FHA Single Family Housing Policy Handbook 4000.1, II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT > B. Title II Insured Housing Programs Reverse Mortgages > 8. Programs and Products - HECM Refinance (04/29/2024) — b. HECM Refinance

b. HECM Refinance (04/29/2024) HECMs to be insured under the HECM Refinance program must be processed and underwritten in accordance with the requirements in Origination through Post- closing/Endorsement, except where noted otherwise in this section.

i. Definition HECM-to-HECM Refinance (HECM Refinance) refers to a new HECM where the proceeds will be used to pay off the property indebtedness of the current HECM and any existing eligible lien. Original HECM refers to the first HECM that was endorsed by FHA. Mortgagee Optional Election (MOE) Assignment refers to an assignment option available to Mortgagees for cases where an FHA case number was assigned prior to August 4, 2014, and is associated with an Eligible Surviving NBS.

ii. Standard The Borrower must pay off any existing non-HECM lien on the subject Property that cannot be subordinated to the first and second HECM liens, and costs associated with the refinance transaction. When the HECM is in a deferred Due and Payable status, due to the death of all Borrowers, and the Eligible Non-Borrowing Spouse (NBS) seeks to obtain a HECM as a Borrower on the Property serving as collateral for the existing HECM, the transaction cannot be originated as a HECM Refinance, but must be originated as a traditional transaction provided that all Borrower eligibility requirements are met.

iii. Counseling Requirements Waiver of Counseling on HECM Refinances The Borrower and NBS may elect not to receive counseling in a HECM Refinance if the following conditions are met: (i) the original HECM was assigned a case number on or after August 4, 2014, and the Borrower and NBS, if applicable, received HECM counseling; or the original HECM was assigned a case number prior to August 4, 2014, and there is no NBS as determined by the MOE Assignment policies; (ii) the Borrower has received form HUD-92901, Home Equity Conversion Mortgage (HECM) Anti-Churning Disclosure. See HECM Anti-Churning Disclosure; (iii) the increase in the Borrower’s Principal Limit (block 2 of form HUD-92901) exceeds the total cost of the refinancing by an amount equal to five times the cost of the transaction (block 1 of form HUD-92901); and (iv) the time between the date of closing on the original HECM (i.e., the first time the Borrower obtains an FHA-insured HECM) and the application for refinancing does not exceed five years, even if less than five years have passed since a previous refinancing. The five-year period in bullet (iv) above does not restart with each new refinance, even when the Borrower has received HECM counseling since the original HECM. Mortgagees are responsible for obtaining documentation to confirm the date of closing of the original HECM.

iv. Processing of a HECM Refinance (A) Churning (1) Definition Churning refers to a practice whereby Mortgagees engage in multiple refinances to generate additional profit from fees and charges. The churned HECMs are not made in the interest of the Borrower and provide no financial benefit to the Borrower. (2) Standard The Mortgagee must provide the Borrower with a completed form HUD-92901, within three Days of taking initial loan application, disclosing: • their best estimate of the total cost of the mortgage transaction; • the increase or decrease in the Borrower’s Principal Limit; and • the amount of any additional HECM funds that will be available to the Borrower as a result of the refinancing. If the Principal Limit of the HECM Refinance is lower than the Borrower’s current Principal Limit, the change must be entered as a negative number. (3) Required Documentation HECM Anti-Churning Disclosure Confirm the original form HUD-92901 is signed and dated by the Borrower. The Settlement Statement or similar legal document must indicate that all existing mortgage liens have been fully satisfied or are subordinate to the first and second HECM liens. (B) Ordering a Case Number The Mortgagee must enter the FHA case number of the existing HECM being refinanced. FHAC will not issue a case number if the existing case number is “terminated” or Due and Payable. The Mortgagee must terminate the existing case number in HERMIT after closing and once the outstanding loan balance of the existing HECM is satisfied.

v. Property Eligibility Condominium Refinances HECM Refinance transactions do not require Condominium Project Approval or Single- Unit Approval. If the Unit is in a Condominium Project that has an FHA Condo ID, the Mortgagee must enter the FHA Condo ID when the FHA case number is requested.

vi. Allowable Mortgage Parameters (A) Reduction of Initial Mortgage Insurance Premium At least one Borrower from the original HECM must be a Borrower on the HECM Refinance for the transaction to be eligible for reduced Initial Mortgage Insurance Premium (IMIP). (B) Calculation of Initial Mortgage Insurance Premium Mortgagees must use the formula below to determine IMIP due (IMIPdue) to HUD: (1) IMIPnew = MCAnew × IMIP ratenew (2) IMIPold = MCAold × IMIP rateold or, if this HECM has previously been refinanced: IMIPold = MCAold × IMIP rateold −previous IMIP credit (3) IMIPlimit = [(MCAnew −MCAold) × 0.03] −IMIPold (4) IMIPdue = min x≥0 (IMIPlimit, IMIPnew) IMIPnew is calculated by multiplying the new IMIP rate by the new MCA of the property being refinanced. For HECMs being refinanced for the first time, IMIPold is calculated by multiplying the original IMIP rate by the original MCA of the property being refinanced. For HECMs previously refinanced, IMIPold is calculated by multiplying the prior IMIP rate by the prior MCA of the property being refinanced, then subtracting IMIP credit previously applied. IMIPlimit is calculated by multiplying 0.03 by the difference between the new MCA and old MCA, then subtracting the value calculated for IMIPold. IMIPdue is the lesser of IMIPlimit or IMIPnew, but cannot be less than zero. If IMIP paid on the existing HECM is greater than the new IMIP due, there will be no refunds. No additional credit is given for the IMIP paid on the last HECM transaction. (C) Calculation of Monthly Mortgage Insurance Premium Mortgagees must use the formula of one-twelfth of 0.50 percent multiplied by the outstanding mortgage balance to calculate the monthly Mortgage Insurance Premium (MIP). The amount of the annual MIP will begin to accrue on the outstanding mortgage balance from the day after the expiration of the rescission period.