As part of a broader push to update its regulations regarding Home Equity Conversion Mortgages (HECMs, more commonly known as reverse mortgages), the Department of Housing and Urban Development (HUD published a Supplemental Notice of Proposed Rulemaking on August 11, 2016. HUD is seeking comments on a regulatory change that would require mortgagees to assign HECMs to HUD once the loan balance is equal to or greater than 98 percent of the HECM’s Maximum Claim Amount.

Under HUD’s existing regulations, mortgagees are permitted to assign the HECMs to HUD once the loan balance reaches this threshold, but are not required to do so. HUD’s explanation for this policy change stems from a comment it received in response to the broader proposed rules it published in May. One commentator noted that that, in some cases, a mortgagee may decline to assign the HECM if the underlying property value has risen rapidly and the loan has an above-market rate. Accordingly, the commentator concluded that mortgagees “can choose to keep the best loans and make claims for the worst ones.”

While it is unclear whether the issue posed by the commentator is merely academic or actually bears itself out in the industry, HUD appears to agree with his proposed solution requiring mortgagees to assign HECMs once the loan balance reaches 98 percent of the Maximum Claim Amount. Mortgagees seeking to comment on this proposed change must do so before September 12, 2016.