Following a long wait, the U.S. Department of Housing and Urban Development (HUD) published a revised version of the Fair Housing Administration’s (FHA) handbook governing the origination and servicing of FHA loan products, including Home Equity Conversion Mortgages (HECMs, which are more commonly known as “reverse mortgages”). While the revisions in the new handbook are sweeping, this post is focused on how the revisions impact HECM servicers (mortgagees). Thankfully for mortgagees, the relevant revisions match the revisions outlined in Mortgagee Letter (ML) 2023-23.
As discussed in a prior blog post, ML 2023-23 was published on November 30, 2023, and was intended to “simplify servicing requirements” and generally improve the HECM program. ML 2023-23 detailed a variety of changes to the servicing requirements for HECMs. Now, in commemorating the ML 2023-23 revisions in the new handbook, HUD has taken its last step in finalizing the changes to the HECM program. Summaries for each change are included below.
- Verbal Occupancy Certifications – Mortgagees have historically been required to obtain written occupancy certifications from borrowers and eligible non-borrowing spouses annually. With the recent changes, HUD now allows mortgagees to contact the borrower over the phone to verbally complete the annual occupancy certification. The mortgagee must verbally provide a disclosure, note the name and phone number used to obtain occupancy verification, and maintain a recording of the call.
- Expanding Mortgagee-Funded Cures to HOA/COA – HUD has expanded the definition of “Mortgagee-Funded Cure” to allow mortgagees to use corporate funds to pay for all property charges, not just payments for outstanding property taxes or insurance payments.
- One-Year Restriction on Assignment Following Mortgagee-Funded Cures – Mortgagees are prohibited from assigning a HECM to HUD following a Mortgagee-Funded Cure until the borrower has made one year of property charge payments. Since 2016, HUD prohibited assignment for three years following a Mortgagee-Funded Cure, though it had waived that restriction during COVID-19 to allow immediate assignment.
- Inclusion of HOA/COA Dues in Repayment Plans – Now, mortgagees are allowed to include homeowner and condominium association dues in a borrower’s total arrearage when calculating repayment plans.
- Removing Monetary Limitations on Solutions to Failed Repayment Plans – Previously, when a borrower failed to perform under a repayment plan, mortgagees were only able to recalculate the repayment plan if the borrower’s outstanding arrearage was less than or equal to $5,000. Now, HUD has removed the $5,000 threshold and allows mortgagees to offer recalculated repayment plans if the new repayment amount is reasonable for the borrower.
- Increase of De Minimis Property Charge Defaults – HUD increased the threshold for when a mortgagee must submit a due and payable request for outstanding property charges from $2,000 to $5,000, expanding a mortgagee’s ability to work with borrowers who have fallen behind on taxes, insurance, or other property charges.
- Loss Mitigation Incentives – Mortgagees may now offer up to $7,500, plus an additional $5,000 for probate costs, to borrowers who agree to short sales, deeds in lieu, or post-foreclosure eviction avoidance loss mitigation options. The amount of payments mortgagees may offer borrowers varies depending on the type of loss mitigation outcome and how quickly the borrower completes it. HUD will also pay mortgagees incentives of $1,500 to complete a short sale or deed in lieu.
Mortgagees have been aware of these changes to the program since November 2023, and as a result, the publication of the new handbook should not have a major impact on their operations. However, HUD’s publication of the new handbook is much appreciated, as it consolidates the various requirements for the HECM program in one document. As HUD continues to tweak its requirements, we will continue to track and analyze any changes that might impact the participants in the HECM program.
