The Federal Housing Administration (FHA) proposed updates to its home equity conversion mortgage (HECMs) assignment eligibility requirements. The changes allow for certain categories of due and payable HECMs previously ineligible for assignment to be assigned to the U.S. Department of Housing and Urban Development (HUD) and allows servicers to obtain earlier resolution of these loans.

The changes are expected to support servicer liquidity and strengthen the HECM market for senior homeowners using an HECM to age in place.

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

The drafted mortgagee letter provided by the FHA modifies 24 CFR §206.107 to allow for the optional assignment claims of mortgage in due and payable status solely based on the death of all borrowers and ineligible and eligible non-borrowing spouses. It also prescribes the administrative criteria for this new assignment claim option.

Under current requirements, mortgage servicers may assign an HECM to HUD when the mortgage reaches 98 percent of the maximum claim amount and there is an eligible borrower or non-borrowing spouse residing on the property. Once the HECM is assigned to HUD and placed in the secretary-held portfolio, FHA disburses claim funds to the mortgage servicer and assumes servicing responsibilities for the loan. This assignment option reduces costly servicing expenses and allows mortgage servicers to obtain proceeds faster than otherwise possible through other avenues, FHA stated.

“Due to many changing market conditions, including rising interest rates and inflation, the costs for HECM mortgagees to continue covering advances to HECM borrowers have increased,” the drafted mortgagee letter stated. “Additionally, HECM mortgagees are also facing rising costs associated with the recovery of the value of the property securing the HECM following the death of all borrowers and eligible non-borrowing spouses (NBS), which must occur before the mortgagee is able to file a claim for FHA mortgage insurance benefits.

“By providing an alternative path to mortgage insurance claim payment for HECMs that are due and payable solely because of the death of all borrowers and eligible and ineligible NBSs, this change will help reduce the costs of participation in the HECM program and will also serve to reduce risk to the MMI [mutual mortgage insurance] fund.”

“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,” Assistant Secretary for Housing and Federal Housing Commissioner Julia Gordon said. “Preserving HECM as an option for seniors who have financial needs but want to age in place is a high priority for FHA.”