of the mortgagee

receiving notification that a property

charge payment is outstanding. The

borrower shall have 30 days to respond

to the mortgagee to explain the

circumstances which resulted in the

non-payment. (C) If there is no available

principal limit from which the

mortgagee can pay the property charge

amount in full, and the borrower fails to

pay the property charges, the mortgage

will become due and payable under

§ 206.27(c)(2).

(ii) Fully-Funded LESA for a fixed

interest rate HECM with no remaining

funds. If the LESA is exhausted and the

borrower fails to make property charge

payments, the mortgage will become

due and payable under § 206.27(c)(2).

(iii) Partially-Funded LESA with

remaining funds. If funds remain in the

LESA and the borrower fails to make

property charge payments, the

mortgagee shall:

(A) Immediately suspend future semi-

annual payments to the borrower from

the Partially-Funded LESA, although

scheduled and unscheduled payments

from the borrower’s payment option

may continue;

(B) Disburse funds from the Partially-

Funded LESA to pay the full amount

owed for the past due property charge;

and

borrower, within 30 days of the

mortgagee receiving notification that a

property charge payment is outstanding,

that funds were advanced from the

Partially-Funded LESA to pay the

outstanding property charge. The

borrower shall have 30 days to respond

to the mortgagee to explain the

circumstances which resulted in the

non-payment.

(iv) Partially-Funded LESA with no

remaining funds. (A) If the LESA is

exhausted and the borrower fails to

make property charge payments when

due, the mortgagee shall use any funds

available in the principal limit to pay

the outstanding property charge amount

in full and charge the borrower’s

account.

(B) The mortgagee shall provide

written notification to the borrower

within 30 days of the mortgagee

receiving notification that a property

charge payment is outstanding. The

borrower shall have 30 days to respond

to the mortgagee to explain the

circumstances which resulted in the

non-payment.

limit from which the mortgagee can pay

the property charge amount in full, and

the borrower fails to pay the property

charges, the mortgage will become due

and payable under § 206.27(c)(2).

(5) Unused LESA funds. During a

Deferral Period or when one of the

events listed in § 206.27(c)(1) or (c)(2)

have occurred, no unused funds from

the LESA shall be disbursed.

(6) Assignment of mortgage to the

Commissioner. If the insured first

mortgage is assigned to the

Commissioner, or if payments are made

through the second mortgage under the

Demand Assignment process, the

Commissioner is not required to assume

the responsibility for property charge

payments, but may continue to

administer payments for property

charges for a borrower with a Fully-

Funded LESA or semi-annual

disbursements to a borrower with a

Partially-Funded LESA to the extent

that there are any funds available in the

LESA. For adjustable interest rate

HECMs, if the LESA has a positive

remaining balance but funds are

insufficient to pay all property charges

due or semi-annual disbursements to

the borrower, the Commissioner may

provide the remaining funds to the

borrower as a line of credit.

(d) Borrower elects to have mortgagee

pay property charges. If, based on the

results of the Financial Assessment, the

mortgagee does not require the borrower

to have a LESA, for adjustable interest

rate HECMs, the borrower may elect at

closing to require the mortgagee to pay

property charges identified in paragraph

(a)(2) of this section by withholding

funds from monthly payments due to

the borrower or by charging such funds

to a line of credit. This voluntary

election to have funds withheld by the

mortgagee to pay property charges

cannot be canceled by the borrower at

any time. If the sum of the outstanding

loan balance and any unused set aside

for repairs and servicing charges has

reached the principal limit or the HECM

proceeds are otherwise insufficient to

pay the property charges, the borrower

shall pay such property charges, even

though the borrower elected payment to

be made by the mortgagee. Through

Federal Register notice, the

Commissioner may expand the

borrower’s options for property charge

payment by the mortgagee.

(1) Assignment of mortgage to the

Commissioner. If the insured first

mortgage is assigned to the

Commissioner under § 206.107(a)(1) or

§ 206.121(b), or if payments are made

through the second mortgage under

§ 206.121(c), the Commissioner is not

required to assume the mortgagee’s

responsibility under paragraph (d) of

this section, despite the election by the

borrower.

