13-27 Ml

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, DC 20410-8000

ASSISTANT SECRETARY FOR HOUSINGFEDERAL HOUSING COMMISSIONER

DATE:

September 3, 2013

TO:

ALL FHA-APPROVED MORTGAGEES

MORTGAGEE LETTER 2013-27

Subject

Changes to the Home Equity Conversion Mortgage Program Requirements

Purpose

This Mortgagee Letter implements several changes to the Home Equity
Conversion Mortgage (HECM) program that will strengthen the FHA Mutual
Mortgage Insurance Fund (MMIF or Fund), thereby protecting the viability of
the HECM program.
The changes affect the following requirements:








Background

initial disbursement limits;
new Single Disbursement Lump Sum payment option;
initial mortgage insurance premiums;
initial mortgage insurance premium calculation for refinance transactions;
new Principal Limit factors;
financial assessment requirements; and
funding requirements for the payment of property charges based on the
financial assessment.

Since the 2009 housing and economic recession, the HECM portfolio has
experienced major mortgagor demographic and behavioral changes that have
contributed to additional risks to the MMIF. Some of the changes include
shifting from a predominately adjustable interest rate mortgage with
mortgagors electing to receive payments over time using the line of credit or
modified tenure/term payment options to a fixed interest rate mortgage where
mortgagors draw down all funds at the time of loan closing; younger
mortgagors with higher amounts of property indebtedness; and increasing
property charge defaults. These and other factors have caused higher payouts
of insurance claims.

www.hud.gov

espanol.hud.gov

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Mortgagee Letter 2013-27
Background
(continued)

Many of these changes are highlighted in the June 28, 2012, “Reverse
Mortgages Report to Congress” that was published by the Consumer
Financial Protection Bureau.
FHA’s Fiscal Year 2012 report to Congress on the financial status of the
MMIF, issued November 16, 2012, reported substantial stress in the HECM
program and projected the economic value of the HECM portfolio to be
negative $2.8 billion. In response to these concerns, Congress recently passed
and the President signed the Reverse Mortgage Stabilization Act of 2013
which amends section 255(h) of the National Housing Act. This amendment
authorizes the Secretary to “establish, by notice or mortgagee letter, any
additional or alternative requirements that the Secretary, in the Secretary’s
discretion determines are necessary to improve the fiscal safety and
soundness of the program.” The Secretary has determined that the changes
announced in this Mortgagee Letter are necessary to improve fiscal soundness
of the HECM program. These critical program changes will realign the
HECM program with its original intent, and thereby aid in the restoration of
the MMIF and help ensure the continued availability of this important
program.

Effective Date

The policy requirements in this Mortgagee Letter are effective as follows:
Policy Requirements

Effective Date

Origination
Case numbers assigned on or after
September 30, 2013
Single Disbursement Lump Sum
Case numbers assigned on or after
Payment Option
September 30, 2013
Initial Mortgage Insurance
Case numbers assigned on or after
Premiums
September 30, 2013
Principal Limit Factor Tables
Case numbers assigned on or after
September 30, 2013
Initial Mortgage Insurance Premium Case numbers assigned on or after
Calculation for Refinance
September 30, 2013
Transactions
Initial Disbursement Limits

Financial Assessment Requirements

Case numbers assigned on or after
January 13, 2014
Funding Requirements for the
Case numbers assigned on or after
Payment of Property Charges
January 13, 2014
Important: Mortgagees must continue to comply with all existing program
requirements that are not changed by the provisions of this Mortgagee Letter.
Continued on next page

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Mortgagee Letter 2013-27
Adaptation of
Legal
Documents

Mortgagees must make the necessary and appropriate modifications to
HECM legal documents to ensure compliance with FHA HECM origination
and servicing requirements, as well as other Federal, State and local laws.

Affected
Regulations,
Mortgagee
Letters and
Handbooks

The requirements in this Mortgagee Letter replace and update certain HUD
regulations, various mortgagee letters, and HUD Handbook 4235.1 REV-1.
The table below highlights current policy and regulatory items that are
affected in whole or in part by these changes.
Affected Regulations,
Mortgagee Letters, and
Handbook
24 CFR §206.19 and §206.25

Policy Change Description






24 CFR §206.29 and §206.31





This Mortgagee Letter adds a new
Single Disbursement Lump Sum
payment option which is defined as a
single disbursement at origination
equal to the greater of 60% of the
Principal Limit, or the mandatory
obligations plus 10% of the Principal
Limit.
This Mortgagee Letter establishes for
all current payment options:
o A first year disbursement
limitation; and
o Adds a Life-Expectancy Set Aside
for property for property charges
when required by the mortgagee.
This Mortgage Letter provides updated
instructions for calculating the initial
disbursement to the mortgagor at loan
closing.
This Mortgagee Letter consolidates the
requirements of §206.29 and §206.31
into a listing of mandatory obligations
(see page 17 and 18 of this Mortgagee
Letter) that must be satisfied at the
time of loan closing.
This Mortgagee Letter removes the
payment of an annuity premium as a
charge that can be paid at loan closing.

Continued on next page

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Mortgagee Letter 2013-2727
Affected
Regulations,
Mortgagee
Letters and
Handbooks
(continued)

Affected Regulations,
Mortgagee Letters, and
Handbook
24 CFR §206.37

Policy Change Description


24 CFR §206.205





Housing Notice 2013-01
Mortgagee Letter 2013-01
Mortgagee Letter 2010-34









Mortgagee Letter 2010-22



This Mortgagee Letter requires the
mortgagee to conduct a financial
assessment before loan approval and
loan closing to establish a general
credit standing satisfactory to the
Secretary.
This Mortgagee Letter implements a
requirement that mortgagees mandate
the use of mortgage proceeds or
establish a life expectancy set-aside to
fund property charge payments where
the results of the financial assessment
required by 24 CFR § 206.37 warrant
it.
This Mortgagee Letter provides that
the mortgagor is unable to cancel a
property charge set aside or the use of
mortgage proceeds when required by
the mortgagee based upon the results
of the financial assessment.
Eliminated in its entirety.
Eliminated in its entirety.
This Mortgagee Letter replaces all
references to HECM Saver and
HECM Standard initial mortgage
initial premium options.
This Mortgagee Letter replaces all
references to HECM Saver and
HECM Standard principal limit factor
tables.
This Mortgagee Letter updates the
refinance initial mortgage insurance
premium examples.
This Mortgagee Letter builds upon the
HECM Required Documents for
Endorsement.
Continued on next page

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Mortgagee Letter 2013-2727
Affected
Regulations,
Mortgagee
Letters and
Handbooks
(continued)

Affected Regulations,
Mortgagee Letters, and
Handbook
Mortgagee Letter 2009-34
Mortgagee Letter 2008-08

