Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FHA expedites claims process for HECMs
On May 17, HUD announced new policies to expedite claims processing for home equity conversion mortgages (HECM). Specifically, FHA’s policies will allow for faster payment of funds to mortgagees upon assignment of an HECM to HUD by allowing borrowers with FHA mortgages to submit a request for a preliminary title approval earlier in the process and with fewer documents. Mortgagees will now be able to assign an HECM to HUD once the HECM reaches 98 percent of the maximum claim amount (MCA) and may begin submitting required information to HUD when the HECM reaches 97 percent of the MCA (based on the value of the property at the time the HECM loan is originated). The previous percentage was set at 97.5 percent. Additionally, mortgagees will be able to submit original notes and mortgages after assignment claim payment rather than before. HUD explained that allowing for earlier claim submission and improving document submission measures will hopefully shorten the time between the HECM reaching 98 percent of MCA and FHA paying the mortgagee for the claim.
FHA implements provisions for transitioning LIBOR-based ARMs
On May 2, FHA published Mortgagee Letter (ML) 2023-09 to implement provisions of the Adjustable Rate Mortgages (ARM): Transitioning from LIBOR to Alternative Indices final rule that was published in the Federal Register at the beginning of March. (Covered by InfoBytes here.) The final rule replaces LIBOR with the Secured Overnight Financing Rate (SOFR) as the approved index for newly-originated forward ARMs, codifies HUD’s approval of SOFR as an index for newly-originated home equity conversion mortgages (HECM) ARMs, and establishes “a spread-adjusted SOFR index as the Secretary-approved replacement index to transition existing forward and HECM ARMs off LIBOR.” The ML provides interest rate transition directions for mortgagees and announces the availability of updated HECM model loan documents, which have been revised to be consistent with the final rule and the ML. The provisions in the ML have various effective dates.
HUD extends Covid-19 forbearance through May
On April 7, HUD issued Mortgagee Letter 2023-08, which extends through May 31 the final date for borrowers to request Covid-19 forbearance and home equity conversion mortgage (HECM) extensions. The extension is intended to allow ample time for affected borrowers to submit requests and for mortgagees to offer and process the requests in the event that the presidentially-declared national emergency ends earlier than originally expected. As stated in the letter, HUD determined that providing a short period beyond the expiration of the national emergency will be beneficial to both FHA borrowers and mortgagees. The extension will also align Covid-19 forbearance and HECM extension requests with the monthly billing cycle. The letter stated that no Covid-19 forbearance period may extend beyond November 30.
FHA proposes earlier HECM claim submissions
On April 4, FHA issued FHA Info 2023-25, announcing proposed changes to the Home Equity Conversion Mortgage (HECM) program and documentation requirements for certain submission criteria. FHA explained that the documentation changes would apply to HECM Assignment Claim Type 22, which “is an option that allows a HECM servicer to assign a mortgage that is in good standing to FHA in exchange for payment of the loan balance, up to the maximum claim amount.” Specifically, the proposal would allow servicers to start submitting claim documentation for preliminary FHA review when a mortgage reaches 97 percent of the maximum claim amount (MCA), versus the 97.5 percent currently allowed. The change is intended “to expedite the payment of claim funds when the mortgage reaches 98 percent of the MCA, to mortgage servicers in light of current market liquidity considerations.” The proposal would also establish that the deadline for mortgagees to deliver original notes and mortgages to FHA is 90 days after the assignment claim payment date, and would align the deadline for delivering recorded assignments of mortgage for all HECMS by increasing the timeline to 12 months for HECMs with FHA case numbers assigned before September 19, 2017. Comments on the proposal are due April 11.
FHA codifies SOFR for LIBOR-based ARMs
On March 1, FHA published a final rule in the Federal Register removing LIBOR as an approved index for adjustable-rate mortgages (ARMs) and replacing it with the Secured Overnight Financing Rate (SOFR) as the approved index for newly-originated forward ARMs. The final rule also codifies HUD’s removal of LIBOR and approval of SOFR as an index for newly-originated home equity conversion mortgages (HECM) ARMs, and establishes “a spread-adjusted SOFR index as the Secretary-approved replacement index to transition existing forward and HECM ARMs off LIBOR.” Additionally, the final rule makes several clarifying changes and establishes a 10 percentage points maximum lifetime adjustment cap for monthly adjustable rate HECMs. The agency considered comments received to its proposed rule published last October (covered by InfoBytes here), and said the updated policy will now “generally align with Fannie Mae, Freddie Mac, and Ginnie Mae's policies replacing LIBOR with the SOFR index.” The final rule is effective March 31.
