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e. Borrower Disbursements (04/29/2024)
i. Definition
Borrower Disbursements are all disbursements made to a Borrower from available HECM funds.
ii. Standard
Mortgagees must make all payments to the Borrower according to the current payment plan so long as the HECM is not Due and Payable subject to the Initial Disbursement Limit.
iii. Payment Plans
(A) Tenure Payment Option
The tenure payment option is available for adjustable rate HECMs. The Borrower receives fixed monthly payments so long as the HECM is not prepaid in full or becomes Due and Payable, or the payments do not exceed any maximum mortgage amount stated in the security instrument or would otherwise exceed the amount secured, even if the payments exceed the Borrower’s available Principal Limit.
(B) Term Payment Option
The term payment option is available for adjustable rate HECMs. The Borrower receives equal monthly payments for a term of months so long as the HECM is not prepaid in full or becomes Due and Payable, or the payments do not exceed any maximum mortgage amount stated in the security instrument or would otherwise exceed the amount secured by the first HECM lien, even if the payments exceed the Borrower’s available Principal Limit.
(C) Line of Credit Payment Option
The line of credit payment option is available for adjustable rate HECMs. The Borrower receives unscheduled payments at times and in amounts of the Borrower’s choosing.
(D) Modified Tenure Payment Option
The modified tenure payment option is available for adjustable rate HECMs. The Borrower must set aside a portion of the Principal Limit as a line of credit from which to draw at times and in amounts of their choosing, and receives the rest in equal monthly payments so long as the HECM is not prepaid in full or becomes Due and Payable, or the payments do not exceed any maximum mortgage amount stated in the security instrument or would otherwise exceed the amount secured by the first HECM lien.
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(E) Modified Term Payment Option
The modified term payment option is available for adjustable rate HECMs. The Borrower must set aside a portion of the Principal Limit as a line of credit from which to draw at times and in amounts of their choosing and receives the rest in equal monthly payments for a term of months selected by the Borrower.
(F) Single Lump Sum Payment Option
The single lump sum payment option is only available for fixed rate HECMs. The Borrower receives a single Disbursement at closing. After closing, the Mortgagee must not disburse HECM proceeds to the Borrower, except from a Set-Aside established at closing.
iv. Payment Plan Changes
(A) Voluntary Payment Plan Changes
The Borrower can request to change the payment plan at any time during the life of the HECM, unless the Borrower chose a lump sum payment plan at closing. The Mortgagee may charge a fee, not to exceed $20, for changing the Borrower’s payment plan.
(1) Standard
The Mortgagee must send the Borrower a written explanation of the terms, including the option for the Borrower to sign and return the new payment plan, within five business days of receipt of the Borrower’s request for a new payment plan. The Mortgagee must complete the payment plan change within five business days of receipt of the new signed payment plan from the Borrower.
(2) Required Documentation
The Mortgagee must retain copies of the written explanation sent to the Borrower and the signed payment plan received from the Borrower in the Servicing File for the HECM.
(B) Required Payment Plan Changes
The Mortgagee must change a Borrower’s payment plan when:
• a Borrower with a term or tenure payment plan has funds remaining in a Repair Set-Aside after all repairs are completed and paid in full;
• payments that have been suspended for more than six months resume; or
• the Borrower has failed to make a required property charge payment before the due date and the Borrower does not have sufficient available funds in an existing line of credit to pay the expense, but does have funds available if monthly payments are converted to a line of credit.
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(1) Definition
Property Charges refer to obligations of the Borrower that include:
• property taxes;
• Hazard Insurance premiums;
• applicable Flood Insurance premiums;
• Ground Rents;
• Homeowners’ Association (HOA)/Condominium Fees;
• Planned Unit Development (PUD) fees; and
• other special assessments that may be levied by municipalities or state law.
(2) Standard
When a payment plan change is required, the Mortgagee must modify the Borrower’s payment plan and provide written notice to the Borrower of the new payment plan and the reason for the payment plan change within five business days of the payment plan change.
(3) Required Documentation
Mortgagees must keep documentation of the reason for the payment plan change and the notice provided to the Borrower in the Servicing File.
v. Late Charges
(A) Standard
The Mortgagee must pay a Late Charge and interest to the Borrower for any scheduled disbursement made after the first business day of the month or any line of credit payment made more than five business days after the receipt of request for disbursement as follows:
For HECMs with case numbers assigned before September 19, 2017:
• 10 percent of the amount of the payment due to the Borrower; and
• interest at the daily HECM Note interest rate on the late payment for each Day the payment is late, the total of which shall not exceed $500.
For HECMs with case numbers assigned on or after September 19, 2017:
• 10 percent of the amount of the payment due to the Borrower, not to exceed $500 on a single late payment; and
• interest at the daily HECM Note interest rate on the late payment for each Day the payment is late.
If the HECM has an adjustable interest rate, the rate in effect when the Late Charge first begins to accrue must be used.
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For each additional day that the Borrower does not receive payment, the Mortgagee shall pay interest at the mortgage interest rate on the late payment. The Mortgagee must pay any Late Charges and interest from Mortgagee funds and must not add them to the outstanding HECM balance.
(B) Required Documentation
The Mortgagee must include documentation of the Late Charges and interest paid to the Borrower in the Servicing File. This must include the amount of the Late Charge and interest paid, the date that the payment was made, and evidence of the method by which the payment to the Borrower was made.
vi. Initial Disbursement Limit
Monitoring and Tracking Disbursements
During the First 12-Month Disbursement Period, the Mortgagee must monitor and track all Disbursements to ensure that the total of all Disbursements does not exceed the Initial Disbursement Limit.
vii. Required Documentation
The Mortgagee must:
• maintain a transaction history that includes the amount and date of each Disbursement;
• upload all transactions to HERMIT by the last Day of the month; and
• retain copies of all written requests for funds in the Servicing File including the date the request was received.
viii. Mortgagee Unable or Unwilling to make Required Borrower Payments
When the Commissioner determines the Mortgagee is unable or unwilling to make payments to a Borrower owed under the HECM, the Mortgagee must ensure the following information is provided and accurate in the Home Equity Reverse Mortgage Information Technology (HERMIT) system:
• FHA case number;
• payment plan type;
• disbursement type (scheduled or unscheduled);
• payment amount;
• payment method – check or Automated Clearing House (ACH) transfer; and
• bank routing number and account number for ACH transfers.
A Mortgagee must provide the above referenced information to the HERMIT system via the HERMIT Secure File Transfer Protocol (SFTP) Server no later than one business day following the date the Borrower payment should have been made. This information must be provided in an Excel spreadsheet or Comma Separated Values (.csv) file. The Mortgagee
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must also send an email to servicingsupport@hermitsp.com and answers@hud.gov notifying all parties that a file has been uploaded. Mortgagees must not send the file directly through email. In the event this process needs to be initiated and a Mortgagee does not know how to access the HERMIT SFTP site, please contact servicingsupport@hermitsp.com for instructions.