Handbook 4235.1 REV-1:
- paragraph 4-7
- paragraph 1-16
- paragraph 5-7
- paragraph 5-12

Policy Change Description




Other sections affected
include: 5-3, 5-5, 5-7, 5-8,
5-9, 5-10



Handbook 4330.1, Chapter
13 and Handbook 4235.1
REV-1 Chapter 4







Eliminated in its entirety.
This Mortgagee Letter builds upon the
existing fixed interest rate mortgage
policy guidance.
This Mortgagee Letter requires
mortgagees to use all credit report
content and replaces the statement, “The
lender’s review of the report should be
limited to the Public Records
Information Section, in order to
determine whether or not the borrower
is delinquent or in default on any
Federal debts.”
This Mortgagee Letter requires changes
to several parts of Chapter 5 to reflect
the First 12-Month Disbursement Limit
impact on full access to Principal Limit
and Net Principal Limit and the addition
of a property charge set-aside to Net
Principal Limit calculation.
This Mortgagee Letter updates the
partial repayment requirements.
This Mortgagee Letter implements a
requirement that Mortgagees mandate
the use of mortgage proceeds or
establish a life expectancy set-aside to
fund property charge payments where
the results of the financial assessment
required by 24 CFR § 206.37 warrant it.
This Mortgagee Letter provides that the
mortgagor is unable to cancel a property
charge set aside or the use of mortgage
proceeds when required by the
mortgagee based upon the results of the
financial assessment.
The Mortgagee Letter updates the
partial repayment requirements.
Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Overview

This section of the Mortgagee Letter announces new limitations on the
amount of mortgage proceeds that can be advanced at loan closing or during
the First 12-Month Disbursement Period after loan closing; the new Single
Disbursement Lump Sum payment option; and defines what fees and charges
are considered Mandatory Obligations.
Note: The ending period for the First 12-Month Disbursement Period is the
day before the anniversary date of loan closing. When the day before the
anniversary date of loan closing falls on a Federally-observed holiday,
Saturday or Sunday, the end period will be the next business day.

Single
Disbursement
Lump Sum
Payment
Option

A new Single Disbursement Lump Sum payment option will be available for
adjustable and fixed interest rate HECMs for case numbers assigned on or
after September 30, 2013.
This payment option will be limited to a single disbursement at loan closing
which cannot exceed the greater of:



60% of the Principal Limit; or
Mandatory obligations (see page 17 and 18 of this Mortgagee Letter) plus
10% of the Principal Limit.

Set Asides requiring disbursements after close may be offered under this
option.

Policy and
Definitions

The table below provides new and updated policy requirements and definitions
that support the new policies announced in this Mortgagee Letter. Mortgagees
must adopt these definitions to properly set up new loans and make
disbursements according to the limitations specified below.
Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Policy and
Definitions
(continued)

Definition

Term, Tenure, Line of
New Single
Credit, Modified Term, and
Disbursement Lump
Modified Tenure Payment
Sum Payment Option
Options
First 12-Month The First 12-Month
Not applicable
Disbursement Disbursement Period begins
Period
on the day of loan closing and
ends on the day before the
anniversary date of loan
closing. When the day before
the anniversary date of loan
closing falls on a Federallyobserved holiday, Saturday or
Sunday, the end period will be
on the next business day.
Example 1:
If the loan closed on
December 9, 2013, the First
12-Month Disbursement
Period begins on December 9,
2013 and ends on
December 8, 2014.
Example 2:
If the loan closed on January
2, 2014, the First 12-Month
Disbursement Period begins
on January 2, 2014 and ends
on January 2, 2015.

Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Policy and
Definitions
(continued)

Definition

Initial
Disbursement
Limit

Term, Tenure, Line of
Credit, Modified Term,
and Modified Tenure
Payment Options
The maximum disbursement
allowed at loan closing and
during the First 12-Month
Disbursement Period is:
The greater of:
 sixty percent (60%) of
the Principal Limit; or
 the sum of Mandatory
Obligations plus ten
percent of the Principal
Limit.
Important: The
combination of Mandatory
Obligations, Set Asides and
other charges defined on
page 18 cannot exceed the
combined total of Mandatory
Obligations plus 10% and
cannot exceed the Principal
Limit amount established at
loan closing.

Mandatory
Obligations

New Single Disbursement
Lump Sum Payment
Option
The maximum
disbursement allowed at
loan closing is:
The greater of:
 sixty percent (60%) of
the Principal Limit; or
 the sum of Mandatory
Obligations plus ten
percent of the Principal
Limit.

Note: The combination of
Mandatory Obligations, Set
Asides and other charges
will reduce the amount of
funds available to the
mortgagor.
The Initial Disbursement
Limit can only be taken at
the time of loan closing.

Note: The combination of
Mandatory Obligations, Set
Asides and other charges
defined on page 18 will
reduce the amount of funds
available to the mortgagor
during the First 12-Month
Disbursement Period.
Fees and charges incurred in connection with the
origination of the HECM that are paid at loan closing (See
page 17 and 18 of this Mortgagee Letter for a list of the
Mandatory Obligations).

Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Policy and
Definitions
(continued)

Definition

Mandatory
Obligations
plus 10% of
the Principal
Limit

Term, Tenure, Line of
Credit, Modified Term,
and Modified Tenure
Payment Options
When the mortgagor’s
Mandatory Obligations
exceed 50% of the Principal
Limit, the mortgagor is
eligible to take an additional
10% of the Principal Limit
amount. Mortgagors have
the option of taking a partial
disbursement or all of the
additional 10% (provided the
Principal Limit is large
enough to enable them to do
so), but are not required to
take all or part of the 10%.
At loan closing, mortgagors
must inform the mortgagee
of their intent to use part or
all of the additional 10% of
the Principal Limit at the
time of loan closing or
during the First 12-Month
Disbursement Period so that
the correct amount of initial
MIP is collected.
When the combination of
Mandatory Obligations,
other defined charges (see
page 18) and the additional
10% exceeds 60% of the
Principal Limit, a higher
initial mortgage insurance
premium (MIP) must be
charged (see page 20).

