The Federal Housing Administration (FHA) published on Wednesday Mortgagee Letter (ML) 2023-10, which is designed to expedite the processing of assignment claims for Home Equity Conversion Mortgage (HECM) loans. It also allows for the earlier submission of preliminary title approval with fewer documents.
ML 2023-10 lowers the maximum claim amount (MCA) required to submit a HECM assignment claim to 97% and allows mortgagees to submit a loan’s note and security instrument with an assignment claim application.
It also extends the time frame for delivery of assignments of the mortgage to HUD from six to 12 months for HECMs with FHA case numbers assigned before September 19, 2017. This change makes the assignment delivery time frame the same for all HECMs.
Efficiency and liquidity
“Combined, these changes will reduce the time between a loan’s eligibility for assignment to HUD and the payment of claim funds to the mortgagee,” HUD said in an announcement about the new ML.
This should serve to create additional efficiencies in the program, according to the announcement.
“Under previous policy, mortgagees could only submit the required information and documentation when the HECM reached 97.5% of the MCA,” the FHA said. “In addition, FHA will now allow mortgagees to submit original notes and mortgages after assignment claim payment rather than before, as previous policy required. By allowing earlier claim submission and by making document submission more flexible, FHA expects to shorten the time between the HECM reaching 98% of MCA and FHA paying the mortgagee for the claim.”
The changes are being made in consideration of the current HECM lending environment, according to language in the ML.
“In consideration of recent market conditions that have impacted the HECM program, the [FHA] is making program enhancements to improve market stability and reaffirm its commitment to the senior citizen population that is served by the HECM program,” ML 2023-10 reads.
Other ML measures are specifically designed to address liquidity challenges, the FHA explained.
“In eliminating one cause of delay between assignment claim eligibility and application completion, FHA will increase its capacity to efficiently pay claims to HECM Mortgagees, with the intent of improving market liquidity,” the ML states. “Improving market liquidity reduces the risk of noncompliance with FHA requirements regarding Mortgagees’ disbursements to borrowers and improves the fiscal safety and soundness of the HECM program.”
The changes implemented in ML 2023-10 come after HUD published a draft version of the ML in early April, which was designed to change the criteria for HECM assignment claim type 22 (CT-22). That claim type allows a HECM servicer to assign a mortgage in good standing with the FHA in exchange for a loan balance payment of up to the full MCA.
The new ML was crafted with input from the reverse mortgage industry and other stakeholders that was gathered during a public comment period ending on April 11.
“The Home Equity Conversion Mortgage program is an important resource for the nation’s senior homeowners who wish to age in place,” said FHA Commissioner Julia Gordon in a statement. “Today’s changes simplify processes and pay mortgagee claims more quickly, providing meaningful relief to program participants as they navigate the unique challenges of today’s economic environment.”
The new ML makes no changes to the required documentation for a CT-22, nor does it change any requirements for Mortgagee Optional Election (MOE) assignments. The provisions of the new ML are effective immediately, according to HUD.
CT-22 is an option that allows HECM lenders to assign a reverse mortgage to the FHA in exchange for a claim payment up to the MCA. A HECM loan is eligible for assignment to HUD when the lender and the borrower are in compliance with all assignment claim requirements, including a HECM loan balance of at or above 98%, and is not in due-and-payable status.
“Once a HECM is assigned to HUD, HUD becomes the mortgage holder and will perform the servicing duties for the remaining duration of the HECM loan term,” HUD said in its announcement.