(2) Mortgagee’s responsibilities. (i)

Funds withheld from payments due to

the borrower for property charges under

paragraph (d) of this section shall not be

paid into an escrow account. When

property charges are actually paid, the

mortgagee may add the amount paid to

the outstanding loan balance.

(ii) It is the mortgagee’s responsibility

to make disbursements for property

charges before bills become delinquent.

Mortgagees shall establish controls to

ensure that the information needed to

pay such bills is obtained on a timely

basis. Penalties for late payments for

property charges must not be charged to

the borrower unless it can be shown that

the penalty was the direct result of the

borrower’s error or omission. Early

payment of a bill to take advantage of

a discount should be made whenever it

is to the borrower’s benefit.

(iii) Not later than the end of the

second loan year the mortgagee shall

establish a system for the periodic

analysis of the amounts withheld from

monthly payments. The analysis shall

be performed at least once a year

thereafter. The amount shall be

adjusted, after analysis, to provide

sufficient available funds to make

anticipated disbursements during the

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ensuing year. The borrower shall be

given at least ten days’ notice of

adjustment in the amount of

withholding and an adequate

explanation of the reasons for any

change. When the amount withheld is

analyzed in accordance with this

paragraph, any surplus shall be paid to

the borrower and added to the

outstanding loan balance. Any shortage

shall be corrected through increasing

the monthly withholding as provided in

paragraph (d)(2)(iv) of this section. If

amounts withheld are insufficient to

pay a property charge before it is

delinquent, and the borrower could

request a payment equal to the shortage

under § 206.26(b), then the mortgagee

shall pay the full property charge and

treat payment of the shortage as a

payment requested by the borrower

under § 206.26(b).

(iv) The mortgagee’s estimate of

withholding amount shall be based on

the best information available as to

probable payments which will be

required to be made for property charges

in the coming year. If actual

disbursements during the preceding

year are used as the basis, the resulting

estimate may deviate from those

disbursements by as much as ten

percent. The mortgagee may not require

withholding in excess of the current

estimated total annual requirement,

unless expressly requested by the

borrower. Each monthly withholding for

property charges shall equal one-twelfth

of the annual amounts as reasonably

estimated by the mortgagee.

(e) Borrower elects to pay property

charges. (1) If, based on the results of

the Financial Assessment, the mortgagee

does not require the borrower to have a

LESA, the borrower may elect to be

responsible for the independent

payment of all property charges and

shall pay all property charges in a

timely manner and shall provide

evidence of payment to the mortgagee as

required in the mortgage.

(2) Failure to pay property charges. If

the borrower fails to pay the property

charges in a timely manner, and has not

elected to have the mortgagee make the

payments in accordance with paragraph

(d) of this section:

(i) The mortgagee may make the

payment for the borrower and charge

the borrower’s account if there are

available funds from which the

mortgagee may make payment. If a

pattern of missed payments occurs, the

mortgagee may establish procedures to

pay the property charges from the

borrower’s funds as if the borrower

elected to have the mortgagee pay the

property charges under this section.

(ii) The mortgagee shall provide a

written notification to the borrower and

notify the Commissioner that an

obligation of the mortgage has not been

performed within 30 days of the

mortgagee receiving notification of a

missed payment when there are no

available HECM funds from which the

mortgagee may make payment. The

borrower shall have 30 days to respond

to the mortgagee to explain the

circumstances which resulted in the

non-payment. The mortgagee may

provide any permissible loss mitigation

made available by the Commissioner

through notice. If the borrower is unable

or unwilling to repay the mortgagee for

any funds advanced by the mortgagee to

pay property charges outside of a LESA,

the mortgagee shall submit a due and

payable request under the provisions of

§ 206.27(c)(2).

§ 206.207 Allowable charges and fees after

endorsement.

(a) Reasonable and customary

charges. The mortgagee may collect

reasonable and customary charges and

fees from the borrower after insurance

endorsement, only to the extent that the

mortgagee is not reimbursed for such

fees by FHA, by adding them to the

outstanding loan balance, but only for:

items listed in paragraph (a)(1) of this

section; items authorized by the

Commissioner under paragraph (a)(2) of

this section, or as provided at

§ 206.26(b)(1)(iii); or charges and fees