New Single
Disbursement Lump
Sum Payment Option
When the mortgagor’s
Mandatory Obligations
exceed 50% of the
Principal Limit, the
mortgagor is eligible to
take an additional 10% of
the Principal Limit
amount. Mortgagors
have the option of taking
a partial disbursement or
all of the additional 10%
(provided the Principal
Limit is large enough to
enable them to do so),
but are not required to
take all or part of the
10%.
At loan closing,
mortgagors must inform
the mortgagee of their
intent to use part or all of
the additional 10% of the
Principal Limit.
When the combination of
Mandatory Obligations,
other defined charges
(see page 18) and the
additional 10% exceeds
60% of the Principal
Limit, a higher initial
mortgage insurance
premium (MIP) must be
charged (see page 20).
Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Determining
the Principal
Limit

The Principal Limit is established at closing and is the maximum amount that
a mortgagor may receive from the HECM before any disbursements are
made.
The Principal Limit is determined by multiplying the Maximum Claim
Amount by the Principal Limit Factor corresponding to the age of the
youngest mortgagor and the Expected Average Mortgage Interest Rate.
Important: The Principal Limit will continue to “increase” by the Mortgage
Note Interest Rate on a monthly basis; however, the increased amount will
not be available for the mortgagor to draw against until the expiration of the
First 12-Month Disbursement Period.

Determining
and Tracking
Disbursement
Limit

The mortgagee is responsible for determining the maximum Initial
Disbursement Limit dollar amount that may be disbursed to the mortgagor (or
legal representative) and/or used for Mandatory Obligations, Set Asides and
other charges incurred with originating the HECM at:



loan closing for Single Disbursement Lump Sum payment option; or
during the First 12-Month Disbursement Period.

Mortgagees must monitor and track all disbursements that occur during the
First 12-Month Disbursement Period and that are added to the loan balance,
to ensure the total amount of the disbursements does not exceed the maximum
Initial Disbursement Limit or Principal Limit dollar amount.
Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Initial
Disbursement
Limit Examples

The examples below demonstrate the application of the new policy limiting
disbursements at loan closing and/or during the First 12-Month Disbursement
Period to the greater of 60% of the Principal Limit or sum of Mandatory
Obligations plus 10% of the Principal Limit.
Initial Disbursement Limit Example 1: Mandatory Obligation of 60% or
less of the Principal Limit






Principal Limit: $100,000
Mandatory Obligations: $40,000
Repair Set Aside: $0
60% of the Principal Limit: $60,000
Initial Disbursement Limit Amount: $60,000, includes $40,000 in
Mandatory Obligations and $20,000 to Mortgagor

The Mortgagor can draw the $20,000 exceeding Mandatory Obligations and
Set Aside at loan closing or during the First 12-Month Disbursement Period.
Note: On the Single Disbursement Lump Sum Payment Option, the
Mortgagor is limited to a single draw at loan closing for the $20,000 that
exceeds the Mandatory Obligations and Set Aside.
Initial Disbursement Limit Example 2: Mandatory Obligations in excess of
60% of the Principal Limit







Principal Limit: $100,000
Mandatory Obligations: $65,000
Repair Set Aside: $0
10% of Principal Limit: $10,000
60% of the Principal Limit: $60,000
Initial Disbursement Limit Amount: $75,000, includes $65,000 in
Mandatory Obligations and $10,000 to Mortgagor

The Mortgagor can draw the $10,000 exceeding Mandatory Obligations and
Set Aside at loan closing or during the First 12-Month Disbursement Period.
Note: On the Single Disbursement Lump Sum Payment Option, the
Mortgagor is limited to a single draw at loan closing for the $10,000 that
exceeds the Mandatory Obligations and Set Aside.
Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Disbursement
Limit Examples
(continued)

Initial Disbursement Limit Example 3: Mandatory Obligations of 60% or
less of the Principal Limit






Principal Limit: $200,000
Mandatory Obligations: $17,000
Repair Set Aside: $33,000
60% of the Principal Limit: $120,000
Initial Disbursement Limit Amount: $120,000, includes $17,000 in
Mandatory Obligations, $33,000 Set Aside and $70,000 to Mortgagor

The mortgagor can draw the $70,000 exceeding Mandatory Obligations and
Set Aside at loan closing or during the First 12-Month Disbursement Period.
Note: On the Single Disbursement Lump Sum Payment Option, the
mortgagor is limited to a single draw at loan closing for the $70,000 that
exceeds the Mandatory Obligations and Set Aside.
Initial Disbursement Limit Example 4: Mandatory Obligations in Excess of
60% of the Principal Limit







Principal Limit: $200,000
Mandatory Obligations: $140,000
Repair Set Aside: $13,000
10% of the Principal Limit: $20,000
60% of the Principal Limit: $120,000
Initial Disbursement Limit Amount: $160,000, includes $140,000
Mandatory Obligations, $13,000 Repair Set Aside and $7,000 to
Mortgagor

The Mortgagor can draw the $7,000 exceeding Mandatory Obligations and
Set Aside at loan closing or during the First 12-Month Disbursement Period.
Note: On the Single Disbursement Lump Sum Payment Option, the
Mortgagor is limited to a single draw at loan closing for the $7,000 that
exceeds the Mandatory Obligations and Set Aside.

Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Applicability of
First 12 Month
Disbursement
Period To
Payment Plan
Options

The Initial Disbursement Limit and First 12-Month Disbursement Period is
applicable to Term, Tenure, Line of Credit, Modified Term and Modified
Tenure Payment Plans and subsequent payment plan changes that occur
during the First 12-Month Disbursement Period.
Note: The First 12-Month Disbursement Period is not available for the Single
Disbursement Lump Sum Payment option, which restricts disbursement to the
amount provided at closing.
Line of Credit: During the First 12-Month Disbursement Period, if a
requested disbursement would exceed the Initial Disbursement Limit, the
mortgagee may make a partial disbursement to the mortgagor for the amount
that will not exceed the limit. Once the First 12-Month Disbursement Period
ends, the mortgagor may request subsequent disbursements up to the
available Principal Limit.
Term and Tenure Payments: Mortgagees must ensure Tenure and Term
monthly payments made to the mortgagor during the First 12-Month
Disbursement Period are equal and do not exceed the Initial Disbursement
Limit.
Once the First 12-Month Disbursement Period ends, Term and Tenure
payments may be adjusted to reflect the available Principal Limit.

Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Applicability of
First 12-Month
Disbursement
Period To
Payment Plan
Options
(continued)

If the mortgagor makes a partial repayment1 of the principal balance
(outstanding loan balance) during the First 12-Month Disbursement Period,
the mortgagee must increase the available Principal Limit by the amount
applied toward the outstanding loan balance, up to an amount not to exceed
the Principal Limit amount established at origination.

Disbursement
Timeframe
Examples

The following table compares current disbursement options from the date of
loan closing through the life of the loan with disbursement options that will
be available when this Mortgagee Letter goes into effect.
Disbursements Timeframes
Disbursement Disbursement Limits
Disbursement Limits for
Time Frame
for Case Numbers
Case Numbers Issued on, or
Issued on, or Before,
After,
September 28, 2013*
September 30, 2013*

Initial
Disbursement
Limit

Note: September 29,
2013 is a Sunday and
FHA Connection will
not be available.
100% of Principal
Limit

Note: September 29, 2013 is a
Sunday and FHA Connection
will not be available.
Applicable To All Six
Payment Options
The greater of:
 sixty percent (60%) of the
Principal Limit; or
 the sum of Mandatory
Obligations plus ten
percent (10%) of the
Principal Limit.
Disbursements must not
exceed the combined total of
Mandatory Obligations plus
10% and cannot exceed the
Principal Limit amount
established at loan closing.

