FHA: Reverse Mortgage Servicing Contract ‘In-Process,’ Agency Eyes Smooth LIBOR Transition

The Federal Housing Administration (FHA) is continuing to seek a new servicing contract for Home Equity Conversion Mortgages (HECMs) sponsored by the federal government, but the agency remains dedicated to providing as much additional relief as possible to reverse mortgage borrowers that have been impacted by the COVID-19 coronavirus pandemic.

This is according to Kasey Watson, program director of HECM servicing at the National Servicing Center in the U.S. Department of Housing and Urban Development (HUD), addressing reverse mortgage industry players at the National Reverse Mortgage Lenders Association (NRMLA) Virtual Annual Meeting & Expo this month.

Reverse mortgage industry stakeholders have continued to hope for a resolution to back-end servicing issues in the HECM portfolio, and while these resolutions have not come yet, they are a priority for FHA in 2021. Additionally, the HECM program is also being targeted to benefit from various updates to FHA’s information technology (IT) infrastructure, including modernizing the HECM section of the single family housing 4000.1 handbook.

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HECM servicing contract ‘in-process’

Among one of the major priorities that the servicing center has for the HECM program is the procurement of a new, HUD Secretary-held HECM servicing contractor, Watson explained. Forward momentum on securing the new contractor in 2020 was stalled by shifting priorities at the Department related to the response to the COVID-19 pandemic, but remains a top priority that is hoped to be accomplished next year, Watson said.

“For us directly in the national servicing center, one of our biggest priorities for the upcoming year, and one that’s in-progress right now [is] procuring a secretary-held HECM servicing contractor,” Watson explained. “This is a little bit different than what we have done in the past. In the past, we have had a single secretary-held servicing contractor for all of the single family FHA-held or secretary-held mortgages that included some forward mortgages.”

These included from the partial claim program and the forward loss mitigation program, she said, as well as some other smaller, more specialized types of mortgages held by the secretary. In terms of actions that FHA can take to further stabilize the HECM program, new procurement will be HECM-specific.

“The current procurement that is out and [which] we are currently working through will only involve servicing of HECM mortgages,” Watson said. “So, we’re excited for that change, and excited that that procurement is in-process. Of course, as that works through this entire process, I can’t give you any kind of update as far as when we think that will be completed. But it is in-progress, and we’re excited to be moving forward down this new path.”

In a media briefing with reporters just after the publication of FHA’s annual report, FHA Commissioner Dana Wade declined to discuss with RMD any progress on the HECM servicing contract.

“I cannot comment on contracting or procurement, I want to make sure that I am adhering to the federal laws and regulations in this area,” Wade said.

LIBOR transition

Following up on previous comments from Deputy Assistant Secretary for Single Family Housing Joe Gormley and from Senior Advisor to the Deputy Assistant Secretary in the Office of Single Family Housing Dr. Joshua Miller, Watson then turned her attention to another major topic of conversation for the reverse mortgage industry in the transition away from the London Interbank Offered Rate (LIBOR) index.

“Again, the LIBOR transition is really a major priority across the entire [HECM] program, but we are really focused on the servicing side into this next year,” Watson explained. “Of course, the goal of everyone is to get the existing HECM loans transitioned away from LIBOR in a way that is not impactful to our borrowers [and] not confusing to them, [so] they understand what’s happening.”

The same kind of philosophy also applies in FHA’s efforts to minimize potential impacts the transition will have on the reverse mortgage industry itself, which presents a major task for the agency.

“[T]hat’s a big challenge that everyone is working on, and I just want to echo Joe [Gormley]’s comments earlier and thank Josh [Miller] for his work that he’s been doing on that,” she said. “He’s been doing a great job in making sure that the HECM program is in good shape as we move forward through that.”

Technology modernization

Every representative from FHA that spoke to the industry at the NRMLA Virtual Annual Conference all discussed the efforts underway at HUD and FHA to modernize its aging technological infrastructure to one degree or another. HUD Deputy Secretary Brian D. Montgomery spoke about how the hope is for more HECM operations tasks will be folded into the functions of FHA Catalyst in 2021, while Deputy Assistant Secretary Gormley previously explained the necessity of updating the agency’s existing technology capabilities.

“As you’ve heard, the FHA Catalyst platform is part of FHA’s multi-year information technology modernization initiative, and represents a generational leap ahead of our antiquated technology systems,” Gormley said. “We’ll bring FHA up-to-date with industry best practices and standards, which will provide reliable and accurate data for the full loan lifecycle, and allow more FHA program participants to conduct business more seamlessly in ultimately better supporting the homeowners and communities we all serve.”

Watson elaborated further, describing the larger technology initiative as essential to continue assisting aloof FHA’s programs, including HECM.

“We’re also looking to continue to work on improving FHA systems as related to HECM servicing, so we can accept data in a little bit easier ways for the industry,” she said. “And then, that would also allow not only easier business processes for the industry in working with FHA, but also [wil give] FHA better access to the data that we need to be able to oversee the program.”

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