The Department of Housing and Urban Development recently published a new FAQ document for servicing questions related to HECMs. The FAQ includes 12 different questions that cover a range of topics. It’s good to see HUD taking a proactive approach to addressing questions through its website.
I’ve listed a couple of the questions below, to see the full list click here.
What are servicers expected to do when mortgagors have completed Trust
documents on a HECM loan after closing?
Once the servicer has either discovered or been advised of the Trust, they are expected to have their legal division review the documents. If there has been a violation of the covenants of the mortgage due to the Trust, the servicer should take whatever steps are necessary to rectify the violation. The mortgagor may change the terms of the Trust, or revoke it, to cure the default.
If all attempts to rectify the violation fail, the servicer may request permission from
HUD to call the loan due and payable. HUD will evaluate the circumstances for
declaring the mortgage due and payable and will respond in writing to the servicer
within 30 days of receipt of the request either approving or denying the request. Until
the reason for the default is cured and the loan removed from a due & payable status,
the loan is not eligible for the assignment option.
How does repair set-aside affect assignment?
Repairs required as a condition of endorsement must be completed within the
previously mentioned 12 months. Failure of the mortgagor to complete required
repairs is a violation of the mortgage covenants and would trigger a servicer to first
suspend payments under the payment plan and ultimately to request permission from
HUD to call the loan due and payable. Loans that are in “due and payable” status
cannot be assigned to the Department.
Reminder: If a servicer requests approval to assign a mortgage that shows funds still
set aside for repairs, HUD’s contractor will ask the servicer to confirm the repairs are
complete and the funds have been appropriately disbursed. If there are excess funds
after the repairs are complete, they should either be forwarded to the mortgagor or
applied to the principal balance of the mortgage.
Does the 6-month timeframe for initiation of foreclosure begin with notification
of date of death for the last mortgagor or the actual date of death?
Regulations at 24CFR 206.125(d)(1) require servicers to commence foreclosure within 6 months of the mortgagor’s actual date of death. Mortgagee Letter 2005-30 provides Reasonable Diligence Requirements and Effective Dates. This guidance includes a listing, by state, of the first legal action necessary, as well as the typical security instrument used to initiate foreclosure. These are important factors for servicers to consider.
Is HUD approval required on short sales when the sale is for the full, appraised
value, but is less than the debt owed?
There are two scenarios for short sales, the first involves a sale by the mortgagor, or
their estate, and the other is the sale of an acquired property by the servicer or
investor.
In instances when the property is being sold by the mortgagor or their estate, whether
or not the mortgage is due and payable, the regulations are specific: mortgagors, or
their estates, may sell the property for the lesser of the mortgage balance or the current appraised value. If the mortgage is due and payable at the time the contract of sale is executed, the mortgagor may sell the property for the lesser of the full mortgage debt or 95% of the current appraised value. Reasonable and customary closing costs may be paid from the sales proceeds. Servicers must obtain documentation for closings costs that appear excessive or abnormal and retain in their file for use in any subsequent post claim audits.
Following foreclosure, the asset may not be sold for an amount less than the current
appraised value unless written permission is obtained from the Secretary. HUD’s Claims Division will require either the short sale approval document, when the
short sale is after foreclosure, or the signed HUD-1 to verify the closing costs are
acceptable when the mortgagor or their estate was the seller.
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