1

Mortgagors are subject to the prepayment requirements specified under the “Borrower’s Right to Prepay” found in
the HECM Note.

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Disbursement
Timeframe
Examples
(continued)

Disbursement
Time Frame

Subsequent
disbursements
after loan closing
and within first
12 months of loan
closing

Disbursements Timeframes
Disbursement Limits
Disbursement Limits for
for Case Numbers
Case Numbers Issued on,
Issued on, or Before,
or After,
September 28, 2013
September 30, 2013
100% of Principal Limit
Term, Tenure, LOC,
Modified Term, Modified
Tenure Payment Options
The greater of:
 sixty percent (60%) of
the Principal Limit; or
 the sum of Mandatory
Obligations plus ten
percent (10%) of the
Principal Limit.
Disbursements must not
exceed Net Principal Limit
or Principal Limit.
Single Disbursement
Lump Sum Payment
Option
Not Available

Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Disbursement
Timeframe
Examples

(continued)

Disbursements Timeframes
Disbursement Time Disbursement Limits Disbursement Limits for
Frame
for Case Numbers
Case Numbers Issued
Issued on, or Before,
on, or After,
September 28, 2013
September 30, 2013
Subsequent
100% of Principal
Term, Tenure, LOC,
disbursements after
Limit
Modified Term,
first 12 months of
Modified Tenure
loan closing
Payment Options
100% of available
Principal Limit.
Includes the portion of the
Principal Limit that was
unavailable during the
First 12-Month
Disbursement Period, plus
the unused portion of the
Net Principal Limit.
Single Disbursement
Lump Sum Payment
Option
Not Available

Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Mandatory
Obligations for
Traditional and
Refinance
Transactions

Mandatory Obligations include:












initial MIP;
loan origination fee;
HECM counseling;
reasonable and customary amounts, but not more than the amount actually
paid by the mortgagee for any of the following items:
o recording fees and recording taxes, or other charges incident to the
recordation of the insured mortgage;
o credit report;
o survey, if required by the mortgagee or the mortgagor;
o title examination;
o mortgagee’s title insurance;
o fees paid to an appraiser for the initial appraisal of the property
repair administration fee;
delinquent Federal debt;
amounts required to discharge any existing liens on the property;
customary fees and charges for warranties, inspections, surveys, engineer
certifications;
funds to pay contractors who performed repairs as a condition of closing,
in accordance with standard FHA requirements for repairs required by
appraiser; and
other charges as authorized by the Secretary.
Continue on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Mandatory
Obligations for
Purchase
Transactions

Mandatory Obligations include:









initial MIP;
loan origination fee;
HECM counseling;
reasonable and customary amounts, but not more than the amount actually
paid by the mortgagee for any of the following items:
o recording fees and recording taxes, or other charges incident to the
recordation of the insured mortgage;
o credit report;
o survey, if required by the mortgagee or the mortgagor;
o title examination;
o mortgagee’s title insurance;
o fees paid to an appraiser for the initial appraisal of the property
delinquent Federal debt;
fees and charges for real estate purchase contracts, warranties,
inspections, surveys, engineer certifications; and
other charges as authorized by the Secretary.

Mortgagees have the added responsibility for ensuring the indebtedness of
purchasing a new principal residence can be satisfied at closing and existing
purchase program requirements, such as funding sources, monetary
investment, gap financing, etc., as defined in Mortgagee Letter 2009-11 are
met.

Disbursements
Included in the
First 12-Month
Disbursement
Limit and
Initial MIP
Calculations

The following items must be included in the First 12-Month Disbursement
Limit and initial MIP calculations:





Disbursement to Mortgagor made at loan closing;
The amount of Mandatory Obligations;
Repair Set Aside;
Tax payments required by the Mortgagee, or requested by the Mortgagor,
to be paid at closing (It is common practice for Mortgagees to require that
taxes coming due within a certain amount of time, such as 30-45 days
following closing, be paid at closing);
Continued on next page

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Mortgagee Letter 2013-27
Initial Disbursement Limits
Disbursements
Included in the
First 12-Month
Disbursement
Limit and
Initial MIP
Calculations
(continued)





Tax and Insurance Payments scheduled for payment from the Property
Charge Set Aside or from HECM proceeds within the First 12-Month
Disbursement Period. Mortgagees must 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 1.2%.
The amount of the additional 10% of the Principal Limit that the
mortgagor has elected to have available (not taken at loan closing).

Important: The Servicing Fee Set Aside is not included in the First 12Month Disbursement Limit or the initial MIP calculation.
Note: The combination of Mandatory Obligations and required
disbursements described in this section which occur over the First 12-Month
Disbursement Period will reduce the amount of funds available to the
mortgagor during this period. The disbursements described in this section
must also be taken into account when calculating the initial MIP (see page 20
for information on how to calculate the initial MIP).
Continued on next page

20

Mortgagee Letter 2013-27
Mortgage Insurance Premiums and Principal Limit Factors
Overview

Consistent with existing authority, as described in Mortgagee Letter 2010-34,
this section of the Mortgagee Letter announces changes to the initial
Mortgage Insurance Premium (MIP) pricing options and changes to the
Principal Limit Factor Tables used to determine the amount of mortgage
proceeds that will be made available to mortgagors.
Effective for all case number assignments on or after September 30, 2013,
HECM Standard and HECM Saver initial mortgage insurance pricing options
will no longer be available.

