The National Reverse Mortgage Lenders Association (NRMLA) this week submitted two comments to the U.S. Department of Housing and Urban Development (HUD) on specific issues relevant to the Home Equity Conversion Mortgage (HECM) program.
In a series of comments, NRMLA advised HUD that two sets of forms required by servicers are out of date due to use in an electronic filing system, while another set is asking the department to clarify a recently released Mortgage Letter (ML) Asked about the upcoming industry transition from London’s Interbank Offered Rate (LIBOR) index to HECM floating rate loans.
Outdated forms, easy compliance
In the first set of comments submitted to HUD, NRMLA states that three specific forms normally required for HECM transactions – HUD-27011, HUD-5002 and HUD-50012, respectively – are no longer required, since similar information is required under the home equity Reverse Mortgage Information Technology (HERMIT) system.
“With the start in 2012 of [HERMIT]The subject forms, which were designed to improve the processes involved in approving HECMs and handling services and claims within HUD, have lost any usefulness, ”writes NRMLA in its first letter. “The information collected on the technical forms is currently being incorporated into HERMIT, and therefore the technical forms are no longer used for practical reasons.”
HUD recently published a proposed information gathering notice which, while not indicating that these forms will be discontinued in the future, is being considered by NRMLA.
However, NRMLA also points out that there are certain processes within the HERMIT system itself that are “not error-free”, writes the association, which in 2013 led to the establishment of a HERMIT working group to deal with deficiencies in the system. NRMLA hopes this working group can be convened again to address the shortcomings in the HERMIT system that would allow servicers to do their jobs more effectively while optimizing their ability to comply with HUD regulations.
As a result, in its first letter to the HUD, the NRMLA called for the resumption of the HERMIT working group meetings, with the necessary involvement of key representatives from the HUD and reverse mortgage industries, to “facilitate the resolution of unresolved system deficiencies,” the letter reads.
At the end of last year, HUD released two separate updates for the HERMIT system within a week. Details about HERMIT were published in the Federal Housing Administration (FHA) Information Bulletin (INFO) No. 20-66 Update Reverse mortgage service companies can file renewals under the provisions of the President’s declared national emergency due to the COVID-19 coronavirus pandemic. Just a week later, the FHA published INFO # 20-67 Detailing The file format and layout of this system have been updated to improve the reporting of HECM cancellations.
HERMIT was brought to life from HUD in October 2012 after a lengthy development cycle. Its creation was aimed at improving the processes associated with confirming HECMs and processing services and claims within HUD. HERMIT was developed as part of a contract with Reverse Mortgage Solutions, which, in cooperation with QSSI, created a platform for service providers. Reverse Technology Group (RTG) acquired the software in early 2017.
Clarification on the latest index-based mortgage letter
A major source of interest for the reverse mortgage industry over the past year has been the eventual removal of the LIBOR index as the basis for determining interest rates on a variety of mortgage products, including HECM loans. Ginnie Mae announced Last September, new restrictions on the eligibility of HECM-Backed Securities (HMBS) for floating rate loans, based on the LIBOR index, were put in place for all HMBS issues on or after January 1, 2021, nearly a year before then planned sunset, effective the index.
Officially FHA last month announced that the HECM program deviates from the LIBOR index for HECMs with variable interest rates and instead adopts the Secured Overnight Financing Rate (SOFR). This was made official with the publication of the Mortgagee Letter (ML) 2021-08. However, certain provisions in the corresponding ML must be specified more precisely in accordance with a second comment letter sent by NRMLA to the HUD.
“While we understand that it is assumed that only an average 30-day SOFR will be available initially, ML 21-08 states that lenders may only offer the SOFR index for annually adjustable HECMs,” writes NRMLA in his Letter. “We respectfully ask the FHA that mortgages may also offer a monthly adjustable HECM that is based on the 30-day average SOFR index and uses the same mixed CMT index for the expected interest rate.”
Additionally, NRMLA has advised that mortgages previously had the option to round the interest rate below the HECM adjustable rate and that the latest ML does not cover interest rate rounding. However, the new model HECM ARM Note, also announced in the same ML states, reads: “[t]The lender then rounds the result of the margin plus the current index to the nearest eighth of a percentage point (0.125%). “
NRMLA advises that any incongruence between the presence of such guidance in the ARM Note but not in the published ML requires additional clarification.
“[W]We respectfully urge the FHA to revert to their previous policy and allow mortgages, but not require the rate to be rounded on variable rate HECMs, ”the letter said in part. “[N]Neither ML 21-08 nor the Model HECM ARM Notes explain how the initial interest rate should be set at closing if the quote rate must be rounded to the nearest eighth on each change day. If the methods of determining the initial rate at closing and the rate at each modification date are inconsistent, the rate cap established using the initial rate may conflict with a rate rounded to the nearest eighth on a change date. “