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k. Prepayment (04/29/2024)
i. Definition
A Prepayment in Full, or Payoff, refers to the payment in whole of the principal amount of the HECM in advance of expiration of the term of the HECM.
ii. Standard
The Mortgagee must accept a prepayment of a HECM in whole or in part without penalty to the Borrower.
iii. Prepayment Procedures
If the Borrower prepays the HECM in full, the HECM is terminated.
iv. Trustee Fees for Satisfaction
The Mortgagee must operate in accordance with the security instrument when preparing the satisfaction. If the security instrument allows, the Mortgagee may charge the Borrower:
• the amount of the trustee’s fee including any reasonable and customary fees; or
• for the execution of a satisfaction, the release of trustee’s deed when the debt is paid in full.
v. Recordation Fees for Satisfactions
The Mortgagee may charge the Borrower for recordation fees incurred where the cost of recordation is not the responsibility of the Mortgagee in accordance with state, local, and tribal law.
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III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages
1. Servicing of FHA-Insured HECMs
vi. Application of Prepayments
The Mortgagee must apply Borrower payments in accordance with the HECM Note and in the following order:
• MIPs;
• servicing fees;
• interest; and
• principal.
vii. Application of Partial Prepayments
(A) Definition
A Partial Prepayment refers to a payment of part of the principal amount before the date on which the principal is due.
(B) Standard
The Mortgagee must allow the Borrower to make a Partial Prepayment at any time. The Mortgagee must apply Partial Prepayments in accordance with the mortgage Note and in the following order:
• MIPs;
• servicing fees;
• interest; and
• principal.
The Mortgagee must not provide a Borrower with a fixed rate HECM with any additional funds, regardless of a Partial Prepayment.
For Borrowers with an adjustable interest rate and for whom a Partial Prepayment results in additional Principal Limit to become available to the Borrower, the Mortgagee must allow the Borrower to determine how the additional Principal Limit is used. The Borrower may choose to:
• increase monthly payments by reducing the outstanding balance and increasing the Net Principal Limit (NPL) available;
• set up or increase a line of credit without altering existing monthly payments by reducing the outstanding balance and increasing the NPL; or
• continue payments that have ceased or are nearing cessation.
If the Borrower does not designate an account, the Mortgagee must apply any funds going toward the principal to:
• an existing line of credit; or
• create a new line of credit in accordance with the HECM loan agreement.
Any change in subsequent payments to the Borrower must be made only at the Borrower’s request or to accommodate payment of expenses on the Borrower’s behalf.
Page 1476
III. SERVICING AND LOSS MITIGATION B. Title II Insured Housing Programs Reverse Mortgages
1. Servicing of FHA-Insured HECMs