Fha Allowable Fees

Navigating a Changing Reverse Mortgage Market

Retirement and aging columnist, Mark Miller's article, " How to Navigate the Changing Reverse Mortgage Market ,"  presents an overview of the HECM reverse mortgage product and discusses some of challenges faced by the industry, including the tax and insurance defaults, exits by three large lenders and the transition to fixed rate products.  Generally, Miller goes into more detail than the typical HECM review article.

In describing the general product provisions, the article calls the standard HECM fees steep.  This is a common refrain and he does not compare the HECM costs to other FHA insured loans to provide any perspective as to why he considers them to be high.  However, he does note that the competitive environment has led to cost cutting by many lenders.

To make his point about fees, Miller uses the example of a $400,000 home value and a 72 year old borrower and states the total allowable fees would be $21,284. Based upon this scenario, standard fees on this home value would be $8,000 for the MIP, $6,000 for origination and approximately $3,000 in third-party fees, for a total of roughly $17,000.  However, if his scenario was calculated in a state that includes a mortgage or intangible tax, such as Florida, this could account for additional estimated amount.

Miller points to changes in the market place as creating additional challenges for borrowers and the industry.  The exit by Fannie from the reverse mortgage market and entrance by Ginnie Mae drove the demand for fixed rate products.  The focus on the full draw product, with demand growing from a 3% market share to 70% in 2009, has put more pressure on the performance of the loans has loan balances accrue interest more rapidly.  He indicates that some experts do not see how a full draw product is appropriate for the vast majority of borrowers.  National Council of Aging Vice President Barbara Stucki is quoted saying the product was designed to allow borrowers to draw on their equity in small amounts over time to raise their standard of living.  This led to a much slower utilization of available equity compared to the fixed full draw loans.

VA Loans Fees: Who Pays HUD/FHA Inspection Fees? | VALoans.com

We’ve been discussing loan fees a borrower can and cannot pay. The Department of Veterans Affairs has rules in place to guide lenders as to what fees and expenses are allowable under the VA insured loan program, and which expenses may not be charged to the borrower.

There is a list of allowable fees, including itemized expenses such as appraisal fees, flood zone determination where required, and many others.

But there is also a list of fees the borrower may not pay, and the VA Lender’s Handbook states that the lender’s 1% flat fee is designed to cover expenses not chargeable to the borrower.

“The lender’s maximum allowable flat charge of one percent of the loan amount (or greater percentage in the case of construction loans) is intended to cover all of the lender’s costs and services which are not reimbursable as ‘itemized fees and charges.’  The lender may pay third parties for services or do as it wishes with the funds from the flat charge, as long as the lender complies with the Real Estate Settlement Procedures Act…”

The lender must not charge the borrower for a variety of things including the bank’s attorney fees, buyer broker fees, etc. The lender may not issue duplicate charges in cases where, for example, an appraisal has already been performed and has not expired. The borrower may not be charged for a flood zone determination that has already been made and paid for previously.

Another type of charge prohibited by VA loan rules? The VA loan applicant cannot be charged HUD/FHA inspection fees for builders in proposed construction projects.

If a buyer finds a property that was built under FHA or HUD supervision, the borrower cannot be charged a fee for re-inspections. According to VA loan rules, these fees “must be borne by the builder or sponsor and are not chargeable to the veteran-purchaser.”

That rule covers situations where there are required re-inspections “by VA or HUD of onsite or offsite work for which an escrow agreement was established, and any additional re-inspections deemed necessary by VA to assure conformity with VA regulations.

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