Although not specifically mentioned in a recent letter to the U.S. Department of Housing and Urban Development (HUD) regarding its most recent defect taxonomy proposals, the Home Equity Conversion Mortgage (HECM) program certainly applies to the overall goal of the correspondence as co-signed by nine consumer advocacy organizations.
This is according to Sarah Bolling Mancini, a staff attorney at the National Consumer Law Center (NCLC) with a specialty in issues related to the HECM program.
The NCLC was one of the signatories to the letter submitted to HUD and Federal Housing Administration (FHA) official Lopa Kolluri, alongside the American Bankers Association (ABA), Americans for Financial Reform Education Fund, Center for Responsible Lending, Consumer Action, Housing Policy Council (HPC), National Fair Housing Alliance, National Housing Conference (NHC) and the National Housing Law Project.
Reverse mortgage application of the letter
In the original letter, the signatories explained that HUD’s proposed defect taxonomy “did not provide enough specifics on loan-level defects and remedies to be successful,” according to original reporting by HousingWire Senior Mortgage Reporter Georgia Kromrei.
“The groups said HUD should not finalize the taxonomy before doing further engagement with stakeholders,” and that “a successful taxonomy should prioritize violations, assess severity based on the level of harm the conduct poses to borrowers and FHA, assign a range of appropriate remedies for each specific violation and clarify how HUD will determine remedies and address systemic defects,” the reporting said.
While the HECM program did not warrant a specific mention in the letter as sent to HUD and FHA, the reverse mortgage program is certainly included in terms of the goals of the letter as submitted, Mancini explained.
“The overall goal of the letter applies to HECMs as well: urging HUD to provide greater clarity and proportionality in the penalties that will be imposed on servicers for violations of various FHA servicing rules,” Mancini told RMD. “HECMs have a number of very specific servicing requirements that are not directly addressed by this joint letter. But the main points of the joint letter apply to both forward and reverse FHA-insured mortgages.”
Potential HECM-specific remedies
The current draft defect taxonomy goes into specific detail about how reverse mortgages are to be handled in the case of specific loan defects, however most of the language that has been updated or modified in the current document instead focuses on traditional mortgage loan programs.
When asked if there were specific shortcomings in the current draft of the defect taxonomy that could be changed, Mancini explained that property charges and unsecured loan certificates are two such issues. The National Reverse Mortgage Lenders Association (NRMLA) submitted a comment letter to HUD and FHA last week pointing these issues out, as well.
“One of the primary HECM-specific remedies that is not addressed squarely in the current draft of the defect taxonomy is the curtailment of property preservation charges and debenture interest,” Mancini explains. “These remedies should be specifically listed in the next draft of the defect taxonomy, among the various forms of financial remediation a servicer can be asked to cover. NRMLA has made this point to HUD in its comment letter.”
Other issues for the program
NCLC recently aimed to raise awareness for a lack of delinquent HECM borrowers who have requested a COVID-19 extension in another letter submitted to the Department, but servicing also remains a major issue in need of reform on the reverse mortgage side of the business, Mancini said. There are certain reverse mortgage servicing tasks that HUD has the power to change without the need for legislation from Congress.
“HUD has a significant opportunity to improve the operation of the HECM program in ways that would provide clarity and predictability to servicers, avoid unnecessary costs and foreclosures for borrowers, and ultimately protect the insurance fund,” Mancini told RMD. “HUD’s current rules penalize servicers in extreme ways for delays in the foreclosure process; but requiring such speed, without any flexibility, makes effective loss mitigation much harder.”
Financial penalties are also a subject worthy of review within the realm of reverse mortgage servicing, Mancini says.
“HUD should reevaluate its financial penalty structure on reverse mortgage servicers, just as it should reexamine the overall servicing defect taxonomy,” she explained. “All of this is within HUD’s administrative purview, without any need for legislation.”
FHA and HUD reverse mortgage attention
Recent months have seen both FHA and HUD offer more specific perspectives on the prospects of the reverse mortgage program in comparison with most of the Biden administration’s first year.
In response to RMD queries regarding the status of reverse mortgage counseling – which has recently gained increased scrutiny due to issues encountered in Massachusetts and a proposed crackdown gathering attention in Pennsylvania – HUD’s Office of Housing Counseling said that its corps of dedicated reverse mortgage counselors is currently at capacity, which should make the availability of such counseling sessions easier for those seeking reverse mortgage counseling.
This past fall, HUD posted newly-revised draft Origination through Servicing sections of its Single Family Housing Policy Handbook 4000.1 for the review of program stakeholders, and to provide review to the agency for the proposed consolidations. On absorbing additional industry perspectives, HUD chose to delay the deadline for stakeholder comments to the end of January.
A NRMLA working group overseen by Elly Johnson, co-chair of the association’s HUD Issues Committee, is currently in the process of finalizing the association’s comments to the Department after an in-depth review. When reached by RMD, Johnson described the additional time as beneficial for incorporating more perspective from association membership into the process.