FHA Extends HECM Second Appraisal Rule, Expands Non-Borrowing Spouse Protections

The Federal Housing Administration (FHA) announced Monday that it will continue its Home Equity Conversion Mortgage (HECM) collateral risk assessment requirements announced in 2018, and will relax requirements for some non-borrowing spouses to defer repayment of reverse mortgage loans.

The agency relayed the changes in two separate mortgagee letters issued Monday, both being effective immediately.

The first, Mortgagee Letter 2019-15, updates the Mortgagee Optional Election (MOE) Assignment for HECMs with case numbers assigned prior to August 4, 2014. Under the MOE options previously available to non-borrowing spouses, some eligible non-borrowing were able to defer loan repayment under certain terms and time frames.

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The changes outlined Monday under the FHA’s Reverse Mortgage Stabilization Act (RMSA) authority include updates to the MOE assignment election and assessment deadlines and notification requirements; elimination of the 120-day timeframe for bringing current all property charges on a HECM that is subject to a pre-existing loss mitigation repayment plan; establishment of a 180-day reasonable diligence timeframe to initiate an MOE Assignment; elimination of the requirement for an eligible surviving non-borrowing spouse to obtain good and marketable title to the HECM property or demonstrate the legal right to reside in the property for life, and modification of related certifications and assignment criteria; and a new requirement for mortgagees to request information from borrowers to attempt to identify Non-Borrowing Spouses.

The National Reverse Mortgage Lenders Association welcomed the adjustment in spite of a challenging implementation timeline.

“Our Servicer members have been challenged by fairly rigid timelines when trying to offer the Mortgagee Optional Election of assignment to certain Non Borrowing Spouses,” the association said in an emailed statement Monday. “NRMLA greatly appreciates HUD’s decision to adjust the MOE requirements, via Mortgagee Letter 2019-15, in a manner that should provide relief to the HECM servicers, and the seniors they serve. While it will be difficult to operationalize this guidance with the immediate effective date, we believe the outcomes should be welcome by all stakeholders.”

Under the second Mortgagee Letter, ML 2019-16, the agency states it is extending indefinitely the collateral risk assessment requirement for FHA-insured reverse mortgages, commonly known as the second appraisal rule.

FHA previously indicated it would review the impact of the requirements periodically and extend them accordingly.

“As a result of periodic reviews, FHA has determined that the collateral risk assessment requirements announced in ML 2018-06 are having the desired effect in mitigating collateral risk valuations and will remain in effect,” the agency stated in announcing the extension.

NRMLA expressed its understanding of the extension, given its protection of the Mutual Mortgage Insurance Fund, which provides insurance to HECM borrowers.

“NRMLA understands that the Collateral Risk Assessment is having its intended impact in protecting the MMI Fund, therefore we understand the Department’s decision to continue this policy through Mortgagee Letter 2019-16,” the association said in its statement. “The HECM is a collateral based loan program, and accurate valuation of that collateral is imperative to the long-term success of the program.”

The changes come just days in advance of a scheduled House of Representatives hearing centered around the the HECM program.

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