Underwriting: A Spotlight on the Mortgagee Letters

Written by Ralph Rosynek, as originally published in The Reverse Review.

Are we having fun yet? 2011 continues to demand our patience and ability to remain flexible in the HECM market. With the resolution of broker compensation issues, the implementation of redefined access roles within the FHA approval process, the departure of many industry backbone lenders, and a major shift in the retail and wholesale workforce, it is a wonder how we continue to focus on assisting senior borrowers with their desire to remain in their homes.

It is important to note that the remainder of 2011 does not appear to be any less turbulent. We will be watching for the resolution of budget issues in Washington and focus on counseling – again. Possible funding resources that provide a measurable offset to counseling fees our borrowers pay could potentially cause lack of counseling availability or delays in the scheduling process.

Pending resolution of a Financial Assessment tool for borrowers, ongoing loan limit issues and additional Dodd-Frank implementation of consumer protection and mortgage banking controls are just a few of the other items on our plate.

While your focus was elsewhere, several mortgagee letters were issued as detailed below:

Mortgagee Letter 2011-01 (Servicing-Related)

This Mortgagee Letter (ML) provides loss mitigation guidance for the resolution of Home Equity Conversion Mortgages (HECM) that are delinquent due to unpaid property charges and mortgages wherein due and payable requests were previously deferred by HUD. The guidance in this Mortgagee Letter applies to all HECMs where the mortgagor is delinquent in paying property charges or the mortgagee has advanced corporate funds to satisfy an unpaid property charge on behalf of the mortgagor, or both.

Mortgagee Letter 2011-02 (Quality Control- and TPO-Related)

This Mortgagee Letter clarifies FHA’s quality control requirements in light of recent changes to the lender eligibility criteria for participation in FHA programs (refer to Section 203 of the “Helping Families Save Their Homes Act of 2009” (HFSH Act); Final Rule FR 5356-F-02, “Continuation of FHA Reform: Strengthening Risk Management through Responsible FHA-Approved Lenders”; and Mortgagee Letter 2010-20). ML 2011-02 also clarifies Quality Control requirements for servicing transfers and loan sales, reporting of fraud and material deficiencies, and the required timeframes for mortgagees to review rejected applications.

All FHA-approved mortgagees, including those in sponsored relationships, must have a quality control plan that requires the review of loans that are originated or underwritten. For those mortgagees that have sponsored third-party originators, the quality control plan must require the review of loans originated and sold to the mortgagee by each of its sponsored third-party originators. Mortgagees must determine the appropriate sample amount of each sponsored third-party originator’s loans to review based on volume, past experience, and other factors specified by the Department in Paragraph 7-6(C) of HUD Handbook 4060.1, REV-2.

In addition, sponsors must document the methodology used to review sponsored third-party originators, the results of each review, and any corrective actions taken as a result of their review findings. A report of the quality control review and follow-up that includes the review findings and actions taken, and the procedural information (such as the percentage of loans reviewed, basis for selecting loans, and who performed the review), must be retained by the mortgagee for a period of two years. Quality control review records must be made available to HUD upon request.

Consequently, all FHA-approved mortgagees will be responsible for performing quality control reviews of their sponsored third-party originators. The procedures used to review and monitor sponsored third-party originators must be included in a mortgagee’s FHA-approved quality control plan. At a minimum, these procedures must include the requirements outlined in Paragraph 7-6 of HUD Handbook 4060.1, REV-2.

Mortgagee Letter 2011-09

This ML provides guidance to counselors and lenders regarding when a HECM counseling fee should be waived; activities performed by a HECM counselor that are included in the amount of time recorded on form HUD-92902; Certificate of HECM Counseling; and allowing agencies to establish counseling fees based on certain criteria.

Note: The provisions in ML 2008-12, under the subheading “Appropriate Charges,” are superseded by new guidance in this ML under the subheading “Appropriate HECM Counseling Fee Charges”. The remainder of ML 2008-12 remains in effect.

Mortgagee Letter 2011-16

On December 5, 2008, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter (ML) 2008-38 to provide clarification to mortgagees regarding the requirements for repayment and termination of a Home Equity Conversion Mortgage loan.

HUD’s intent in issuing ML 2008-38 was to supplement and explain provisions contained in the regulations at 24 CFR §206.125 and HUD Handbook 4235.1 (Home Equity Conversion Mortgages). Since there has been some uncertainty regarding the guidance in that ML, HUD isrescinding ML 2008-38, effective as of the date of this ML.

Basically, HUD is clarifying the confusion we have all experienced with regard to its original non-recourse policy. HUD has now restated its non-recourse (in context to HECMs) definition as borrowers or heirs will never be responsible for owing more than the value of the home when the reverse mortgage is repaid.

And an Oops!

While a mortgagee letter is forthcoming, on March 28, 2011, the FHA Connection list of national counseling intermediaries that lenders must provide to prospective HECM clients was updated with the addition of three nationally approved counseling agencies: Springboard Nonprofit Consumer Credit Management, ClearPoint Credit Counseling Solutions and Neighborhood Reinvestment Corporation.

These agencies join CredAbility, Money Management International, National Council on Aging and National Foundation for Credit Counseling. Lenders are still required to provide a list of five local counseling agencies, in addition to all seven national intermediaries.

On May 10 and 11, NRMLA will host the annual Washington Policy Conference, providing both the latest update and forecasts to various issues that could affect our continuing service to senior borrowers. Attendees will also be visiting their leaders to assist in educating them and their staff members on matters of potential impact to our industry and customers of current and proposed legislation and regulation. It is not too late to join a large fellow constituency to make our voice heard.

As summer approaches, our focus slightly changes to include family and relaxation. The number of unresolved issues begs our continued interest and support. If you are unable to participate in the Policy Conference, before you dig out the flip-flops and travel brochures, take a moment to write your state leadership and voice your opinion on the matters that could potentially affect your ability to pay for that vacation when the charge bills arrive!


Most Popular Articles

Spouse of Quicken Loans executive sues AIME’s Anthony Casa for defamation

Theresa Niemiec, wife of Quicken Loans Executive Vice President Austin Niemiec, has filed a defamation lawsuit against Anthony Casa, CEO of the Association of Independent Mortgage Experts, for comments he made about her in a video message that he filmed and sent to her husband and others in the mortgage industry.

Jul 12, 2020 By
3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please