Reverse Mortgage Regulations and Program Details
This domain tests whether you can place a HECM inside its legal stack: which authority sets each rule, which body enforces it, and what the borrower must be told. Questions here are often about the source of a requirement rather than the requirement itself.
The layers of authority
- Statute. Section 255 of the National Housing Act authorizes FHA insurance of reverse mortgages; every HECM traces back to it.
- Regulation. 24 CFR Part 206 is the HECM rulebook covering eligibility, principal limits, servicing, and claims.
- HUD guidance. Mortgagee Letters and the Single Family Housing Policy Handbook 4000.1 carry binding, current instructions and frequently change practice before the CFR is amended.
- Consumer-law overlay. Regulation Z §1026.33 governs reverse mortgage disclosures, including the Total Annual Loan Cost (TALC) in place of an APR. RESPA/Regulation X, ECOA/Regulation B, HMDA, and the SAFE Act (state licensing through NMLS) also apply, and states add their own statutes, counseling lists, and disclosure forms.
Who does what
HUD insures the loan and approves counselors; the mortgagee originates, underwrites, and services it; the borrower keeps title. HUD is never a party to the loan contract, and no HUD employee approves an individual borrower.
Worked example
A client asks, "Does the government set my interest rate?" Reasoning: HUD sets insurance rules and the annual maximum claim amount, but the lender sets the note rate and margin within program limits, and the TALC shows the projected cost to the borrower. Answering "HUD sets the rate" is inaccurate and is a classic distractor.
Traps
- Treating a Mortgagee Letter as optional guidance; it is binding on mortgagees.
- Confusing TALC with APR; reverse mortgages are exempt from the APR requirement.
- Assuming federal law preempts state consumer protections; state rules still apply.