The National Reverse Mortgage Lenders Association (NRMLA) submitted two sets of comments this week to the U.S. Department of Housing and Urban Development (HUD) regarding specific issues relevant to the Home Equity Conversion Mortgage (HECM) program.
In one set of comments, NRMLA advised HUD that two sets of forms required for servicers are now obsolete due to usage in an electronic filing system, while another set requested clarification from the Department about a Mortgagee Letter (ML) published recently about the industry’s impending transition away from the London Interbank Offered Rate (LIBOR) index for adjustable-rate HECM loans.
Obsolete forms, ease of compliance
In the first set of comments submitted to HUD, NRMLA specifies that three specific forms typically required for HECM transactions – HUD-27011, HUD-5002 and HUD-50012, respectively – are no longer required due to similar information being required under the Home Equity Reverse Mortgage Information Technology (HERMIT) System.
“With the launch in 2012 of [HERMIT], which was designed to improve the processes associated with the endorsement of HECMs, as well as the processing of servicing and claims within HUD, the subject forms have lost all utility,” NRMLA writes in its first letter. “The information collected on the subject forms are presently incorporated into HERMIT and therefore the subject forms, as a practical matter, are no longer in use.”
HUD recently published a proposed notice of information collection that, while not referencing these forms being retired in the future, is assumed to be contemplated by NRMLA.
However, NRMLA also points out that there are certain processes within the HERMIT system itself which “are not error-free,” the association writes, which led to the 2013 establishment of a HERMIT working group designed to address shortcomings in the system. It’s NRMLA’s hope that this working group can be reconvened to counter deficiencies that remain in the HERMIT system, which would allow servicers to do their jobs more effectively while streamlining their ability to comply with HUD regulations.
Consequently, NRMLA requested in its first letter to HUD that meetings of the HERMIT working group resume, with the requisite involvement of key HUD and reverse mortgage industry representatives, to “facilitate resolution of unresolved system deficiencies,” the letter reads.
Late last year, HUD released two separate updates to the HERMIT system within the span of a single week. In Federal Housing Administration (FHA) informational notice (INFO) #20-66, details were released regarding HERMIT updates allowing reverse mortgage servicers to submit extensions under the provisions of the presidentially-declared national emergency stemming from the COVID-19 coronavirus pandemic. Just one week later, FHA published INFO #20-67 detailing that system’s file format and layout had been updated to improve the reporting of HECM terminations.
HERMIT was launched by HUD in October of 2012 after a protracted development cycle. Its creation aimed to improve the processes associated with the endorsement of HECMs, as well as the processing of servicing and claims within HUD. HERMIT was developed through a contract with Reverse Mortgage Solutions, which partnered with QSSI on creating a service provider platform. Reverse Technology Group (RTG) acquired the software in early 2017.
Clarification on recent index-based Mortgagee Letter
A major source of interest for the reverse mortgage industry over the past year has been the eventual retirement of the LIBOR index as a basis for determining rates for a plethora of mortgage products, including for HECM loans. Ginnie Mae announced last September new restrictions on the eligibility of HECM-backed Securities (HMBS) for adjustable rate loans operating off of the LIBOR index, effective for all HMBS issuances dated on or after January 1, 2021, nearly a year ahead of the then-planned sunset of the index.
Last month, FHA officially announced that the HECM program is moving on from the LIBOR index for adjustable-rate HECMs, and will instead adopt the Secured Overnight Financing Rate (SOFR). This was made official with the publication of Mortgagee Letter (ML) 2021-08, however certain provisions in the relevant ML require clarification according to a second comment letter submitted by NRMLA to HUD.
“While we understand that it is anticipated that initially only a 30-day average SOFR will be available, ML 21-08 specifies that lenders may only offer the SOFR index for Annually Adjustable HECMs,” NRMLA writes in its letter. “We respectfully request that FHA also allow mortgagees to offer a Monthly Adjustable HECM based upon the 30-day average SOFR index using the same commingled CMT index for the Expected Rate.”
Additionally, NRMLA has pointed out that mortgagees previously had the option of rounding the note rate of interest under adjustable rate HECM, and that the latest ML does not address the rounding of the note rate of interest. However, the new Model HECM ARM Note which was also announced in the same ML states, “[t]he Lender will then round the result of the Margin plus the Current Index to the nearest one-eighth of one percentage point (0.125%).”
NRMLA points out that an incongruity between such guidance’s presence in the ARM note, but not in the published ML necessitates additional clarification.
“[W]e respectfully request that FHA revert to its prior policy and allow, but not require, mortgagees to round the note rate of interest on adjustable rate HECMs,” the letter reads in part. “[N]either ML 21-08 nor the Model HECM ARM Notes explain how the initial rate at closing should be set if it is required that the note rate be rounded to the nearest eighth on each change date. If the methodologies used to set the initial note rate at closing and the note rate at each change date are not consistent, then the rate cap established using the initial rate may conflict with a note rate rounded to the nearest eighth on a change date.”