HECM TO HECM
FUNDAMENTALS
What is it?
A Home Equity Conversion Mortgage (HECM) to HECM refinance refers to the process of refinancing an existing HECM reverse mortgage with a new HECM loan. The process allows borrowers to take advantage of a number of factors to obtain more favorable terms on their previous reverse mortgage.
Here's how the HECM to HECM refinance works:
1. Existing HECM Loan: The homeowner already has a HECM reverse mortgage in place.
2. Refinance Decision: The homeowner decides to refinance the existing HECM loan, possibly due to changes in interest rates, a desire for different loan terms, or other financial considerations. Some reasons for an increase in accessible equity could be a decrease in interest rates, an increase in the borrower’s age, an increase in the home’s value, new protections that have been instituted for non-borrowing spouses, and other bona fide benefits to the borrower. Give me a call to go over your specific scenario and run the numbers to see if a refinance is advantageous and whether it fits under the FHA guidelines for a refinance.
3. New HECM Loan: The homeowner applies for a new HECM loan, which will replace the existing reverse mortgage. The new loan may have different terms, such as a new interest rate or payment structure.
4. Approval and Closing: If the homeowner qualifies for a new HECM loan, the file is submitted, and once approved, the closing process takes place. During the closing process, the previous HECM is paid off, and the new loan terms take effect.
WAIVING COUNSELING
Opting out of counseling is a possibility for some borrowers who have undergone counseling from an FHA-approved counselor in connection with a previous HECM. However, the decision to waive the session is subject to specific FHA and state regulations.
The FHA mandates the following conditions for waiving counseling:
1. The borrower must sign the Anti-Churning Disclosure.
2. The current HECM loan must have been closed within five years of obtaining the new HECM loan.
3. The benefits the borrower gains from refinancing into a new loan should be at least five times the cost of the refinance.
Meeting all these criteria is necessary, but additional considerations come into play based on state requirements. Some states mandate counseling for borrowers undergoing refinancing, irrespective of FHA provisions allowing them to skip the session. It is advisable to consult your compliance department to ensure that the states in which you operate permit borrowers to bypass counseling when refinancing.
