Late last year, the Federal Housing Administration (FHA) announced that it had released the draft Home Equity Conversion Mortgage (HECM) Origination through Servicing sections of its Single Family Housing Policy Handbook 4000.1 for review by program stakeholders, with the agency seeking feedback asks for the proposed changes.
Shortly thereafter, the U.S. Department of Housing and Urban Development (HUD) extended the review period to the end of 2021 and then again to the end of January 2022. While a new HECM manual has not yet been released, work has been progressing on the proposed changes, with the National Reverse Mortgage Lenders Association (NRMLA) providing industry feedback through the efforts of HUD Issues Committee Co-Chair Elly Johnson of All Reverse Pro.
Last month at the NRMLA Eastern Regional Meeting in Baltimore, Md., Johnson provided meeting attendees with an update on the work that has been done on the manual review, the work remaining, and if there is any indication of when the new manual will be released .
The HECM manual remains in draft format, although progress is evident
While the new handbook currently remains in draft format and there is no indication of when exactly it might be released by the FHA, Johnson told attendees that the amount of work going into both the new revisions and the NRMLA’s comments to the agency has flowed, has contributed to progress towards the goals of the industry.
“I will tell you from my personal experience of reviewing this manual and working with the many wonderful people in our industry who have helped make this happen, HUD has long been telling us they do it all wanted to help align the HECM with the forward side of the business,” she said. “The draft manual shows that they are working toward that effort.”
One specific area the industry has been working towards for some time is HECM for Purchase, and Johnson says there is still work to be done in this and other areas. Nonetheless, she was optimistic about the progress being made.
“I think over time as we continue to work directly with HUD and give them our feedback, I hope we can adjust [H4P] too,” she said.
In late June, HUD issued an updated 4000.1 manual, and Johnson recalled receiving correspondence from people in the reverse mortgage industry celebrating the apparent arrival of a new HECM manual.
“These changes were strictly for forward movement,” she said. “There were a lot of forward changes that were issued in the 4000.1. When the draft guide is released it will be included in the 4000.1 [into] a dedicated section [reverse].”
The work of the review
Johnson explained that the association’s work on reviewing the draft guide began in early October, barely a week after the initial announcement of its posting to the draft table. Initially, the association was given just 45 days to review the lengthy document, emphasizing the scope of the project by detailing how many individual guidelines had been issued over the life of the HECM program.
“First, since the product launched, over 156 HECM Mortgagee Letters (MLs) have been issued [in 1989]’ Johnson said. “That’s a lot of mortgage letters.”
In August 1989 the original 4235.1 manual was released and in 1994 REV-1 was released at a time when only five of the MLs associated with the HECM program had been issued. Since then, the HECM MLs have not been included in the handbook, which was previously noted by former Office of Housing and FHA Principal Deputy Assistant Secretary (PDAS) Lopa P. Kolluri during a 2021 NRMLA event.
“I was actually surprised to learn that the HECM program is still governed by so many separate mortgage deed policy documents,” Kolluri explained in May 2021. “And I find it to some extent confusing and inefficient. So we need to look at this pretty seriously and make sure it works for both the program participants and the HUD.”
Draft regulations, sample HECM documents
In total, Johnson and NRMLA submitted 183 comments to the FHA on the new draft guidance, and while Johnson did not want to exhaustively review all of the comments submitted, she indicated the subjects of several highlighted issues.
“Basically, [the draft currently] says that any borrower who has been granted a forbearance and otherwise acts in accordance with the terms of the forbearance will not be considered a defaulter for credit analysis purposes,” she said. “That’s good. That’s something we’re seeing and it’s one of those areas where it aligns with what the forward side is doing. So hey, let’s do it too. We see that as a win for us.”
A provision will also allow mortgage borrowers to use monthly mortgage payment history to determine that required taxes have been paid.
“There have been some issues trying to actually get documentation to show that taxes have been paid,” Johnson said. “Well, that gives us an opportunity to say, ‘Okay, if you know it’s going to be paid for by the mortgage payment through this mortgage company, you can use the status on the credit report for that.’ So this is another win too.”
Other topics touched on by the comments were genesis and deliberation; Closing, post-closing and endorsement; underwriting and financial evaluation; H4P and H2H; and maintenance related issues.
Johnson also addressed the need to revise the model HECM loan documents to reflect the extensive changes that have been made to the program throughout the life of the program.
“The recommendation was that NRMLA should work with HUD to help update these HECM model documents in a manner that best ensures that lenders using the documents are, in the opinion of the FHA, appropriate and to the greatest possible degree of security provide consistency across different lenders in the industry,” she said.