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FHA takes steps to relieve balance sheet stress for reverse mortgage issuers

Relaxes documentation guidelines to streamline assignments to HUD

The Federal Housing Administration issued new guidelines Monday to ease documentation requirements for reverse mortgage issuers.

In a mortgagee letter, the agency updated guidelines for servicers when submitting a HECM to the Department of Housing and Urban Development for assignment, which is done when the loan reaches a maximum claim amount of 98%.

Once the MCA hits 98%, the issuer assigns the loan to HUD and files an insurance claim, at which time it can receive funds.

But rigorous reporting requirements were gumming up the works, slowing down the payment process for reverse mortgage issuers as they struggled to provide all of the necessary documentation.

That meant that issuers were floating hundreds or thousands of loans – and tens of thousands of dollars – on their books as they waited for the insurance to come through.

Now, the FHA has taken steps to change that, issuing revised requirements to expedite the process.

For example, if a servicer is unable to locate a borrower’s death certificate, HUD will now accept alternative evidence, like an obituary or a document from the hospital.

“Streamlining the HECM claim payment process makes us more responsive to participating lenders and helps continue our effort to put the program on a more financially viable path,” FHA Commissioner Brian Montgomery said in a statement.

The move is just the latest in a string of changes HUD and the FHA have made to the HECM rules as the agencies work to stabilize the volatile reverse mortgage program.

Steve Irwin, executive vice president of the National Reverse Mortgage Lenders Association, said the new guidelines are major for issuers who were shouldering too much risk.

“There were loans they couldn’t assign because there was a certain document required, and that was creating inefficiencies and a significant amount of balance sheet stress and counterparty risk for Ginnie Mae,” Irwin said.

“Certain documentation requirements were getting in the way and creating impediments to an efficient assignment process,” Irwin added.

Irwin said NRMLA’s Servicing Committee had been working with HUD for some time to remedy the problem.

“It’s been problematic over the past couple of years, so we’re delighted this guidance is now out,” he said. “It is a bit of regulatory relief.”

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