A reverse mortgage origination fee on a HECM is the lender’s charge, capped by 24 CFR 206.31 at the greater of $2,500 or 2 percent of the first $200,000 of maximum claim amount plus 1 percent of the remainder, with a total that may not exceed $6,000 unless HUD raises that cap. Jay Zayer, CRMP, is a reverse mortgage specialist at reversemortgage.coach. On most California and Arizona values I see, the formula hits the $6,000 ceiling. That ceiling is not a suggestion.
Consider what happens when Milo, 70, occupies a house in Riverside, California, and a seminar said origination was “2% of the house.” That is not 24 CFR 206.31. See total closing costs for the full stack. Stay here for the origination formula.
A HECM remains FHA-insured. Origination is not a public surcharge you can waive by asking nicely.
How does the 24 CFR 206.31 formula actually print before the cap?
Maximum claim amount is the lesser of appraised value and the 2026 cap of $1,249,125 in Mortgagee Letter 2025-22. Take 2% of the first $200,000 of that claim amount, then 1% of the rest, then stop at $6,000. On a $750,000 claim amount: 2% of $200,000 is $4,000; 1% of $550,000 is $5,500; the sum is $9,500; the cap cuts it to $6,000. On a very small claim amount the floor of $2,500 can matter. I will not invent a CPI increase HUD has not published.
Milo’s leftover cash still lands in a mid-30s to low-50s percent of appraised value, depending on age and expected rate, after origination, 2.00% initial MIP of claim amount (Mortgagee Letter 2017-12), and third-party costs. Run the leftover-cash worksheet. Do not interpolate HUD rows.
Counseling still costs $125–$175. That is not origination. In California, Civil Code 1923.2(k) still inserts seven days before anyone accepts a complete application.
How does the $6,000 cap actually hit, and can a lender charge less?
Most files I originate hit the cap. A lender may charge less as a concession. A lender may not charge more than HUD’s cap on a HECM. Third-party title, escrow, recording, and appraisal are not origination. Annual MIP of 0.50% of outstanding balance is not origination. Do not let a Loan Estimate hide origination inside a junk line.
A second geography: a 62-year-old in Buckeye whose Arizona house is closer to the formula floor. Same regulation. Different printout. Same leftover-cash gate.
If residual income requires a LESA, that set-aside is origination-only. Jay confirmed it cannot be modified after closing. A LESA is not a discount on origination.
Origination on a new HECM-to-HECM is a fresh 24 CFR 206.31 charge; I still mention ~30 days as my average close on a complete refinance file. Origination on that new loan is a new 24 CFR 206.31 charge, not a copy of the old one.
How is HECM origination different from proprietary origination?
Proprietary programs Jay closes — HomeSafe, Longbridge Platinum, Finance of America, Mutual of Omaha Secure Equity — have no 24 CFR 206.31 cap. Some shops are competitive. Some are not. Compare written Loan Estimates. A “no origination” proprietary quote can still lose leftover cash to rate. An adjustable HECM still accrues at 1-month CMT plus lender margin. Expected rate still rounds to 0.125% under 24 CFR 206.3.
If Milo’s heirs later keep the Riverside house, 24 CFR 206.125(a)(2)(i) still names the outstanding balance. Origination already sitting in that balance is not rebated.
Can a lender credit origination, and does that raise leftover cash?
A lender may charge less than the 24 CFR 206.31 cap. A credit that actually reduces origination dollars raises leftover cash by those dollars. A credit that is offset by a higher margin can lower leftover cash because expected rate rises and the HUD factor falls. Milo should compare leftover cash on two Loan Estimates, not origination headlines.
On a $400,000 claim amount, 2% of $200,000 is $4,000 and 1% of $200,000 is $2,000, so the formula prints $6,000 and the cap does not cut further. On a $750,000 claim amount the uncapped formula printed $9,500 and the cap cut it to $6,000. Arithmetic belongs on the LE. Slogans do not. Proprietary origination can sit above $6,000. That is why the HECM cap exists as a consumer protection, not as a product-choice headline.
Who should not pick a lender on an origination slogan alone?
This path does not help a household that wanted the lowest origination line and ignored leftover cash after 2.00% of claim amount. Occupancy is still 24 CFR 206.39. I work with multiple lenders. I will originate when the HUD-capped fee sits inside a leftover-cash story that is actually useful. I will turn away a “zero origination” chase whose only thesis is a headline.
If leftover cash after origination and initial MIP is decorative, skip the HECM. The $6,000 cap is a consumer protection. It is not a reason to originate a thin file.
Milo should read origination as one line on a leftover-cash worksheet, not as the whole cost of a Riverside HECM. 2.00% initial MIP is usually larger. Third-party costs still exist. A lender who cuts origination and raises margin can shrink leftover cash. Compare two Loan Estimates to the leftover-cash line. The 24 CFR 206.31 cap is a ceiling, not a slogan that makes a thin Riverside file wise. Compare leftover cash after origination, 2.00% initial MIP, and third-party costs. A $6,000 headline with decorative leftover cash is still a skip.