The U.S. Department of Housing and Urban Development (HUD) announced this week that single-family mortgage servicing and mitigation guidelines have been updated on both the front and back of the store, including the codification of new reverse mortgage guidelines the repeal, in whole or in part, of certain Mortgage Letters (MLs) applicable to the Home Equity Conversion Mortgage (HECM) program.
This is evident from announcements and published revisions of the Federal Housing Administration’s (FHA) Handbook 4000.1 on Single Family Home Policy, published April 19. It also includes the latest version of the FHA’s Defect Taxonomy, which outlines many of the up and down ways Mortgage loan could not be approved due to a number of scenarios related to insufficient or insufficient documentation.
For details on MLs that have been replaced, the new guide divides the listing into those that have been “fully” replaced and those that have been “partially” replaced.
For the fully superseded MLs, these are relatively new releases, all but one during the Donald Trump administration and former HUD secretary Dr. Ben Carson were passed on. The only exception is ML 2021-04, published January 26th of this year and with expanded and updated leniency application guidelines for mortgage borrowers affected by the economic impact of the COVID-19 coronavirus pandemic, including delaying due and payable applications for HECM loans.
The other two MLs have been completely replaced (2020-48 which mainly applied to prefabricated houses and 2019-18 which dealt with 203K limited mortgages) do not affect the HECM program.
For the partially replaced MLs, ML 2021-05 Similarly, the February foreclosure and eviction moratorium on FHA single-family forward and reverse mortgages was dealt with. ML 2020-38 dealt with updates to the damage module of the FHA software “Catalyst” and does not appear to have a significant impact on the HECM program.
Admission requirements for admission, DE authority
The new update to the manual has changed the criteria by which applications are approved to the FHA, including the criteria that HECM authors must adhere to in order to qualify as an employee of a partner institution.
“The Mortgage Borrower and any other party involved in the creation of an HECM Transaction may not participate in, be affiliated with, or employ any party engaged in or connected to any other financial or actuarial activity” it says in the relevant section. “[U]Unless the mortgage proves that it or another party has firewalls and other security measures in place[.]”
These protections must ensure that anyone who offers a HECM loan to a borrower has no incentive to offer any other financial or insurance product. and that the borrower must not be required to purchase any additional financial or insurance product in order to receive a HECM loan, the document states.
In addition, to obtain Qualified Direct Endorsement (DE) from the FHA, mortgages must obtain a separate DE approval, which is separate for the traditional forward and HECM reverse mortgage transactions. To obtain “DE unconditional authority” approval, a Reverse Mortgage Professional must have at least five firm commitments for the DE program test case within 12 consecutive months of the date of an initial DE program test case approval letter received from the FHA HECM Mortgage Authority Received.
Authorized agents must have unconditional DE permission on HECMs.
Confirmation of mortgage insurance, defect taxonomy and other provisions
As before issuing these guidelines, the FHA has determined that electronic signatures will continue to be accepted for all documents in the case binder of a forward mortgage that require signatures. However, electronic signatures for reverse mortgage documents are still not accepted.
“The FHA only accepts electronic signatures on the notice for forward mortgages,” the guidelines say. “FHA does not accept electronic signatures on HECM Notes.”
The document also reaffirms the recognized policies and procedures in its revised FHA Error Taxonomy regarding the HECM financial valuation (including situations where a HECM loan is not approved based on the included or missing documentation), the capital limit, and the LTV -Requirements (loan-to-value) for HECM loans and required lender operations during an HECM transaction.
The updates to the Single Family Home Handbook will help provide mortgage servicers a clearer sense of what is needed in the unusual economic times the nation is mired in, according to Assistant General Secretary for Housing Lopa Kolluri.
“With these updates, we have strengthened servicers’ ability to reach and assist faster borrowers with FHA-insured mortgages,” Kolluri said in an announcement of the guidelines. “The updates to our policy will ensure quality service activity, streamline service requirements, align our service policies more closely with industry maintenance practices, and improve results.”
The guidelines also reflect the flexibility of the FHA and HUD in terms of stakeholder feedback, said Julie Shaffer, assistant assistant secretary for single family homes.
“The work completed today is in response to feedback we have received about the complexity and cost of servicing FHA-insured mortgages,” said Shaffer. “The FHA requirements will continue to reflect our high expectations of servicers. Updating our processes and addressing obsolete and unnecessary requirements will improve the program for both borrowers and servicers.”
read this announcement of changes, and the document itself. Although published this week, the Effective Date is currently August 17, 2021.