FHA seeks feedback on changing reconsideration of valuation requests
Recently, FHA published a draft mortgagee letter (ML) proposing policy changes to its requirements for processing and documenting reconsideration of valuation (ROV) requests, specifically when requests are initiated by a borrower for the review of appraisal results. According to the ML, FHA provided proposed guidance to improve the process when prospective borrowers applying for FHA-insured Title II forward or Home Equity Conversion Mortgages (HECM) request an ROV on a property if the initial valuation is lower than expected, or that there is indication of illegal bias, that Fair Housing regulations have been violated, or that there may be unlawful discrimination. The draft also proposed updated appraisal review standards, which are intended to provide mortgagees and appraisers with clarifying guidance on the quality of an appraisal report and the ROV process and responsibilities. Public comments are due by February 2.
FHA announces pandemic assistance on reverse mortgages
On December 15, FHA published Mortgagee Letter 2022-23, COVID-19 Home Equity Conversion Mortgage (HECM) Property Charge Repayment Plan, which provides requirements for a new property charge repayment plan option for senior homeowners with HECMs who have gotten behind on their property charge payments as a result of the Covid-19 pandemic. The eligibility policies of the new repayment plan include, among other things:
- Making the plan available to borrowers who have applied for Homeowner Assistance Fund (HAF) assistance, if the HAF funds combined with the borrower’s ability to repay will satisfy the servicer’s advances for the delinquent property charges;
- Permitting the Covid-19 HECM Repayment Plan regardless of whether the borrower has been unsuccessful on a prior repayment plan and whether the borrower owes over $5,000 in property charge advances; and
- Requiring a verbal attestation from the borrower that they have been impacted by Covid-19.
Additionally, borrowers may receive a repayment plan regardless of the dollar amount of property charge payments owed. Further, servicers can offer homeowners a repayment plan of up to five full years (60 months) regardless of whether a prior repayment plan has been used.
HUD increases FHA loan limits for 2023
On December 1, HUD announced the 2023 loan limits for Single Family Title II Forward and Home Equity Conversion Mortgage (HECM) insurance programs. (See also Mortgagee Letter 2022-20 and Mortgagee Letter 2022-21). For FHA case numbers assigned on or after January 1, 2023, the maximum loan limits for FHA forward mortgages will increase in 3,222 counties and remain unchanged in 12 counties. The HECM maximum claim amount will also increase from $970,800 to $1,089,300.
FHA extends temporary partial waivers for specific HECM policies
On November 28, FHA announced FHA INFO 2022-98 to extend two temporary partial waivers to its Home Equity Conversion Mortgage (HECM) loss mitigation policies for senior borrowers impacted by the Covid-19 pandemic who continue to experience significant financial difficulties. The first temporary partial waiver concerns Mortgagee Letter 2015-11. FHA notes that the waiver “allows mortgagees to offer repayment plans to HECM borrowers with unpaid property charges regardless of their total outstanding arrearage.” The second waiver—concerning Mortgagee Letter 2016-07—“permits mortgagees to seek assignment of a HECM immediately after using their own funds to pay property taxes and insurance on or after March 1, 2020, by temporarily eliminating the three-year waiting period for such assignments.” Both waivers were set to expire at the end of December, but are now effective through December 31, 2023.
HUD updates HECM program
On August 31, HUD issued Mortgagee Letter (ML) 2022-15, which updates the Home Equity Conversion Mortgage (HECM) program. The ML, among other things, modifies the requirements for mortgagees to provide notice to a borrower’s estate following an HECM becoming due and payable due to the death of the last surviving borrower. The ML may be implemented immediately but must be implemented no later than 90 days from the date of this ML for HECMs that become due and payable on or after the publication date of this ML. Additionally, comments are due within 30 days after the date of issuance.