Initial and
Annual
Mortgage
Insurance
Premium
Structure

HUD will charge an initial MIP of 0.50 percent (0.50%) of the Maximum
Claim Amount (MCA) when the sum of the mortgagor’s initial disbursement
at closing and other required or available disbursements during the First 12Month Disbursement Period is 60% or less of the Principal Limit.
HUD will charge an initial MIP of 2.50 percent (2.50%) of the MCA when a
mortgagor’s initial disbursement at closing and other required or available
disbursements during the First 12-Month Disbursement Period are greater
than 60% of the available Principal Limit.
To calculate initial MIP, mortgagees must first calculate the “Disbursements
Included in the First 12-Month Disbursement Limit” as defined on pages 18
and 19 of this Mortgage Letter.
Continued on next page

21

Mortgagee Letter 2013-27
Mortgage Insurance Premiums and Principal Limit Factors
Initial and
Annual
Mortgage
Insurance
Premium
Structure
(continued)

Where the mortgagor elects to take an initial disbursement of 60% or less and
HUD charges an initial MIP of 0.50%, the sum of the initial disbursement at
loan closing and any additional disbursements during the First 12-Month
Disbursement Period must not exceed 60% of the Principal Limit.
When the mortgagor is eligible for the additional 10% of the Principal Limit
during the First 12-Month Disbursement Period, the mortgagor must decide,
before loan closing, what amount of the additional 10% they want. The
mortgagor must notify the mortgagee of their decision and, if the mortgagor
elects not to receive a portion of the funds, the mortgagee must not make such
funds available at loan closing or during the First 12-Month Disbursement
Period. The mortgagee must calculate the initial MIP, which is to be remitted
to HUD, based on the amount of funds the mortgagor has elected to be made
available during the First 12-Month Disbursement Period.
The existing annual MIP rate of 1.25% will continue to be in effect for all
HECMs.
Initial Disbursement at
Initial MIP
Closing and During the First
12-Month Disbursement
Period
Amounts of 60 Percent or less of 0.50 Percent
the Principal Limit
Amounts greater than 60 Percent 2.50 Percent
of the Principal Limit

Annual MIP

1.25 Percent
1.25 Percent

Continued on next page

22

Mortgagee Letter 2013-27
Mortgage Insurance Premiums and Principal Limit Factors
Initial and
Annual
Mortgage
Insurance
Premium
Structure
(continued)

General MIP Example 1:
 Maximum Claim Amount: $200,000
 Principal Limit: $100,000
 60% of the Principal Limit: $60,000
 Mandatory Obligations: $20,000
 Repair Set Aside: $0
 Cash to Mortgagor at Loan Closing: $20,000
 Initial Disbursement Limit Amount: $60,000
 Disbursement Amount at Loan Closing: $40,000, includes cash to
mortgagor and Mandatory Obligations
 Initial MIP: $1,000 (The initial MIP calculation is 0.50% of MCA)
Note: If Mortgagor does not take cash at loan closing, the sum of additional
draws during the First12-Month Disbursement Period may not exceed
$40,000 because HUD charged an initial MIP of 0.50%.
General MIP Example 2:
 Maximum Claim Amount: $200,000
 Principal Limit: $100,000
 60% of the Principal Limit: $60,000
 Repair Set Aside: $1,000
 Mandatory Obligations: $70,000
 10% of the Principal Limit: $10,000
 Cash to Mortgagor at Loan Closing: $9,000
 Initial Disbursement Limit Amount: $80,000
 Disbursement Amount at Loan Closing: $80,000, includes cash to
mortgagor, the Repair Set Aside and Mandatory Obligations
 Initial MIP: $5,000 (The initial MIP calculation is 2.50% of MCA)

Continued on next page

23

Mortgagee Letter 2013-27
Mortgage Insurance Premiums and Principal Limit Factors
Initial and
Annual
Mortgage
Insurance
Premium
Structure
(continued)

General MIP Example 3:
 Maximum Claim Amount: $200,000
 Principal Limit: $100,000
 60% of the Principal Limit: $60,000
 Mandatory Obligations: $59,000
 Repair Set Aside: $0
 10% of the Principal Limit: $10,000 (Mortgagor opts to limit to 1% to
stay within 60% of Principal Limit)
 Cash to Mortgagor at Loan Closing: $1,000
 Initial Disbursement Limit Amount: $60,000
 Disbursement Amount at Loan Closing: $60,000, includes cash to
mortgagor and Mandatory Obligations
 Initial MIP: $1,000 (The initial MIP calculation is 0.50% of MCA)
Note: If Mortgagor had opted to take the full 10% of Principal Limit of
$10,000 at loan close or have it available for disbursement during the First
12-Month Disbursement Period, the total Initial Disbursement Limit Amount
during First 12-Month Disbursement Period would total $69,000 and the
initial MIP would have been 2.50% ($5,000)
General MIP Example 4:
 Maximum Claim Amount: $200,000
 Principal Limit: $100,000
 60% of the Principal Limit: $60,000
 Mandatory Obligations: $51,000
 Repair Set Aside: $0
 10% of the Principal Limit: $10,000
 Cash to Mortgagor at Loan Closing: $10,000
 Initial Disbursement Limit Amount: $61,000
 Disbursement Amount at Loan Closing: $61,000, includes cash to
mortgagor and Mandatory Obligations
 Initial MIP: $5,000 (The initial MIP calculation is 2.50% of MCA)
Note: If the mortgagor limited the initial disbursement to $60,000 (cash to
the mortgagor of $9,000 instead of $10,000), HUD would charge an initial
MIP of 0.50%)
Continued on next page

24

Mortgagee Letter 2013-27
Mortgage Insurance Premiums and Principal Limit Factors
Initial MIP
Calculation for
Refinance
Transactions

For all refinance transactions, mortgagees and counselors must use the
formula below to determine the amount of initial MIP due to HUD.
Formula:
(1) New MCA multiplied by *new initial MIP (%) = New MIP
(2) Old MCA multiplied by old initial MIP (%) = Old MIP
(3) Subtracting the result of (2) from the result of (1) yields the MIP amount
owed to HUD
* The new initial MIP percent (%) is determined by the mortgagor’s initial disbursement of
the 60% principal limit threshold at closing. If New MCA is less than the Old MCA, the
amount owed can be greater than zero or if New MIP less the Old MIP is a negative number,
the amount owed is zero.

Refinance MIP Example 1: From HECM Saver to NEW MIP with an
Initial Disbursement 60% PL
 New MIP: $400,000 x 2.50% = $10,000
 Old MIP: $480,000 x 0.01% = $48
 Initial MIP Amount Owed to HUD: $9,952
Note: If New MCA is less than the Old MCA, the amount owed can be
greater than zero
Refinance MIP Example 3: From HECM Standard to NEW MIP with an
Initial Disbursement 60% PL
 New MIP: $480,000 x 2.50% = $12,000
 Old MIP: $400,000 x 2% = $8,000
 Initial MIP Amount Owed to HUD: $4,000
Continued on next page

25

Mortgagee Letter 2013-27
Mortgage Insurance Premiums and Principal Limit Factors
Initial MIP
Calculation for
Refinance
Transactions
(continued)

Refinance MIP Example 5: NEW MIP to NEW MIP with an Initial
Disbursement 60% PL
 New MIP: $480,000 x 2.50% = $12,000
 Old MIP: $400,000 x 2.5% = $10,000
 Initial MIP Amount Owed to HUD: $2,000
Refinance MIP Example 8: NEW MIP to NEW MIP with an Initial
Disbursement > 60% PL
 New MIP: $480,000 x 2.50% = $12,000
 Old MIP: $400,000 x .50% = $2,000
 Initial MIP Amount Owed to HUD: $10,000

Applicability to
Payment Plan
Options and
Transaction
Types

The initial MIP changes are applicable to all interest rate indices and payment
plan options.

