Page 1468
h. Interest Rate Changes for Adjustable Rate HECMs (04/29/2024)
i. Definition
Adjustable Rate HECMs refer to HECMs for which the interest rate will be adjusted periodically (monthly or annually) based on the Borrower’s election at closing.
ii. Determining Periodic Adjustments to the Note Interest Rate
When determining the Note interest rate and subsequent rate adjustments, the Mortgagee must use an index type approved by the Secretary. The margin is the same margin used to determine the initial Note interest rate and the periodic adjustments to the Note interest rate.
When adjusting the rate for the Constant Maturity Treasury (CMT) Index, the Mortgagee must:
• use the one-month or one-year CMT rate in effect 30 Days before the change date; and
• provide the Borrower with a Notice of Interest Rate Change at least 25 Days before an adjustment to the interest rate.
When adjusting the rate for the Standard Overnight Financing Rate (SOFR) Index, the Mortgagee must:
• use the 30-day average SOFR rate in effect 30 Days before the change date; and
• provide the Borrower with a Notice of Interest Rate Change at least 25 Days before an adjustment to the interest rate.
iii. Notice of Rate Change
The Notice of Interest Rate Change must advise the Borrower of the following:
• the new HECM interest rate;
• the current index value; and
• the publication date of the index.
iv. Required Documentation
The Mortgagee must retain in the Servicing File:
• supporting documentation of the interest rate used in the adjustment; and
• a copy of the Notice of Interest Rate Change sent to the Borrower.
Page 1469
III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages
1. Servicing of FHA-Insured HECMs