The Federal Housing Administration (FHA) this week announced a “technical update” to a provision in the Single Family Handbook 4000.1, and an extension of deadlines related to foreclosure and eviction moratoriums and reverse mortgage relief handed down last summer.
The new guidance also adds a further extension of the start dates of the initial COVID-19 Forbearance and Home Equity Conversion Mortgage (HECM) Extension to provide additional COVID-19 Forbearance and HECM Extension for certain borrowers.
This is according to guidance handed down in Mortgagee Letter (ML) 2022-02, as well as a press release made by the U.S. Department of Housing and Urban Development (HUD) accompanying the publication of the document.
The ML, new and prior reverse mortgage guidance
The reverse mortgage-specific guidance follows up on language originally handed down in ML 2021-15, published in late June 2021. That ML detailed that for HECM borrowers who remain negatively impacted by the effects of the pandemic, FHA further extended the timetable for such homeowners to request an extension on the status of a loan before a servicer can call it due and payable.
“For extension requests received between July 1, 2021, and September 30, 2021, servicers must grant homeowners an extension of up to six months,” FHA explained at the time.
The new letter amends some of that original guidance, extending “deadlines for the first legal action and Reasonable Diligence Time Frame” to 180 days “from the later date of either the end of the Borrower’s COVID-19 Extension period or the expiration of the foreclosure moratorium for FHA insured Single-Family Mortgages,” the new ML reads. It is effective immediately.
Additionally, “if the Mortgagee needs additional time to meet the first legal deadline date for a HECM; the Mortgagee must submit a request for extension of time to the National Servicing Center (NSC) for HUD approval via Home Equity Reverse Mortgage Information Technology System (HERMIT),” the new ML reads.
FHA explained the intent of its original guidance and what it now hopes to accomplish in the new ML.
“[The prior guidance], in part, continued the policy to provide Mortgagees an extension to the first legal deadline and Reasonable Diligence Time Frame for foreclosures on delinquent FHA-insured mortgages,” the new ML reads. “In that Mortgagee Letter, FHA continued extending the deadlines, ‘to 180 Days’ from the date of expiration of the foreclosure moratorium. FHA’s intent was to provide maximum flexibility to Mortgagees impacted by the COVID-19 pandemic.”
Clarity appears to be the major goal in the publication of the new ML, FHA explained.
“In order to ensure its original intent is made clear, FHA is updating the Handbook and Mortgagee Letter to clarify extensions to the first legal deadline and the Reasonable Diligence Time Frame,” the letter reads.
Welcome guidance for borrowers, servicers
The new guidance is a welcome occurrence for reverse mortgage borrowers and servicers in particular according to Sarah Bolling Mancini, staff attorney with the National Consumer Law Center (NCLC).
“I think this ML provides very welcome clarification regarding the foreclosure deadlines for borrowers and heirs that have had a HECM extension period, which is basically the equivalent of a forbearance for reverse mortgage borrowers,” Mancini tells RMD. “During the pandemic, FHA allowed forward mortgage borrowers to get a forbearance or a pause on their payments. On the HECM side, the equivalent was a COVID-19 extension period. It basically said that even if your loan is subject to or could be heading into foreclosure, this allows for a foreclosure delay for people who have had a pandemic-related hardship.”
The new guidance also clarifies a point that both NCLC and members of the reverse mortgage industry were looking into, specifically questions regarding when a foreclosure sale for an affected borrower would have to begin.
“We, along with [the reverse mortgage] industry, had been asking for HUD to clarify that there was this 180-day buffer from the later end of the moratorium, or any extension period,” she says. “And so, this is really exactly the guidance that we had asked for on this particular issue. We think it’s very helpful that HUD issued this document.”
While HUD could’ve responded a little more quickly on this matter, and while there is still some more comprehensive work to be done to adequately protect affected HECM borrowers, servicers should also find this particular guidance welcome, Mancini explains.
“I think that servicers want to avoid foreclosure whenever possible, but they need clarity from HUD so that they can avoid financial penalties for delay in the foreclosure process. So, I think servicers are going to be very happy to see this clarity,” she says. “And I think, really, we are aligned with the servicing industry on wanting to prevent as many reverse mortgage foreclosures as possible. That’s what this policy will help to do, though I should note that there is still more that we need to do.”
Work that remains
In terms of additional guidance that would be helpful, Mancini explains that the recently-implemented Homeowners Assistance Fund (HAF) which came into being with the passage of President Joe Biden’s American Rescue Plan Act raises some additional questions for reverse mortgage borrowers who qualify for assistance from that Fund.
“We have been asking that the agency allow for — and really require — a pause in any foreclosure activity when someone has applied for the Homeowner Assistance Fund program, which is just now getting up and running in all 50 states and territories, as well,” she says. “$10 billion was allocated by Treasury to the states, but the programs are just opening. In fact, I think only 15 states are currently open for applications. And that program can help reverse mortgage borrowers cure a default on property charges, and certain other home-related defaults.”
Property charges are likely the biggest area in which that kind of relief would be beneficial to reverse mortgage borrowers, and NCLC has been inquiring to HUD about allowing for a separate pause in foreclosure activity when someone has applied for HAF assistance.
“That guidance has not come down,” she says. “So, that’s still a missing piece that we need to see, but this Mortgagee Letter is helpful. It’s just not the final piece of the puzzle.”
Read ML 2022-02 at HUD.