The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) are instructing servicers of Home Equity Conversion Mortgages (HECMs) to delay due and payable requests on reverse mortgage loans for a period of six months for borrowers that request such relief, since an American at risk of losing his or her home would enhance the economic shock of the COVID-19 coronavirus pandemic.
A new Mortgagee Letter (ML) makes these instructions effective immediately for borrowers experiencing a financial hardship related to the outbreak.
“Pursuant to the COVID-19 National Emergency, upon request of the Borrower, the Mortgagee must delay submitting a request to call a loan due and payable,” reads the HECM provision in Mortgagee Letter 20-06. “The initial extension period may be up to 6 months. If needed, an additional period of up to 6 months may be approved by HUD. The term of either the initial or the extended extension period may be shortened at the Borrower’s request. The Mortgagee must waive all Late Charges, fees, and penalties, if any, as long as the Borrower is in an extension period.”
In light of the current crisis, keeping Americans in their homes for longer has taken on increased importance due to the ways in which local, state and federal health authorities recommend ways for Americans to combat the spread of the coronavirus.
“The last thing any of us wants is for Americans to lose their homes unnecessarily while we continue to fight this invisible enemy,” said HUD Secretary Dr. Ben Carson in a press release announcing these initiatives. “If you’re struggling, immediate help is now available. The FHA will continue to work with stakeholders to ensure that the loss mitigation options that are offered for both forward and reverse borrowers are appropriately tailored for the present situation.”
For reverse mortgage servicers, this new ML provides necessary relief for both borrowers and the servicers themselves, though the full impact of the HECM provisions in it have yet to be fully determined. This is according to Ryan LaRose, president and COO of Celink.
“We are very pleased to see HUD provide additional relief to HECM borrowers and servicers with this latest Mortgagee Letter,” LaRose tells RMD in an email. “We have been working with NRMLA since the letter was published to fully determine the impact to the various HUD default timeline requirements. Additionally, we are still in the process of internally digesting the information and determining what impact it will have on our operations.”
Still, the necessity of relief in light of the current economic climate brought about by the pandemic makes the provisions of this letter generally welcome, he says.
“On the surface [the Mortgagee Letter] appears to offer broad relief in light of the unprecedented events that are occurring around the country,” he says. “Overall, we are very appreciative of HUD’s efforts to enhance protections for HECM borrowers and also address the concerns of the reverse mortgage servicing community at the same time.”
Previously, Celink and Reverse Mortgage Solutions (RMS) both expressed support for the foreclosure moratorium put in place by the Trump administration as a form of relief for homeowners and renters affected by the pandemic.
‘One less fear’
For Americans who have an increased worry over losing their homes, this measure from FHA should at least temporarily alleviate that concern for the time being, according to Assistant Secretary for Housing and FHA Commissioner Brian Montgomery.
“For American families impacted by the COVID-19 virus and unable to pay their FHA-insured mortgage, imminently losing their homes is now one less fear they should have,” Montgomery said in a statement. “Today’s actions will ease the immediate pressures faced by many Americans who, through no fault of their own, are struggling with financial uncertainty.”
The ML also specifies that for any borrowers who are still able to make their mortgage payments, they should continue to do so. Those who are experiencing a financial hardship should contact their servicer immediately.
“Borrowers who are not experiencing an income reduction due to COVID-19 are asked to avoid contacting their mortgage servicer about these options, as these questions will divert resources from serving those truly in need,” FHA says in its announcement.
Traditional mortgage provisions
The ML also contains significant provisions for affected borrowers with traditional forward mortgages, instructing mortgage servicers to extend deferred or reduced mortgage payment options – forbearance – for up to six months, and must provide an additional six months of forbearance if requested by the borrower, FHA says.
This follows from provisions outlined in the Coronavirus Aid, Relief, and Economic Security (CARES) Act which was signed into law by President Donald Trump on March 27.
Read Mortgagee Letter 2020-06 at HUD.