FHA Proposes Revisions On HECM Borrower Payments In The Event Of Lender Default

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FHA Proposes Revisions On HECM Borrower Payments In The Event Of Lender Default

Jun 5, 2023 | News | 0 comments

On Thursday, the Federal Housing Administration (FHA) made an announcement stating that they have published a new preliminary Mortgagee Letter (ML) on their single-family “drafting table.” This letter, if approved, would modify the agency’s guidelines on investigating whether a lender is incapable or unwilling to fulfill a borrower’s payment obligations for a Home Equity Conversion Mortgage (HECM).

According to the draft Mortgagee Letter (ML), the proposal would additionally mandate that lenders, who have not made a mandatory payment to a borrower, furnish specific information to the FHA. The FHA stated that these proposed modifications are being evaluated in response to market conditions that have affected the reverse mortgage sector. The aim is to enhance market stability while reiterating the agency’s dedication to the HECM program, as outlined in the draft guidance.

Moreover, the ML stated that the Federal Housing Administration’s (FHA) prompt fulfillment of borrower payments in the event of a lender’s default is crucial for the marketability of the HECM program. The draft ML emphasizes that by enhancing the FHA’s authority to investigate delayed payments to borrowers and gather payment details, the agency aims to improve its capacity to promptly meet its legal obligation of providing payments to HECM borrowers when a mortgagee defaults.

The Federal Housing Administration (FHA) emphasized that building trust and confidence in the HECM program is crucial for its market appeal. Due to the HECM program’s smaller market size compared to traditional mortgage programs, securitization utilization remains relatively low. However, the FHA stated that securitization in the secondary market is vital for the program’s sustainability and viability.

According to the proposed Mortgagee Letter (ML), ensuring prompt payment to borrowers would also result in cost reduction for the FHA. The primary goal of this change is to enhance the market appeal of the HECM program while reducing costs for the Mutual Mortgage Insurance Fund (MMIF).

The FHA has invited all relevant stakeholders to carefully review the draft ML and provide feedback to the agency by June 12, 2023. Interested parties can submit their comments via a downloadable Excel file from the drafting table website.