Continue on next page

26

Mortgagee Letter 2013-27
Mortgage Insurance Premiums and Principal Limit Factors
New Principal
Limit Factor
(PLF) Table

Entities responsible for educating and informing prospective mortgagors
about FHA’s HECM program requirements must use the new PLF table to
calculate Principal Limit to disclose the amount of mortgage proceeds that
will be available. Mortgagees will base the initial MIP and the Initial
Disbursement Limit on the calculated Principal Limit amount.
The new PLF table may be uploaded or copied from HUD’s web site directly
into any reverse mortgage technology system or tool used to support the
HECM program. The new PLF tables are accessible from the following web
site: http://www.hud.gov/offices/hsg/sfh/hecm/hecmhomelenders.cfm
FHA will release Version 2.0 of the HECM Calculation Software to
accommodate the new PLF table on September 30, 2013.
Continued on next page

27

Mortgagee Letter 2013-27
Mortgage Insurance Premiums and Principal Limit Factors
FHA
Connection
Case Number
Assignment
Screen Changes

To accommodate the changes to the initial MIP, mortgagees must use the
following ADP codes on or after September 30, 2013:
ADP Codes
ADP Description
HECM Fixed
961
HECM ARM
962
HECM Condominium/Fixed
967
HECM Condominium/ARM
968
Important: HECM Standard and HECM Saver ADP codes will no longer be
available in FHA Connection after September 28, 2013.

HECM
Standard
Adjustable
Interest Rate
Pipeline Loans

All mortgages that have an initial MIP designation of HECM Standard or
HECM Saver and were assigned a FHA case number on or before
September 28, 2013, may be processed as either a HECM Standard or HECM
Saver initial MIP option; but only if these mortgages close on or before
December 31, 2013.
Mortgagees should be sure that all mortgages currently in their pipeline or
that will be added to their portfolio on or before September 28, 2013, reflect
the proper ADP code. Once this Mortgagee Letter goes into effect HUD will
not allow HECM Saver and HECM Standard ADP Code changes.
Continued on next page

28

Mortgagee Letter 2013 –27
Credit Standing and Financial Assessment
Overview

An increasing number of tax and hazard insurance defaults by mortgagors
have heightened the need for a financial assessment of a potential mortgagor’s
financial capacity and willingness to comply with mortgage provisions.
Effective January 13, 2014, mortgagees must complete a financial assessment
of all prospective mortgagors prior to loan approval and loan closing.
The purpose of the financial assessment is to evaluate the mortgagors’
willingness and capacity to meet their financial obligations, and their ability
to comply with the mortgage requirements. The financial assessment is also
used to determine whether, and under what conditions, the prospective
mortgagor meets FHA eligibility criteria.

Financial
Assessment of
Mortgagors

Mortgagees must perform a financial assessment of all prospective
mortgagors on all HECM transaction types, i.e., traditional, refinance, and
purchase.
Key components of underwriting HECM transactions include a credit history
analysis, a cash flow/residual income analysis, analyzing compensating
factors and extenuating circumstances and determining if the HECM
applicant is eligible for the loan. Mortgagees must refer to Mortgagee Letter
2013-28, HECM Financial Assessment and Property Charge Guide for
specific guidance on:







performing the credit history analysis, cash flow/residual income analysis;
documenting and verifying credit, income, assets and property charges;
evaluating extenuating circumstances and compensating factors
evaluating the results of the financial assessment in determining eligibility
for the HECM;
determining if funding source for property charges from HECM proceeds
will be required; and
completing a HECM Financial Assessment Worksheet – See Appendix 1
of the HECM Financial Assessment and Property Charge Guide for a
model worksheet.

Note: For purchase transactions, mortgagees are responsible for ensuring
compliance with financial assessment standards contained in this
Mortgagee Letter and purchase program requirements found in Mortgagee
Letter 2009-11.
Continued on next page

29

Mortgagee Letter 2013–27
Credit Standing and Financial Assessment
Verification
Requirements
and
Documentation
Standards for
Financial
Assessment

Mortgagees must rely on the policy guidance in this Mortgagee Letter and the
HECM Financial Assessment and Property Charge Guide to complete the
financial assessment required for prospective mortgagors as a condition of
mortgage approval. In general, underwriters may rely upon the guidance
provided in HUD Handbook 4155.1, Mortgage Credit Analysis for Mortgage
Insurance for One-to-Four Unit Mortgages at
http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hu
dclips/handbooks/hsgh/4155.1 for documenting and verifying credit history,
income, assets and obligations.
A detailed Matrix of how to map the requirements of the HECM Financial
Assessment and Property Charge Guide to HUD Handbook 4155.1 and HUD
Handbook 4235.1 REV-1 is included in the Guide.

DE
Underwriter
Responsibility

The HECM financial assessment must be approved by a Direct Endorsement
(DE) Underwriter registered in FHA Connection by the underwriting
mortgagee.

Use of FHA’s
TOTAL
Scorecard

The use of FHA’s Total Scorecard for HECM financial assessments is not
permitted. The FHA TOTAL Scorecard is designed to evaluate the
creditworthiness of Forward Mortgages only.

NonDiscrimination
in Performing
Financial
Assessments

The financial assessment must be conducted in a uniform manner that shall
not discriminate because of race, color, religion, sex, age, national origin,
familial status, disability, marital status, actual or perceived sexual
orientation, gender identity, source of income of the mortgagor, or location of
the property.
Continued on next page

30

Mortgagee Letter 2013–27
Credit Standing and Financial Assessment
Property
Analysis

Mortgagees must follow existing policy with regard to the property analysis
for HECMs; including a determination of the need for any set asides to
complete required repairs. Where a repair set aside is required, the DE
Underwriter must factor the impact of this set aside into their financial
assessment.
Reminder: Mortgagees may use public records and data bases, in addition to
the current practice of ordering a title search and reviewing the appraisal, to
determine whether the property is freely marketable.
Resource: Refer to HUD Handbook 4235.1 REV-1, Chapter 3 and
Mortgagee Letter 2005-48 for more information on property analysis for
HECMs.

Credit History
Analysis

The credit history analysis includes:
 In-depth review of all components of the mortgagor’s credit report to
evaluate mortgagor debts, obligations and payment history to determine if
they have a satisfactory credit history that demonstrates ability to manage
finances and credit.
 Identify debts/obligations that must be included in the residual income
analysis.
 Determine if mortgagor has a demonstrated history of timely payments of
property taxes.
 Determine if mortgagor has maintained property and flood insurance on
the subject property.

