HUD Issues New HECM Servicing FAQs, Revisions

The Department of Housing and Urban Development today released new and revised HECM servicing Frequently Asked Questions, including new guidelines regarding the sale of a HECM property after the borrower has left the home or passed away.

“When a HECM loan becomes due and payable as a result of the mortgagor’s death and the property is conveyed by will or operation of law to the mortgagor’s estate or heirs, that party may satisfy the HECM debt by paying the lesser of the mortgage balance or 95% of the current appraised value of the property,” as stated in the FAQ.

Previously, the heirs were required to pay the full loan balance in order to assume the title of the home, whereas others in an arms-length transaction were permitted to purchase the home for 95% of the current appraised value.

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The change comes following guidance that was rescinded by HUD in April, and was an issue brought to the attention of HUD and the Court in a lawsuit filed against HUD by AARP. The case was dismissed without prejudice on July 15.

Additional servicing practice changes, revised as of July 19, are also outlined in the FAQ, including those regarding foreclosure eviction, repayment timeframe allowance, and others.

View the HECM Servicing FAQs.

Written by Elizabeth Ecker

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  • Amen to that. I’m in this exact conversation with a prospective borrower now. Tracking this down is exactly the sort of thing that Atare Abgamu is very good at doing, but he’s out of town. In the meantime, just showing the new Servicing FAQ means you have to explain the differnt stances HUD has taken in the past few years. That just indicates volatility on this very important point on the repayment amount and circumstances, so that offers no security and reassurance to the borrower on what they will  owe at the end of the loan and what they are getting for their significant HUD mortgage insurance premiums.

    • Mr. Peters,

      The trouble is we as an industry want the seniors to get nonrecourse out of the MIP.  The truth is, the note and agreement provide the nonrecourse benefit, not the insurance.  All reverse mortgage transactions are nonrecourse transactions by law [15 USC 1602(bb)] and a HECM per the HUD Handbook is a reverse mortgage.

      As an everyday, ordinary, nonrecourse mortgage all of the negative aspects of credit reporting and income tax rules apply to short pay, short sale, foreclosure, deed in lieu of foreclosure, etc.  The insurance is the inducement to the lenders to provide nonrecourse for a very risky loan at relatively low interest rates and relatively high high principal limit factors.  MIP is little more than a pass through cost (from the lender like the appraisal fee) which the borrower pays.

      For example, the borrower files nothing when the claim is filed.  The reimbursement is never paid to the borrower.  There is no policy issued to the borrower with the loan.  The nonrecourse provisions in the note never refer to the insurance.

      Again it is not the insurance which makes the loan nonrecourse.  That is an industry myth. 

      ML 2008-38 said to mortgagees (the only party in the HECM transaction to whom it was written) that they will not be reimbursed if the borrower or estate (or heir) retains the home.  If those individuals retain the home at a lower price, the difference between the balance due and that price is a loss HUD would not reimburse.  The ML was not sent to borrowers because they are not a party in the insurance transaction.

    • Mr. Peters,

      I forgot to mention Atare sent me an email today.  Try his email. 

      The comment above is based on looking into the matter with confirmation from various parties at HUD National Office as to various pieces but without overall confirmation.

      You are right.  If anyone can get it verified in full, Atare is that person.  I am sure he will see this post but please write him anyway.  I will try to talk to him about it this week.

      Enjoy the weekend. 

  • Mtxu,

    I apologize that I did not see your response until now.  The correct answer is that a short payoff is a short payoff for all purposes.  So, yes, a Form 1099-C should be issued.

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