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FHA Proposes Update to HECM Assignment Claims Eligibility Policy

The Federal Housing Administration (FHA) has announced that it has posted for industry feedback a proposed update to its Home Equity Conversion Mortgage (HECM) assignment claims eligibility policy.

The FHA proposal enables certain categories of due and payable HECMs that were previously ineligible for assignment to be assigned to HUD, enabling servicers to obtain earlier resolution of these loans through HUD’s assignment claims process. This change will support servicer liquidity and strengthen the HECM market for senior homeowners who use a HECM to age in place.

“At HUD, Home Equity Conversion Mortgages are one of our most impactful tools to support seniors,” said HUD Secretary Marcia L. Fudge. “I am pleased that our FHA team is expanding the availability of this program so everyone can age in place with dignity.”

Under current program requirements, mortgage servicers can assign a HECM to HUD when the mortgage reaches 98% of the Maximum Claim Amount and there is an eligible borrower or non-borrowing spouse residing in the property. Once the mortgage is assigned to HUD and placed in HUD’s Secretary-held portfolio, FHA disburses claim funds to the mortgage servicer and assumes responsibility for servicing the mortgage. The assignment option reduces costly servicing expenses and allows mortgage servicers to obtain proceeds faster than otherwise possible through other measures.

Today’s proposal is the latest in the series of measures we’ve taken throughout this year to facilitate greater liquidity and stability in the HECM market,” said Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon. “Preserving HECM as an option for seniors who have financial needs but want to age in place is a high priority for FHA.”

HECMs deemed due and payable have been ineligible for assignment to HUD. The proposal posted today would permit servicers to assign a HECM to HUD when the mortgage becomes due and payable due to the death of all borrowers and all eligible or ineligible non-borrowing spouses. As a result, servicers no longer will have responsibility for servicing these loans and can receive claim payments upon assignment of these mortgages.

FHA is seeking industry feedback on its proposal through December 11, 2023.

Earlier this month, the FHA published its consolidated and comprehensive policies for the HECM program, and the inclusion of these policies in the Single-Family Housing Policy Handbook 4000.1. For the first time ever, all HECM program requirements will be available in a single place. The publication eliminates more than 100 individual policy documents associated with the HECM program. This consolidation into a single handbook will strengthen the understanding and implementation of the program by lenders and servicers, enhancing their ability to actively engage with the more than 60,000 senior homeowners who choose to obtain a HECM to age in place in their own homes each year.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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