FHA issued Mortgagee Letter 2021-08, updating Home Equity Conversion Mortgage (HECM) requirements with respect to interest rate changes. Per the Mortgagee Letter, FHA:
- removed approval for the use of the LIBOR index for adjustable rate HECMs;
- approved the Secured Overnight Financing Rate (SOFR) index for adjustable rate HECMs;
- now permits lenders to commingle index types for newly originated annual adjustable rate HECMs when establishing the expected average mortgage interest rate using the U.S. Constant Maturity Treasury (CMT) and the initial mortgage interest rate (Note rate) and periodic Note rate adjustments using the SOFR index; and
- set zero as the “floor” for the index value used to determine the Note rate.
FHA also provided new model Note language that incorporates the changes described above.
The updated requirements generally apply to HECMs closed on or after May 3, 2021. LIBOR-based HECMs must close on or before May 3, 2021 to be eligible for FHA insurance. With respect to the revised model Notes, lenders may immediately begin using the revised model Note for all CMT indexed HECMs. Lender must use the revised model note for all SOFR indexed HECMs. Lenders must use the revised model Note for all HECMs closed on or after July 1, 2021.
Click here to view the FHA Mortgagee Letter 2021-08: https://www.tenaco.com/wp-content/uploads/2021/03/FHA-Mortgagee-Letter-2021-08.pdf
