HUD Expands Loss Mitigation Options for Reverse Mortgage Servicers

The Department of Housing and Urban Development (HUD) is granting reverse mortgage servicers an optional extension to submit a Due and Payable request where borrowers are behind on their payment of property taxes and hazard insurance premium by less than $2,000, the agency announced late Wednesday.

Effective immediately, Mortgagee Letter 2016-07 permits mortgagees to cure a borrower’s taxes and/or insurance default so long as no cost is passed along to HUD and the mortgagee agrees to not seek loan assignment for at least a period of three years.

The new guidance also removes a previous restriction prohibiting the use of the permissive loss mitigation options announced in ML 2015-11 for borrowers in foreclosure at the time of issuance of that mortgagee letter, HUD stated in a memo to all Federal Housing Administration-approved HECM mortgagees and servicers.

For HECMs that were in foreclosure proceedings prior to the issuance of ML 15-11, reverse mortgage servicers may now assess those borrowers for a Repayment Plan to satisfy outstanding charges.

“Mortgagees will not be reimbursed for any amount greater than the MCA, even if the HECM loan balance exceeds 100% of the MCA due to the mortgagee providing a Repayment Plan,” HUD states in ML 2016-07. “In addition, a HECM loan with an active Repayment Plan is not eligible for assignment to HUD.”

ML 16-07 also states that mortgagees may delay submitting a Due and Payable request to HUD for loans with a total arrearage amount associated with the property taxes and hazard insurance that is less than $2,000.

In doing so, mortgagees may upload documentation into the HERMIT system on two conditions: (1) The mortgagee is unable to contact the borrower, the borrower is current on his/her Certification of Occupancy, and the mortgagee has no indication that the borrower vacated the property; or (2) The mortgagee has contacted the borrower, the borrower has expressed a willingness to repay, and the borrower is currently attempting to make payments.

“Mortgagees will not be reimbursed for any amount greater than the HECM loan’s MCA, even if the mortgage balance exceeds 100% of the MCA due to a mortgagee’s previous delay in submitting a Due and Payable request for the two reasons cited above,” HUD states.

In April 2015, HUD issued ML 2015-11, which communicates the permissible loss mitigation options that servicers may provide when property chargers are not paid in accordance with the terms of the HECM. This new ML 16-07 amends and supersedes Mortgagee Letters 15-11, 15-10 and Handboook 4330.1, REV-5, Chapter 13.

View Mortgagee Letter 2016-07.

Written by Jason Oliva

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