The Federal Housing Administration (FHA) has issued Mortgagee Letter 2023-10, outlining new policies that will allow for faster payment of funds to mortgagees when they assign a Home Equity Conversion Mortgage (HECM) to the U.S. Department of Housing & Urban Development (HUD). The FHA’s changes will permit those with FHA mortgages to submit a request for Preliminary Title Approval earlier in the process and with fewer documents. Combined, these changes will reduce the time between a loan’s eligibility for assignment to HUD and the payment of claim funds to the mortgagee.
“The Home Equity Conversion Mortgage program is an important resource for the nation’s senior homeowners who wish to age in place,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “Today’s changes simplify processes and pay mortgagee claims more quickly, providing meaningful relief to program participants as they navigate the unique challenges of today’s economic environment.”
The HECM program allows a mortgagee to assign a HECM to HUD when the HECM reaches 98% of the Maximum Claim Amount (MCA).
The MCA is used to calculate proceeds, and is equal to either the appraised value of the home or the FHA lending limit, whichever is less. For example, if the value of the home is $300,000, the maximum claim amount equals $300,000. If the home value exceeds the FHA lending limit, then the maximum claim amount equals the lending limit.
Under the FHA’s new HECM policy, mortgagees may begin submitting required information and documentation to HUD when the HECM reaches 97% of the MCA, based on the value of the property at the time the HECM loan is originated.
Under previous policy, mortgagees could only submit the required information and documentation when the HECM reached 97.5% of the MCA. In addition, FHA will now allow mortgagees to submit original notes and mortgages after assignment claim payment rather than before, as previous policy required. By allowing earlier claim submission and by making document submission more flexible, FHA expects to shorten the time between the HECM reaching 98% of MCA and FHA paying the mortgagee for the claim.
According to the latest quarterly release of the National Reverse Mortgage Lenders Association (NRMLA)/RiskSpan Reverse Mortgage Market Index, homeowners 62 and older saw their housing wealth fall slightly in Q4 of 2022 to an adjusted level of $12.39 trillion. The NRMLA/RiskSpan Reverse Mortgage Market Index (RMMI) decreased slightly in Q4 2022 to 433.25, from a level of 434.32 in Q3 2022. This is the first drop the index has seen since 2011. The drop was driven by a modest decline in senior home equity from a peak of $12.42T in Q3 2022 to $12.39T in Q4 2022.
The decline in equity resulted from an increase of $30 billion in senior home debt, while home values remained relatively unchanged due to the continued cooling of the housing market.
"Housing markets nationwide experienced unprecedented growth over the past decade," said NRMLA President Steve Irwin. "While many of these markets are starting to see declines in home values, the key takeaway here is that older homeowners are still sitting on $12.39 trillion in housing wealth that can be used strategically as part of a retirement plan to enhance retirement security."