Via two Mortgagee Letters issued Friday, the Department of Housing and Urban Development (HUD) detailed new servicing policies for Home Equity Conversion Mortgages (HECMs) that become due starting July 1, as well as loss mitigation options in the event of unpaid property charges.
Mortgagee Letter 2015-10 consolidates and revises existing Federal Housing Administration (FHA) policy for all HECMs that become due and payable on or after July 1, 2015.
Specifically, the letter addresses a number of servicing areas in this regard, including how and when a HECM is considered eligible to be called “due and payable,” and the required notices servicers must execute to both HUD and to borrowers.
The letter also provides guidance on the actions servicers must take, along with their associated timeframes, when a HECM becomes enters its due and payable status. This includes working with HECM borrowers, their heirs, estates and non-borrowing spouses when the reverse mortgage becomes due.
“Publication of this Mortgagee Letter supports FHA’s commitment to maintaining the HECM program’s long-term viability by implementing program changes that reduce risk to the Mutual Mortgage Insurance Fund,” HUD stated in a memo to FHA-approved HECM servicers and housing counselors. “This, in turn, maintains the program options for seniors long term.”
The second Mortgagee Letter published Friday (2015-11) communicates an expansion of the loss mitigation options that HECM servicers may provide to a borrower when he/she enters default due to unpaid property charges such as taxes or hazard insurance premiums.
Mortgagee Letter 2015-11 permits servicers to implement certain loss mitigation options such as repayment plans, if applicable, to help borrowers become current on their obligations.
But before a repayment plan can be offered, the mortgagee must determine the borrower’s eligibility and likelihood of success under a Repayment Plan.
“If the mortgagor will not be able to repay the corporate advance within the permissible time, this loss mitigation option is not available,” HUD states in ML 2015-11.
Additionally, any Repayment Plan must provide that in the event the last surviving borrower dies before the Plan is paid in full, any outstanding amounts owed become immediately due and must be satisfied within 30 days.
ML 2015-11 includes several scenarios that would make a reverse mortgage borrower eligible for a Repayment Plan, as well as a methodology for calculating the Plan.
“The policies in Mortgagee Letter 2015-11 work in tandem with those in Mortgagee Letter 2015-10,” HUD stated in its memo. “Both sets of policies support the goal of keeping HECM borrowers in their homes whenever possible, while protecting FHA’s Mutual Mortgage Insurance Fund if a default cannot be cured.”
To assist servicers and other HECM stakeholders in complying with the policies outlined in Mortgagee Letters 2015-10 and 2015-11, FHA’s Home Equity Reverse Mortgage Information Technology (HERMIT) system will develop two releases that target the updates.
HERMIT Release 4.1 (effective April) will update the existing “Due and Payable without HUD Approval” timeline to capture key steps and dates related to mortgagees obtaining an appraisal; notifying a borrower of their loan being in a Due and Payable status; and notifying HUF of a Due and Payable case.
The release also updates the existing “Loss Mitigation/Pre-Foreclosure” timeline to capture the Initiation of Foreclosure, and adds a new step to capture the date the Foreclosure Notice was sent to HUD. Additionally, there will also be an updated “Endorsed Foreclosure” timeline.
HERMIT Release 4.2 (targeted for June) will focus on policies detailed in ML 2015-11. The update will add the capability to capture the details of Repayment Plans, as well as additional extension types for mortgages engaging borrowers in property change loss mitigation. The release will also help with assisting such borrowers with leveraging various states’ Hardest Hit Funds to address delinquencies.
HUD will host an industry conference call that will provide an overview of the HECM Due and Payable and Loss Mitigation Mortgagee Letters on Thursday, April 30 at 2 p.m. Eastern.
Written by Jason Oliva