**U. S. Department of Housing and Urban Development**

Washington, D.C. 20410-8000

February 18,1999

OFFICE OF THE ASSISTANT SECRETARY

FOR HOUSING-FEDERAL HOUSING COMMISSIONER

> **MORTGAGEE LETTER** 99-2

**To: ALL APPROVED MORTGAGEES**

**SUBJECT:** Implementation of the Final Rule - HECM Consumer Protection
Measures

On October 21, 1998, the President signed legislation that amended
Section 225(d) of the National Housing Act (12 U.S.C 1715z-20(d)). This
amendment mandated certain disclosure requirements and prohibited
unnecessary funding or excessive costs associated with obtaining a Home
Equity Conversion Mortgage (HECM). The legislation required that, within
90 days of the enactment date of the law, HUD publish a final rule
requiring that the senior homeowner receive a full disclosure of all
costs, including estate planning, financial advice and other services
that are related to the mortgage, but are not required to obtain a HECM
loan. Senior homeowners must be informed that if the information
provided by these services can be obtained for minimal or no charge,
then the costs cannot be financed with HECM proceeds.

The final rule is designed to protect senior homeowners in the HECM
program from becoming liable for payment of excessive fees for third
party services that may have little or no value and are not necessary.
The final rule governing Home Equity Conversion Mortgages, Consumer
Protection Measures Against Fees, was published on January 19, 1999, in
the *Federal Register* and is effective on February 18, 1999. A copy of
this rule is attached to this Letter and also can be viewed on the
Internet at:

**http://www.access.gpo.gov/su_docs/aces/aces140.html**

**[Requirements for HECM Counselors]{.underline}**

Effective February 18, 1999, a HECM program counselor must discuss with
the senior homeowner whether they have signed a contract or an agreement
with an estate planning service firm that requires a senior homeowner to
pay a fee on or after closing. Counselors must inform the senior
homeowner

that these services are unnecessary to obtain a HECM loan and are
**ineligible** for payment from HECM proceeds. The counselor must
annotate this information on the **Counselor\'s Certificate.**

**[Requirements for HECM Mortgagees]{.underline}**

For HECM applications signed on or after February 18, 1999, the
mortgagee must provide the borrower with a Good Faith Estimate and
inquire whether the loan proceeds will be used to pay any cost
associated with estate planners as outlined in the rule and provide any
explanation or clarification for the use of the HECM proceeds. The
mortgagee must inform the borrower that these services are unnecessary
to obtain a HECM loan and are **ineligible** for payment from HECM
proceeds. Although the borrower has received a Good Faith Estimate, the
mortgagee must clearly state to the borrower which charges are required
to obtain the mortgage and which are not. If the senior homeowner
requests up-front funds of 25% or more of the principal limit, the
mortgagee must make sufficient inquiry at closing to confirm that the
HECM proceeds will not be used for payments to or on behalf of an estate
planning service firm. The HECM application must be annotated to
document that the mortgagee has made inquiry.

The information collection requirements at \_ 206.32, 206.41 and 206.43
of this rule have been approved by the Office of Management and Budget
(OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
The OMB number issued for this requirement is OMB 2502-0534.

If there are any questions concerning this Mortgagee Letter, please
contact the Homeownership Centers in Atlanta, Denver, Philadelphia or
Santa Ana.

Sincerely,

William C. Apgar

> Assistant Secretary for Housing-
>
> Federal Housing Commissioner

Attachment