The U.S. Department of Housing and Urban Development (HUD) has released three Mortgagee Letters about the Home Equity Conversion Mortgage (HECM, or reverse mortgage) in the last week. The three letters cover loss mitigation guidance for HECMs in default due to unpaid property charges, HECM due and payable policies for all approved HECM servicers, and most recently, life expectancy set-aside growth rate and clarification for mortgagees.
Mortgagee Letter 2015-11 communicates permissible loss mitigation options that mortgagees may provide when property charges are not paid in accordance with the terms of a HECM. It is effective immediately, including a 180 day deadline for previous defaulters to bring HECM loans into compliance with required terms.
Mortgagees (lenders) are permitted to make property charge payments on behalf of mortgagors (borrowers) from the borrower’s funds, which are available under the HECM. If the borrower has insufficient funds available under the HECM to satisfy property charges, then the borrower is in default and the mortgage is eligible to be called due and payable. Options are laid out for non-borrowing spouses to cure defaults within 30 days. The letter outlines the requirements of the mortgagee to proceed in accordance with regulations if the default is not cured in time.
Mortgagee Letter 2015-10 addresses HECM due and payable policies. It provides additional guidance on the Federal Housing Administration’s (FHA) policies and timing requirements applicable to HECMs. Specifically, this Mortgagee Letter addresses:
- A requirement for mortgagees to provide HUD notice of a HECM’s “Due and Payable” status;
- A requirement for mortgagees to provide HUD notice of the initiation of foreclosure;
- Obtaining required appraisals;
- Sales of properties securing defaulted or performing HECM loans;
- Extensions available when marketing a HECM for sale and/or participating in Hardest Hit Funds programs; and
- Curtailment of debenture interest for missed deadlines.
It is effective for all HECM loans that become due and payable on or after July 1, 2015, modifying a number of previously published guidelines.
Mortgagee Letter 2015-09 was released today, addressing the HECM program’s life expectancy set-asides and clarifies a discrepancy between the HECM Financial Assessment and Property Change Guide and the model HECM Financial Assessment Worksheet that was previously transmitted in 2014. In the exuberant manner of the IRS clarifying previous issues and excusing itself from the fallout, this letter proceeds to address actual mathematical formulas including sections about property taxes and percentage of gross income. Fortunately, the letter is brief (only two pages) and provides a link for HECM’s revised financial assessment worksheet.