The Federal Housing Administration (FHA) announced on Tuesday that it has drafted a proposed Mortgagee Letter (ML) designed to lower the pre-review threshold for Home Equity Conversion Mortgage (HECM) assignment claims. If implemented, the new ML would lower the threshold from 97.5% of the loan’s maximum claim amount (MCA) to 97%.
The new guidance would change the criteria for HECM assignment claim type 22 (CT-22), which allows a HECM servicer to assign a mortgage that is in good standing with the FHA in exchange for loan balance payment of up to the full MCA.
Concerns and criteria
“For a HECM loan to be eligible for assignment to HUD, both the lender and the borrower must be in compliance with all program terms,” the FHA said. “Once a HECM loan is assigned to HUD, HUD becomes the administrator of the loan and will continue with the servicing duties for the remainder of the HECM loan term.”
These proposed changes are due to market liquidity considerations, according to the FHA’s announcement. The proposal is designed to expedite the claims payout once the loan reaches 98% of the MCA, the current threshold by which a loan can be assigned to HUD.
There are three primary ways the ML would change CT-22 submission criteria: by lowering the threshold for submitting assignment claims to 97%; establishing a deadline for submitting original notes and mortgages of no later than 90 days after the date of claim payment; and aligning the deadline for delivering recorded assignments of mortgage for all HECM loans.
Lowering the threshold for preliminary review to 97% will “support the timely payment of assignment claims and provide additional flexibility for mortgagees in managing their HECM portfolios,” the FHA said.
Recorded assignments deadline
By establishing a deadline of no later than 90 days for the delivery of original notes and mortgages after a claim payment, the FHA aims to “eliminate delays for servicers in filing assignment claims,” and also intends to “reduce the overall timeframe from initial submission through claim payment,” the FHA said. Copies of the original loan documents will still be required as part of a claim application, however.
By aligning the deadline for delivering recorded assignments of mortgage for all HECMs, the FHA is seeking to simplify the existing process.
“The current policy provides two different dates depending on the date of FHA case number assignment,” the FHA said in its announcement. “The new deadline creates uniformity by increasing the timeline to 12 months for HECMs with FHA case numbers assigned before September 19, 2017.”
Streamlining HECM requirements has been a priority of the FHA under the Biden administration. In May of 2021, former Principal Assistant Secretary for the Office of Housing Lopa P. Kolluri explained that duplicative and overlapping documents were causing inefficiencies in the HECM program, which led to the creation of a revised draft HECM 4000.1 Handbook.
HUD and Ginnie Mae leadership previously expressed concerns about reverse mortgage market liquidity when assessing the scope of work required to assume control of the servicing portfolio seized from Reverse Mortgage Funding following its bankruptcy late last year.
The National Reverse Mortgage Lenders Association (NRMLA) response to the news of the draft guidance was positive.
“NRMLA is pleased HUD is taking steps in creating efficiencies in the assignment process as announced in FHA Info 23-25,” Steve Irwin, the association’s president, said. “We will begin reviewing the draft ML with our Servicing Committee leadership, HMBS Issuer Committee leadership, and our Executive Committee so that we might get our formal comments to the ML drafted and submitted within the required timeframe.”
The draft ML is available to view on the Single Family Housing Drafting Table. Stakeholders can submit comments through April 11, one week from the date of the announcement.
Feedback can be submitted by filling out the supplied worksheet and emailing it to FHA by the deadline with the subject line: “Feedback: Draft ML Modifications to the Home Equity Conversion Mortgage (HECM) Assignment Claim Type 22 (CT-22) Submission Criteria.”