The U.S. Department of Housing and Urban Development (HUD) this week announced that single-family mortgage servicing and loss mitigation policies on both the forward and reverse sides of the business have been updated, which includes the codification of new reverse mortgage policies as well as the either outright or partial rescinding of certain Mortgagee Letter (MLs) that have application to the Home Equity Conversion Mortgage (HECM) program.
This is according to announcements and published revisions to the Federal Housing Administration (FHA) Single Family Housing Policy Handbook 4000.1, made official on April 19. It also includes the latest version of FHA’s Defect Taxonomy, which details many of the ways that forward and reverse mortgage loans could fall short of approval based on a series of scenarios relating to inadequate or insufficient documentation.
For details on MLs which have been superseded, the new guidance divides the listing up into those superseded “in full,” and those superseded “in part.”
For the MLs superseded in full, they are all relatively recent releases, with all but one being handed down during the Donald Trump administration and Former HUD Secretary Dr. Ben Carson. The sole exception to this is ML 2021-04, issued on January 26 of this year and which extended and updated guidelines surrounding forbearance requests for mortgage borrowers who have been impacted by the economic effects of the COVID-19 coronavirus pandemic, including the delay of due and payable requests for HECM loans.
The other two MLs superseded in full (2020-48 which applied primarily to manufactured homes and 2019-18 which dealt with limited 203K mortgages, respectively) do not have bearing on the HECM program.
For the MLs superseded in part, ML 2021-05 handed down in February similarly dealt with the foreclosure and eviction moratoria put in place for FHA single-family forward and reverse mortgages. ML 2020-38 dealt with updates to the claims module of FHA’s “Catalyst” software, and does not appear to have any meaningful bearing on the HECM program.
Application eligibility requirements for approval, DE authority
In the new update to the handbook, the criteria by which applications to FHA are approved have been amended, including the criteria that HECM originators must adhere to in order to be considered an employee of a partner institution.
“The Mortgagee and any other party that participates in the origination of a HECM transaction must not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity,” the relevant section reads. “[U]nless the Mortgagee demonstrates that it or any other party maintains firewalls and other safeguards[.]”
These safeguards must ensure that anyone offering a HECM loan to a borrower must not have any kind of incentive to offer another financial or insurance product; and that the borrower must not be required to purchase an additional financial or insurance product as a condition of getting a HECM loan, the document says.
Additionally in order to seek a qualified direct endorsement (DE) from FHA, mortgagees must obtain separate DE approval which applies to the traditional forward and HECM reverse mortgage transactions separately. In order to receive approval for “Unconditional DE authority,” a reverse mortgage professional must receive a minimum of five firm commitments for HECM mortgage authority within a period of 12 consecutive months following the date of an initial DE Program test case approval letter received from FHA.
Authorized agents must have unconditional DE authority for HECMs.
Mortgage insurance endorsement, defect taxonomy and other provisions
As was the case before this guidance’s issuance, FHA details that it will continue to accept electronic signatures on all documents in a forward mortgage’s case binder which require signatures, but electronic signatures for reverse mortgage documents will still not continue to be accepted.
“FHA will accept electronic signatures on the Note for forward Mortgages only,” the guidance reads. “FHA will not accept electronic signatures on HECM Notes.”
The document also reinforces accepted policies and procedures in its revised FHA Defect Taxonomy regarding the HECM financial assessment (including situations in which a HECM loan is not approved based on included or absent documentation), principal limit and loan-to-value (LTV) requirements for HECM loans, and required lender operations during a HECM transaction.
The updates to the Single Family Housing Handbook will help to provide mortgage servicers with a clearer sense of what is required during the unusual economic times the nation is embroiled in, according to Principal Deputy Assistant Secretary for Housing Lopa Kolluri.
“With these updates, we have strengthened the ability of servicers to reach and help more struggling borrowers with FHA-insured mortgages, more quickly,” Kolluri said in an announcement of the guidance. “The updates to our policies will ensure quality servicing activities, streamline servicing requirements, more closely align our servicing policies with industry servicing practices, and improve outcomes.”
The guidance is also reflective of FHA’s and HUD’s flexibility to stakeholder feedback, according to Acting Associate Deputy Assistant Secretary for Single Family Housing Julie Shaffer.
“The work completed today responds to feedback we’ve received about the complexity and cost of servicing FHA-insured mortgages,” Shaffer said. “FHA requirements will continue to reflect our high expectations of servicers and updating our processes and addressing outdated and unnecessary requirements will improve the program for borrowers and servicers.”
Read the announcement of the changes, and the document itself. Though issued this week, the effective date currently stands at August 17, 2021.