Credit Report

Paragraph 4-8B of HUD’s Handbook 4235.1 REV-1, requires mortgagees
to obtain a three repository (tri-merged) credit report for all prospective
mortgagors and a credit report for a non-borrowing spouse when the
subject property is located in a community property state. Under this
existing guidance, mortgagees are required to review credit reports to:



check for any claims or delinquent/defaulted debts owed to the Federal
government; and
check for any unpaid liens against the property resulting from a State or
court-ordered judgment.
Continued on next page

31

Mortgagee Letter 2013–27
Credit Standing and Financial Assessment
Credit Report
(continued)

These requirements are expanded through this Mortgagee Letter to include a
full assessment of the mortgagor’s credit history. Mortgagees must also use
the Credit History Analysis policy guidance found in the HECM Financial
Assessment and Property Charge Guide.

Cash Flow and
Residual
Income
Analysis

Qualifying ratios are not calculated for HECMs. The financial assessment is
focused on assessing the mortgagor’s cash flow (income and expenses) and
residual income to determine if they have the capacity to meet their
obligations under the mortgage and to meet their living expenses.
Mortgagees must use Cash Flow and Residual Income policy guidance found
in the HECM Financial Assessment and Property Charge Guide.
This financial assessment includes traditional income sources used in
Forward Mortgage income analysis plus, as applicable, imputed income/asset
dissipation from all liquid assets which are defined as assets that can be
converted to cash within one-year without payment of an IRS penalty.
Expenses used in the cash flow analysis include Federal and State Income
Taxes, FICA, property charges, utility and maintenance charges, installment,
revolving, mortgage related payments to assess overall relationship between
cash flow available to the mortgagor and regular expenses and any other
regularly occurring obligation as may be applicable, such as alimony and
rental losses on other real estate owned.
The results of this analysis will reflect the mortgagor’s residual income and
will be used in conjunction with the credit analysis to determine their capacity
to meet their obligations.
The financial assessment also includes careful evaluation of extenuating
circumstances and compensating factors, including assessing whether the
HECM positively impacts the mortgagor’s financial capacity. Mortgagees
must use Extenuating Circumstances policy guidance found in the HECM
Financial Assessment and Property Charge Guide.
Continued on next page

32

Mortgagee Letter 2013–27
Financial Assessment Property Charge Funding
Requirements
Overview

This section of the Mortgagee Letter introduces two options for mortgagees to
require the use of HECM proceeds to pay the following property charges
(Property Taxes and assessments, Hazard and Flood Insurance) – a Lifetime
Expectancy Set-Aside (LE Set-Aside) and a mortgagor authorization for the
mortgagee to pay property charges from HECM monthly payments or Line of
Credit as they come due. All other property charges (see section below) must
be paid directly by the HECM Mortgagee.
Effective January 13, 2014, mortgagees are required to use one of these
options as a condition of the loan approval for mortgagors who do not meet
requirements defined for residual income, credit history and/or compensating
factors and extenuating circumstances as defined in this Mortgagee Letter and
the HECM Financial Assessment and Property Charge Guide. These options
will be available to mortgagors who want to take advantage of these options
even if it was not a requirement of the mortgagee.

Mortgagor
Requirements

As a condition of the mortgage, mortgagors must:
 pay property charges defined in the following section;
 keep the property in good repair; and
 maintain insurance coverage for the life of the loan, i.e., insures all
improvements on the property against any hazards, casualties, and
contingencies, including fire and flood.

Definition of
Property
Charges

Property charges that are obligations of the Mortgagor are defined as 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.

Property
Charges for
Which Funding
Requirements
Apply

Where the mortgagee determines, based on the results of the financial
assessment, that one of the property charge funding options is required, only
property taxes, hazard insurance and flood insurance are to be included in the
LE Set-Aside.
Mortgagors are responsible for paying all other property charges that are not
included in the LE Set-Aside.
Continued on next page

33

Mortgagee Letter 2013–27
Financial Assessment Property Charge Funding
Requirements
Funding
Requirements
for Payment of
Property
Charges

If the mortgagee does not require a LE Set-Aside or withholding of the
mortgage proceeds for purposes of paying property charges based on results
of the financial assessment, the mortgagor can:
 elect to have the LE Set Aside (see page 34 for additional information on
the LE Set-Aside); or
 elect to have mortgagee pay such charges in accordance with existing
requirements at § 206.205; or
 elect to be responsible for payment of the property charges.

Funding
Requirements
for Payment of
Property
Charges
(continued)

The following table compares current options available for the payment of
the property charges with the options that will be available when this
Mortgagee Letter goes in to effect:
Three Options

Life Expectancy SetAside (LE Set Aside)
of principal limit for
payment of property
charges*

Case Number
Issued On or
Before
January 11, 2014
Not Available




*Real estate taxes,
hazard insurance and
flood insurance only.

Mortgagee pays
property charges*
through disbursements
from the line of credit
or by withholding from
monthly disbursements
(Mortgage Proceeds)

Case Number Issued On
or After
January 13, 2014






Voluntary, at
mortgagor’s
request.
Mortgagor can
cancel at any
time.





*Real estate taxes,
hazard insurance and
flood insurance only.

Mortgagee requires
based on financial
assessment results
Mortgagor cannot
cancel if required as a
condition of the
mortgage.
Mortgagor may
voluntarily select if
not required by the
mortgagee and can
cancel at their request.
Mortgagee requires
based on financial
assessment results
Mortgagor cannot
cancel if required as a
condition of the
mortgage.
Mortgagor may
voluntarily select if
not required by the
mortgagee and can
cancel at their request.

34

Mortgagee Letter 2013–27
Financial Assessment Property Charge Funding
Requirements
Funding
Requirements
for Payment of
Property
Charges
(continued)

Funding
Requirements
for Property
Charges using a
Life
Expectancy SetAside

Three Options

Mortgagor responsible
for payment of
property charges

Case Number
Issued On or Before
January 11, 2014
 Mortgagor’s
decision

Case Number Issued
On or After
January 13, 2014
 Where the
mortgagee does not
require a LE SetAside or mortgage
proceeds, based on
the results of the
financial
assessment, the
mortgagor may
select this option
and can cancel at
their request.

Where the mortgagee requires a Life Expectancy (LE) Set-Aside of the
principal limit for property charges, based on the results of the financial
assessment (or a mortgagor selects this option), the amount of the LE SetAside shall be calculated based on the summation of the current tax and
hazard and flood insurance property charges, adjusted annually by 1.20% to
reflect anticipated increases over the term of the HECM, the expected rate,
and the life expectancy from the Total Annual Loan Cost (TALC).
Note: Mortgagees must refer to the attached HECM Financial Assessment
Reference Guide for the LE Set-Aside formula that is to be used to establish
this account.
Continued on next page

35

Mortgagee Letter 2013–27
Financial Assessment Property Charge Funding
Requirements
Funding
Mortgagees must inform mortgagors of the following:
Requirements
for Property
 That the amount of funds in the LE Set-Aside is based on the estimated
Charges using a
life expectancy of the youngest mortgagor and may be insufficient to
Life
cover property charges for the full length of that specified amount of time.
Expectancy Set That the mortgagor is responsible for the payment of property charges
Aside
when funds in the LE Set-Aside account are insufficient or no longer
(continued)

available.
If the LE Set-Aside funds are insufficient or no longer available and the
mortgagor fails to make the property charge payment in a timely manner,
mortgagees must make the property charge payment and charge the
mortgagor’s account.

Life Expectancy
Set-Asides and
Withholding of
Mortgage
Proceeds for
Property
Charge
Payments

When servicing HECMs for which property charges are paid through (1) Life
Expectancy Set-Asides of the principal limit, (2) withholding from monthly
disbursements, or (3) charges to the line of credit, mortgagees are responsible
for ensuring that:





payments are disbursed before bills become delinquent;
early payments are made to take advantage of a discount (whenever it is to
the mortgagor's benefit);
funds required under an LE Set-Aside or withheld from the mortgagor’s
proceeds for the mortgagee to pay property charges, are not to be held in
an escrow account;
payments for property charges are added to the mortgage balance only
when the mortgagee issues payment from the LE Set-Aside or from
mortgage proceeds; and

Continued on next page

36

Mortgagee Letter 2013–27
Financial Assessment Property Charge Funding
Requirements
Life

Expectancy SetAsides and
Withholding of
Mortgage
Proceeds for
Property
Charge
Payments
(continued)

Insufficient
Funds in a Life
Expectancy SetAside

the amount withheld from monthly disbursements is adjusted, after
performing an annual analysis, to ensure that sufficient funds are available
to make the anticipated disbursements for property charges during the
coming year.
o Any surplus is to remain in the LE Set-Aside to be applied to
subsequent years’ property charges.
o Any shortage is to be corrected by increasing the monthly withholding
from Term or Tenure payments to the mortgagor. The mortgagor shall
be given at least a ten-day notice of the adjustment in the withholding
and an adequate explanation of the reasons for any change.
o Mortgagees must provide notice to the mortgagor within ten days of
completion when the analysis indicates funds will be insufficient to
pay subsequent years’ of property charges.

The mortgagor is responsible for the payment of property charges when the
funds in the LE Set-Aside account are insufficient or no longer available. The
mortgagee must notify the mortgagor that the LE Set-Aside has been
exhausted and the mortgagor is responsible for making future property charge
payments.
If the mortgagor fails to make the payments:
 the mortgagee must make the property charge payment and charge the
mortgagor’s account.
 the mortgagee may establish procedures to pay the future property charges
from the mortgagor’s available principal limit if a pattern of missed
payments occurs.

Continued on next page

37

Mortgagee Letter 2013–27
Financial Assessment Property Charge Funding
Requirements
Insufficient
Funds in a Life
Expectancy SetAside
(continued)

If the mortgagor fails to make the payments after the LE Set-Aside is
exhausted, the mortgagee must advance its own corporate funds to pay the
property charges. FHA then reimburses the mortgagee as part of the
mortgage insurance claim, within the established limits.
Within 30 days of the first missed property charge and there are no remaining
LE Set-Aside funds or mortgage proceeds from which the mortgagee may
make payment, the mortgagee must:
 inform HUD and the mortgagor that an obligation of the mortgage has not
been performed;
 offer loss mitigation options to allow the mortgagor to bring the mortgage
into compliance.
The notice to the mortgagor must:




provide a 30-day period for the mortgagor to respond and arrange to bring
the mortgage into compliance;
encourage the mortgagor to seek assistance from a HUD-approved
counseling agency to receive free assistance in exploring viable
alternatives to comply with the terms of the mortgage; and
provide a list of loss mitigation options that may be available to the
mortgagor to bring the mortgage into compliance, including, at a
minimum:
o establishing a repayment plan, not to exceed a period established by
the Secretary,
o pursuing refinance of the HECM to a new HECM if there is sufficient
equity to pay off the existing mortgage and bring the property charges
current, and
o performing additional loss mitigation as may be required by the
Secretary through notice.

As part of any due and payable request made for the mortgagor’s failure to
pay property charges, the mortgagee must include documentation of their
efforts to contact and make arrangements with the mortgagor as required by
the Secretary. HUD may require a mortgagee to continue loss mitigation
efforts if HUD determines that the documentation provided does not
demonstrate a good faith effort to resolve the mortgagor’s failure to pay the
property charges.
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Mortgagee Letter 2013–27
Financial Assessment Property Charge Funding
Requirements
Funding
Requirement
for Property
Charges using
Mortgage
Proceeds

If the mortgagee determines that property charges must be funded through
HECM proceeds based on the results of the financial assessment (or a
mortgagor selects this option), mortgagees shall follow existing policy
guidance found in § 206.205 and Handbook 4330.1 Chapter 13. The
mortgagor cannot cancel this arrangement if required as a condition of the
mortgage.

Assignment of
Mortgage to the
Secretary

If the insured first mortgage is assigned to the Secretary, or if payments are
made through the second mortgage under the Demand Assignment process,
the Secretary is not required to assume responsibility for property charge
payments, but may do so depending on the mortgagor’s funding method.



The Secretary may continue to administer payments for property charges
for mortgagors with required methods of payment based on the results of
the financial assessment.
The Secretary may not assume responsibility for property charge
payments for mortgagors who do not have required methods of payment
based on the results of the financial assessment, despite the mortgagor’s
election.
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Mortgagee Letter 2013-27
Questions

Please address any questions about the topics addressed in this Mortgagee
Letter to the FHA Resource Center at 1-800-CALLFHA (1-800-225-5342).
Persons with hearing or speech impairments may reach this number via TTY
by calling the Federal Information Relay Service at 1-800-877-8339. For
additional information on this Mortgagee Letter, please visit
www.hud.gov/answers

Information
Collection
Requirements

The information collection requirements contained in this document have
been approved by the Office of Management and Budget (OMB) under the
Paperwork Reduction Act of 1995 944.U.S.C. 3501-3502. Approval of the
HECM Program is covered by OMB Control Numbers 2502-0059. 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 valid control
number.

Signature

Carol J. Galante
Assistant Secretary for Housing-Federal Housing Commissioner